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

47. Information Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon¹

Washington, November 13, 1970.

SUBJECT

• Initiation of Formal U.S. Consultations with the European Community

State has forwarded a summary of the recent consultations between the U.S. and the European Community (Tab A), the first in a series which will probably represent a new stage in our relations with the Community. We hope that the consultations will defuse, and perhaps even help solve, the numerous contentious issues that will increasingly be arising between us.

This first meeting was carried out with unusual procedural smoothness. Substantively, there was less harmony. The discussions concentrated on four main topics:

a. U.S. Trade Legislation. Community representatives avoided threats, but made clear that they would probably have to react on the trade and investment fronts in response to shoe quotas and the excessive relaxation of the escape clause contained in the House trade bill. If the U.S. avoids enactment of protectionist legislation, however, the Community has offered to assist in a voluntary U.S.-Japanese textile agreement by not raising its own barriers to protect against diversion of Japanese sales to Europe.

b. Community enlargement. We made it clear that we continued to support enlargement, but that the Community would have to consider the effects on the economic interests of third countries such as the U.S.

c. Agriculture. We explained our concern over the stiff agricultural protectionism of the Community. The Community said that a reduction of farm support prices (and hence increased imports) was out of the question, but that perhaps it could avoid exacerbating the problem through new price increases.²

d. Community preferential arrangements. The U.S. objected to the Community preferential arrangements with a whole range of Mediterranean countries as a violation of the Community’s most-favored-nation commitment with injurious effects on our exports. The Community said that they are pursuing the agreements as the only instruments available to the Community as a unit to carry out a “European political responsibility” to the poor countries south of Europe.

This memo represents a reminder of an area of difficulties between our own domestic commercial interests and our European policy, which is now largely confined to the economic area but is likely to intensify and could easily spill over into the political arena.³

Tab A

Washington, October 29, 1970.

Memorandum From Acting Secretary of State Irwin to President Nixon

SUBJECT

• US-EC Consultation October 15-16

Ralf Dahrendorf, Commissioner of the European Community (EC) in charge of Foreign Relations and Foreign Trade, and a delegation from the EC Commission met with an inter-agency delegation led by Deputy Under Secretary of State Nat Samuels on October 15 and 16 in the first of a series of consultations between the US and the EC pursuant to NSDM 68. The discussions centered largely on (1) US trade legislation, (2) EC enlargement, (3) EC agricultural policy, and (4) EC policy on preferential trading areas.

(1) US Trade Legislation

Dahrendorf expressed the fear that the Trade Bill could lead to an escalation of protective measures throughout the world that could seriously disrupt the international exchange of goods and capital. Although careful to avoid threats and explicitly saying that the Community does not intend to make threats, he said it would be unwise for us to think that the European Community would be unable to take common action in response to grave injury to the economic interests of its member states resulting from the Trade Bill.EC officials also made clear that American protectionist measures would strengthen the hand of those seeking to discriminate against European subsidiaries of American firms.

The Community would be directly and importantly affected by quotas on shoes, Dahrendorf said, and would most certainly react. But it is the modification of the escape clause, including the trigger mechanism in the Trade Bill, which is most troublesome because it has the potential to change the total complexion of world trade. The Community also objected to the Domestic International Sales Corporation as being an export subsidy in violation of GATT.

As a positive contribution to a solution of the textile impasse with Japan, the EC delegation indicated, subject to some qualification, it would not raise textile barriers against Japan if the US and Japan were able to arrive at a reasonable voluntary textile arrangement prior to enactment of US legislation.

(2) EC Enlargement

Nat Samuels assured the EC side that we continue to support the accession of the UK to the Common Market but we expect the parties to the negotiations to take fully into account the trading interests and GATT rights of the US and other third countries. The US side suggested the Community consider the effects of enlargement on third countries and made clear that we regard this bilateral consultative forum as appropriate for raising specific trade problems that might arise in the course of negotiations. Dahrendorf responded with an explanation of the problems and delicacy of dealing with third countries while the negotiations with the British and other applicants were proceeding but offered to consider specific suggestions that the US might make.

(3) Agriculture

Nat Samuels and Assistant Secretary of Agriculture Palmby set forth our concerns over the high level of agricultural protectionism in the Community and stressed the need to reduce grain support prices. This would have an important beneficial effect on our exports and reduce the adverse effects of extending the EC agricultural policy to the UK and other applicants. The EC delegation explained that the Commission is resisting political pressures for an increase in grain prices in the Community but insisted that a reduction in grain prices was politically out of the question. The most that could be hoped for was to continue to keep the grain price stable for several more years. At the current levels of inflation in Europe, stable prices would erode the real return to farmers and thus their stimulus to production, while bringing an improvement to the U.S. exporter in terms of real prices. It was agreed to hold subsequent policy-level discussions between the US and the EC on a variety of agricultural trade items, although the EC is unable to publicize explicitly its willingness to include discussions on grain prices lest this spark a political explosion.

(4) EC Preferential Arrangements

The US side made clear its objection in principle to the EC preferential trading arrangements in the Mediterranean which we believe violate the most-favored-nation principle of GATT. Dahrendorf defended these arrangements on political grounds and pointed out that these arrangements are for the time being the only instrument available to the Common Market to meet its responsibility to the Mediterranean littoral. He claimed the Common Market did not seek the arrangements for commercial advantage, and he insisted that they caused no commercial injury to the US or other third countries. The US side contested this by pointing out that the California-Arizona citrus industry has already complained of injury. It was agreed that without derogation from or compromising the question of principle, the US and the EC would jointly try to determine the damage to us resulting from these agreements.

John N. Irwin II

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 322, European Common Market, Volume I 1969-1970. Limited Official Use. Forwarded to Kissinger under cover of a November 6 memorandum from Bergsten who recommended it be sent forward to alert the President to the issues between the United States and the Community. Presumably after the memorandum came back from the President with his marginal notes, Kissinger wrote at the top: “Bergsten—keep this note in mind.”
2. The President partially encircled this paragraph and underscored “explained,” next to which he wrote “We should complain.”
3. The President wrote at the end of the memorandum: “K—it seems to me that we ‘protest’ and continue to get the short end of the stick in our dealings with the community. Agriculture is a prime example—The Congress is simply not going to tolerate this too passive attitude on the part of our representatives in such negotiations.”