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

207. Telegram From the Department of State to Certain Posts¹

Washington, November 25, 1971, 0021Z.

213813. For Ambassador. Subject: G-10 Ministers’ meeting.

No specific action suggested now at your initiative, but following is for your use as appropriate.

On August 15 the President launched his New Economic Policy designed to restore vitality to our economy at home and competitiveness to our goods abroad. Our international financial position had deteriorated to the point where we were not able to sustain our policy of redeeming dollars for gold, necessitating the painful decision to suspend gold convertibility. In addition, the President’s announcement provided an opportunity to intensify our efforts to foster trading practices which would improve market access to U.S. goods as well as to the goods of other countries.

Immediately following the President’s August 15 statement, we commenced intensive negotiations with our trading partners to achieve the exchange rate realignment necessary to restore equilibrium to the U.S. international financial position. At the same time contacts regarding outstanding trading issues were intensified. Many of these trade issues such as those with Canada and Japan are best pursued bilaterally, and that is what has happened. With respect to the Economic Communities, we have proceeded with discussions in Brussels and Washington.

There is a close interrelationship between the exchange rate realignment and trading practices if the latter tend to vitiate the increased competitiveness which exchange rate adjustments are designed to achieve. Most importantly, the Common Agricultural Policy could well operate to deny to our agricultural exports any benefit which an exchange rate adjustment would otherwise provide. Likewise, the extension of the preference system to a broader area of trade further compromises the most favored nation principle. Already a major portion of world trade is conducted at preferential duty rates, and the portion is increasing. We believe at this critical turning point in financial and trading relationships, we must press for reconsideration of the trends in these areas.

We recognize that these are difficult and contentious issues involving practices which have developed over the years and that they are not given to easy solutions. But we must impress upon other governments that the time has come to reverse trends which prejudice our trading position, not only because of economic importance but because political support for liberal, outward looking policies in U.S. is dependent on visible evidence of improved treatment. The United States believes that with the exchange rate realignments and monetary questions now under negotiation, opportunity must not be lost to make progress on trade front as well.

European governments strongly wish to separate monetary and trade issues. The United States recognizes that the compartmentalization of financial responsibilities and trade responsibilities in the organization of governments, including the U.S. Government, and international institutions have impeded joint negotiations in the past. Thus, we are concerned that lack of progress on trade matters, particularly with EC, could block acceptable general settlement. However, desire for monetary settlement should encourage willingness to examine trade issues if European governments understand movement in trade area (particularly greater recognition of interests of other countries in CAP) is necessary part of settlement.

Our position is consistent with communique of G-10 Finance Ministers, meeting in Washington on September 26, which referred to “some other measures outside the exchange rate field designed to improve the U.S. balance of payments.”

Specifically, the U.S. Delegation to the G-10 Ministers’ meeting in Rome on November 30 will be seeking to advance the negotiations on trade matters, with particular emphasis on agricultural matters in the EC. (Bilateral discussions with Japan and Canada are reasonably well advanced.)

We believe EC Finance Ministers will be generally more sympathetic with our concern over CAP than other elements in EC governments. However, because these matters are not normally in the jurisdiction of Finance Ministries, it is important the weight we attach to these matters be kept in mind in your contacts with host governments.

For London: Our trade complaints with the EC regarding the Common Agricultural Policy are consistent with the U.K. concern.

For Tokyo and Ottawa: This is not intended to indicate any dissatisfaction with pursuing our bilateral trade issues through the channels now being employed.

Irwin

1. Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential; Priority. Drafted in Treasury by Assistant Secretary Petty on November 24, cleared in State in E/OT and by Kempe and Katz, and approved by Deputy Assistant Secretary Weintraub (E/IFD). Sent to Bern, Brussels, Ottawa, Paris, Bonn, Rome, Tokyo, The Hague, London, Stockholm (G-10 capitals) and to USOECD, USEC, and the Mission in Geneva for Eberle. Repeated to Canberra, Copenhagen, Dublin, Helsinki, Madrid, Oslo, and Vienna.