Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

100. Memorandum of Conversation¹

Washington, September 11, 1972, 10 a.m.

PARTICIPANTS

• The President
• Secretary Rogers, State
• Secretary Shultz, Treasury
• Secretary Peterson, Commerce
• Secretary Butz, Agriculture
• Deputy Secretary Rush, Defense
• Caspar Weinberger, OMB
• Herbert Stein, CEA
• Ambassador William D. Eberle, STR
• General Haig, NSC
• Peter M. Flanigan, Executive Director, CIEP

SUBJECT

• CIEP Executive Committee Meeting

President: This meeting will be devoted to the trade issues relating to the European Community. It will cover these in general but not be specific on particular trade matters. Peter, would you like to start off.

Flanigan: It has been the basic tenet of US foreign policy to support strongly the formation and enlargement of the EC. This was primarily for political reasons. The economic problems which were raised by the establishment of the EC were not enough to pose a specific threat to us although in the examination of the Rome Treaty several years ago we raised, and still maintain, a variety of objections concerning its compatibility with GATT. But recent EC enlargement and spread of preferences are more questionable legally and more damaging to our trade interests. Bill Eberle has strongly defended our interests. The atmosphere has been one in which the US has been engaged in a growing sense of confrontation with the EC. These can escalate. We are challenging the EC in an effort to limit damage to our interests and obtain cooperation in a broader area. The strategy we engage in has implications for the forthcoming monetary negotiations and our multilateral trade negotiations with Europe next year. We should agree on appropriate responses in dealing with the EC.

There are three examples of how problems will develop:

• —The Ten will have to effect a common tariff. We sell $125 million worth of grain to the UK. The EC will argue that we have been compensated by a reduction of their tariff on industrial products. We say “no.”
• —EC preferential arrangements violate the GATT. There is an issue over dealing with arrangements with Spain and Israel. We have already filed our objections. The issue now is whether we escalate our objections. Or, should we deal with these as part of a broader agreement?
• —In January it will be a GATT “open season”. Our tariffs are bound for a three-year period. On January 1 of next year we have the right to change them or we can suspend them and see what the EC will do. We need guidance. We must keep in mind our broader objectives which are to reduce barriers to trade and contribute to a reduction in tension in our economic, political, and security interests in Europe.

The STR paper² provides 4 options—from doing a little to an out and out confrontation.

• —A. Downplay confrontations and concentrate on a few things that we can solve such as a standard code for products. We would postpone any development of any major negotiating position until after the election. This assumes that France has maximum leverage at this point and the CAP is popular in certain quarters of Germany. We would wait until the climate is better and not develop a strategy at this time.
• —B. Atlantic cooperation approach. Under this we would lay the groundwork in the economic and political area for a possible major political initiative next year. Unlike Option A, this adds a definitive positive cost to the way we move over the next few months. We would ease off of confrontations which are harmful to the climate and avoid rocking the boat, but this would allow current actions by the EC against our trade interests to proceed unchecked.
• —C. Modified confrontation. Continue to defend interests strongly and bring many problems to a head but stop short of bringing issues to a GATT vote, which we would probably lose. We could deal with major issues at a Summit. We would press for solution of some issues even at the risk of damaging relations. This could be combined with Option B. In our negotiations on EC enlargement we would attempt to get compensation on grain or we could unilaterally unbind tariffs.
• —D. Precipitate a crisis. This is based on the premise that meaningful solutions cannot be reached unless there is an atmosphere of impending crisis. This would obviously bring us into major confrontation with the EC and spill over into other aspects of our relationship if we cannot get the solutions we want.

In interagency discussions all parties felt we should vigorously promote US interests. Some felt we should do so to the point of confrontation. Others preferred combining Option B and Option C, which was to work more toward a cooperative approach. All felt this should be developed as part of a broader US-European relationship.

President: What do you think of this, Bill?

Eberle: It is imperative for us to carry the major share of the initiative. The EC is not able to do so. We cannot step back. We must carry things through if anything is to be done. Option C permits us to do this and get a major feel for the atmosphere in which these negotiations will proceed.

President: How will the Europeans react?

Eberle: I am “bearish” about prospects now but see hopeful opportunities on the horizon. The German Minister of Finance³ says that the CAP costs more than the total contribution of agriculture to Europe’s GNP. The Germans and French have made “backdoor” suggestions that we all agree in Article XXIV negotiations that there is some trade damage from the CAP and then carry over this agreement to the comprehensive negotiations in settlement. There are forces starting to build up. We should keep pressure on. There is hope. The Europeans feel we should not back away. If we back away, it takes away support from those in the EC who agree with us.

President: Will the new EC be lined up against us?

Eberle: We should assume this. Today the EC is isolated in the GATT on the question of enlargement. The key issue is whether they will accept more economic cooperation with North America or whether they will back away.

President: Nationalism in Europe is stronger than nationalism in the US and it is damned strong here. They enjoy kicking the US around. Eighty-eight percent of all the European media is violently anti-US. They will cut their own throats economically to take us on politically. We cannot get a very liberal trade program through the US. On these issues our people are very nationalistic.

Eberle: Nationalism is stronger in Europe against Japan than against the US.

President: We need to consider possible Congressional reaction to our failure to press our trade interests. Nationalist pressures are strong pressures in Congress. The Foreign Affairs and Foreign Relations Committees are unrepresentative. They only represent their own Committees. The Foreign Affairs Committee is a little more representative. But they do not represent the feelings of the country. We can’t get too far out in front of our constituents. They are very tough on trade. These feelings are strong not only in the labor movement but among a large segment of the business community.

Shultz: In Europe there are different nationalisms—German, French, and British nationalisms, and on monetary policy they sometimes differ. There are different opinions in different countries.

Rogers: It is sort of a mixed-up nationalism. The question is, are they supporting the EC or individual nations. Trade questions will be decided on what is good for everybody. Our position has to be the one that Bill Eberle outlined. Elements of Option B could be combined with C. If we offer to liberalize, it will have a domestic problem. Our dairy policy is the same as the CAP. If we appear willing to make concessions on agricultural policy the dairy farmers would go up in smoke.

President: Let there be no doubt that our position before the election is one of protectionism. We should not indicate that we are preparing any concession not in the interest of the US. If anyone does, we will repudiate it.

Rush: The Europeans protect their domestic interests and their bloc interests. Both European and individual country nationalism is against the US.

President: What is your opinion of the nature of the EC nationalism—European or individual.

Flanigan: When they can do something to protect their national interests they will. When they can’t do it on their own (e.g. the development of aerospace industry) they will do it as a group. For instance, they are developing an industrial policy. We should resist the EC effort to subsidize particular industries or develop high technology industries through preferential arrangements.

Peterson: We should confront the Europeans. If we appear to be liberalizing now, Burke-Hartke pressure is likely to develop. We must recognize that there is a security aspect to our relationship. On security and military, the Europeans have the best of both worlds. Trade issues will have to be related to larger issues including our military relationship. They need to be played at the Presidential level. If they fear we will abandon our military support, it will affect the way they deal on trade matters.

Rogers: They are not about to change the CAP. To change the CAP would cause serious problems for them as governments. Likewise, there are preferential trade issues and relations with the EFTA non-applicants which are important to them. At the moment they are only problems of principle for us, but do not hurt us badly. The question of a trade bloc, however, is a serious problem. It will have to be dealt with in the larger context of trade negotiations.

The question is how much do we want to threaten them with them in public. Do we want to go so far as to threaten withdrawal of concessions. This causes many problems. We should not do this in the next two months. We have a strong case but they have some problems with us too. It is not fair to assume they do not have complaints too. Our policy should be tough without any specific threats. We should hit them with a general position but without specific threats. We should also get them to adopt a structure in which we can negotiate with them on a regular basis.

President: In the following months we should not say anything forthcoming on trade. For example, my speech to the IMF meeting will not be forthcoming on trade matters.⁴

However, more is involved here than just questions of “horse-trading” between soybeans and cheese. The question is what Europe wants its position to be vis-à-vis the US and the Soviet Union. We hear about Finlandization of Europe. If Europe should adopt a trade policy which is anti-US, it could affect attitudes in the US—bring about an unenthusiastic attitude toward Europe—and will carry over into the political area. There will be pressure to withdraw divisions and NATO would come apart. The idea that Europe can defend itself without the US is “bull”. If NATO comes apart, they will be an economic giant but a military and political pigmy. The USSR will encroach on them. It will not be in the traditional way but a new-style invasion. European leaders are terrified at that prospect. European leaders want to “screw” us and we want to “screw” them in the economic area. But political relationships should be overriding for us and for them. What will matter in trade is its relationship to the total problem—what we want our relationship with Europe to be. Between now and the election we should say nothing, but we should give careful thought about how trade relations fit in the context of our overall relations. We should examine what price we might have to pay on the trade side for this political relationship, and they should do so as well. We should not allow the umbilical cord between the US and Europe to be cut and Europe to be nibbled away by the Soviets. We need to strengthen the bonds of trade, monetary relations, exchanges, etc. As an example of what I mean, you recall that when the Soviet runner won the 100 meter race in the Olympics he said that the race marked the end of an era and now the Europeans are the best. Basically this is just racism, since they are white and our sprinters are black, but the idea of Europe versus the US is a Soviet line. This was an example of a new style, with the Soviets trying to identify themselves with the Europeans and against the US. Brezhnev and Kosygin say almost the same things.

All non-Communist countries in Europe do not want to come under that influence. They know we have divisions and nuclear weapons. It is easy for us to say we will take them out of Europe, but it is definitely not in our interest to do so. Chayes goes around Europe talking about removal of troops, and every time Americans see us take a bad rap in basketball or something they remember. This contributes to the growing sentiment in the US such as “damn the Europeans” and the “foreigners are doing us in”. It is true that the foreigners are doing bad things to us and we should do some bad things to them. But we must be under no illusions. We cannot turn isolationist in the broader context.

If we were only looking at trade, we could get along without the Europeans or the rest of the world since trade is much less important to our GNP than to theirs. Trade is the froth on top of the beer, but beer without froth does not taste too bad. But we need to look at the bigger picture. For instance, we should treat Japan with tender loving care because what Europe would become to the Soviets, Japan to China would be even more. Trade is important politically. Trade relationships can benefit political relationships, although wars have been fought between countries with trading relationships with one another. Our interests are served by being as tough as we can without going over the line where anti-US sentiment will cause them to turn against us and break with us. The Europeans recognize that they do not matter in the world any more. They know it. Economic issues are the things they now concentrate on. They are big for them and small for us. That means we will probably have to give more than our interest, strictly construed, would require. However, for the moment we should let the Europeans know that there are a lot of Americans who would welcome our getting out of Europe, and Japan. But we are fighting this. The Europeans should realize why. It is not because our economic survival is at stake but rather because we have a major interest in our overall relations with them, which we value highly, and in the interest of world peace.

The whole area of our economic relations affects our leverage position in the world. In the future our relations will have a larger economic content. This will require more subtlety in the way we conduct our overall relations. We are best to play this game. We are the strongest. However, this is not the time to decide this. After the elections is the time. Then we can do what we have to do. It is going to be very hard to sell trade liberalization to the Congress and the people. We need to make a strong case. We will be prepared to do it because we know that more is at stake than just trade, because our interests require it. But for now we should not talk in public about the political-commercial tradeoff.

Peterson: How do you regard the political-commercial tradeoff?

President: There obviously is a link between economics and political-security issues, but we should not link it openly now.

Peterson: What are the possibilities for a longer term political-security link, and the prospects for selling a liberalization bill to the Congress?

President: We need good results in the election and we can get a lot done. We are looking to get a majority. A majority has not happened since 1956. It is difficult for a Republican to get a landslide; a majority will be important. With that we can make a major move to propose what is best for the country and try to educate the country so that it sees the issues in the broader context. It takes time for people to understand an issue like this, but they will come around. What is at stake here is a major shift in the world balance of power, particularly among ourselves, the Russians, the Chinese, and the Japanese. As regards Europe, they will have one hell of a time acting as a bloc. They do not get along with each other. The French don’t get along with the Germans, the Germans don’t get along with the British. It will be some time before they can learn to act as a group. This means we have to work with the heads of Government in the various countries and not that jackass in the European Commission in Brussels.⁵

[To Peterson]⁶ It is important that after the elections we look at the long-range relations. We have to tie this in with the whole problem of what we want our relations with Europe to be. Europeans are used to thinking internationally. They argue about Tanzania and their other relations abroad. We have to think internationally. We are it in the Free World. We would be missing a great opportunity if we do not see the broad picture and have such a picture to guide us. Then we can educate the people to support that kind of policy. But they should see how it affects their own self interests.

Peterson: We can get something in the economic area by using political-security leverage.

President: Yes.

Rogers: After the elections we can get down to the business of a formal study but for the moment suggestions should be kept private and not reduce things to writing. They should be discussed orally. If we do have a study made, it will get out.

President: Yes, controversial memoranda are likely to leak. Like the grain deal. You remember how hard we tried to keep the amounts secret. Now we are accused of having told the companies. It is ridiculous.

Everyone should be thinking of how we should achieve what we have talked about at this meeting.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 219, CIEP. Secret. Drafted by Hormats; an attached NSC Correspondence Profile sheet indicates it was approved September 18. The meeting was held in the Cabinet Room. A tape of the conversation is ibid., White House Tapes, Cabinet Room. Another record of this meeting, apparently drafted in the CIEP, is attached to a November 3 memorandum from Flanigan to Kissinger on U.S.-European relations. (Ibid., NSC Files, Agency Files, Box 219, CIEP) Background material for this meeting, circulated to the President and CIEP members, is ibid. According to the President’s Daily Diary, the meeting ended at 11:06 a.m. (Ibid., White House Central Files)
2. Not further identified.
3. Helmut Schmidt replaced Karl Schiller as German Finance Minister in July.
4. For text of the September 25 address, see Public Papers of the Presidents of the United States: Richard M. Nixon, 1972, pp. 907-911.
5. Presumably a reference to EC President Mansholt. The other account of this meeting (see footnote 1 above) includes the same characterization.
6. Brackets in the source text.