Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

228. Action Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, March 11, 1970.

SUBJECT

• Possible Reversal of Decision on EC-Spain Preferential Trade Arrangement; And Broader Issue of U.S. Policy on All Such Arrangements

Spain-EC Arrangement

Per our discussion of this morning, at Tab I is a memorandum for the President on the Spain-EC trade arrangement.²

Before you sign it, I think you should know fully the sequence of events on the issue.

After the President decided over the weekend to reverse his earlier decision, to give Spain and the EC time to bring their arrangement into conformity with the international trading rules of GATT,³ State decided to soften the effects of its end-run by clearing the new position with the bureaucracy. Two major problems resulted from the whole affair.

First, the bureaucratic. STR Gilbert, Commerce, Treasury, and Agriculture were initially extremely unhappy with the change: substantively (see next paragraph), because they had no role in it, and because their clearly expressed views were completely overridden. They could not understand how the President made one decision when presented the full range of options and agency views but then, despite no change in the situation and on the basis of one agency’s informal advice, reversed himself and chose a course that had previously been almost unanimously rejected by the agencies, including State.

Second, the substantive. The revised decision was originally interpreted by our trade policy community as a complete reversal of the earlier position, and they were right. A three-year moratorium on adverse U.S. reaction to the deal, while it technically reserves our rights, in practice permits the arrangement to get so far along that it will be impossible to stop it. The decision was thus Option 1 of the original Review Group paper: only pro forma U.S. opposition to the deal.⁴ This option was rejected by all agencies, except Defense, in the decision-making process.

However, State then added two caveats to pacify the trade people: their proposed cable would have allowed us to seek specific changes in the deal to mitigate the trade impact on the United States, and they would require Spain and the EC to get a GATT waiver to proceed with the illegal deal in the interim period. This combination gives the trade agencies a hunting license to nitpick Spain and the EC to death, and even to try to gut the substance of the deal—which they could do, for example, by trying to reduce or even eliminate any EC preference on Spanish citrus. Except for Agriculture, they are thus now willing to buy the modified State position.

Their acquiescence reflects precisely the resultant problem which we now face. Originally, we were to stand on principle and bar haggling on specifics. Now, State would have us cave on principle but permit haggling on specifics. It is by no means clear that we would get more points with Spain with the change.

But the main result is confusion. Treasury and Agriculture have raised legitimate questions about what the decision means in practice. It would certainly be interpreted differently by different agencies. At a minimum, this approach should be examined much more carefully before we sally forth with it as the U.S. position. (Samuels told me that the three-year moratorium, which was his idea, was completely spontaneous and he has not yet thought it through.)

Even more basically, this decision is being made through negotiation of cable language—precisely the way which our system was designed to eliminate. It would be impossible to retain the credibility of the NSC process in the eyes of the economic agencies if we proceed that way. State now realizes this, and suggests—after you passed on my appraisal of their present position to Richardson today⁵—that we overrule the economic agencies by issuing a NSDM which guts the caveats negotiated by State!

I would personally prefer a reaffirmation of the President’s original decision, both substantively, and to maintain the integrity of our process. However, I gather that the President may prefer a softer position. To achieve that end in the best way and to re-regularize the process, I therefore recommend that you recommend that the President defer any decision on Spain now, rolling the issue into a general review of our policy on EC preferential trade arrangements.⁶ Such a review should be triggered in any event, as I indicate below, and could be done in about two weeks:

• —The delay would get everybody operating on one wave length and, at the same time, preserve our process.
• —The ultimate decision for a softer position could then still come out precisely as you worked out over the weekend.
• —Promulgation now of the decision reached over the weekend would doubly incense the economic agencies, not only bypassing them in the first place but overriding the changes which subsequently pacified them—and we would be blamed for overriding the caveats accepted by State.
• —There is no real urgency in conveying a soft U.S. position, since it will not affect the EC-Spain outcome. (In fact, Alex Johnson thinks it would be better for the base talks to hold off any softening of our position on the EC arrangement.)
• —The one problem is that we would not be able to discuss our position with Lopez Bravo when he is here next week, and he has indicated that he wishes to talk about the EC deal with us; however, there are plenty of other things to talk about and we can justify such a stance by noting that we only learned the details of his proposed arrangement a few days earlier (probably March 12 or 13).

Proposed Samuels/Gilbert Trip to Europe

Under Secretary Richardson, almost simultaneously, has proposed a Samuels/Gilbert trip to Europe to discuss the overall issue of EC preferential deals (and to try to line up European support for our generalized preferences plan) (Tab II).⁷

The Under Secretary correctly notes that we will face the Spain-EC problem all over again on a host of other deals: Israel, Austria, UAR, Lebanon, etc. In each case, our political and commercial interests will cut in opposite ways. In addition, it will be extremely difficult to dissuade the Community from proceeding on each. The Under Secretary therefore proposes Samuels and Gilbert explore, with the Community, three possibilities for dealing with the problem:

• —Making the deals consistent with GATT;
• —Having the EC treat the countries as “advance” beneficiaries under the generalized preferences plan, not demanding reverse preferences from them;
• —Seeking to obtain adjustments in the specifics of the arrangements to minimize adverse trade effects on the United States.

I think it would be a serious mistake to let Samuels and Gilbert go to Europe on such a mission without clear policy guidance. Neither of them, particularly Gilbert, is sensitive to the President’s overall European policy. They even disagree with each other on the issues. We have no general policy on EC preferential deals. And Samuels also wants to discuss a modified position on generalized preferences, which has not yet been mentioned to the agencies and would require Presidential decision. (Samuels is now preparing a paper, on which he will seek agency approval for his changes and then submit to the President.)⁸

I therefore recommend that you recommend to the President that any such trip be deferred. If he approves, you could sign the memorandum for Richardson at Tab III,⁹ indicating that the President does not think the time is right for a Samuels/Gilbert mission on these trade issues, and issue a new NSSM (Tab IV), calling for options in the preferential deals to supplement the NSSM 79 (Tab V) work on UK accession.¹⁰ (Both Tabs III and IV assume that you approve my proposal on deferring any decision on Spain. If you reject my proposal, I will need to do a slight rewrite of them.)

Recommendations:

1. That you sign the memorandum for the President at Tab I, recommending (a) that he defer any decision on the Spain-EC preferential trade arrangement until it can be considered, along with all such proposed preferential arrangements, in about two weeks and (b) that there be no mission to Europe before we reach a policy decision on the overall issue.

2. That, if the President approves, you inform Under Secretary Richardson that the President does not think the time is right for a Samuels/Gilbert trip to Europe on the issue of these preferential arrangements, partly because we have no overall position on them, by signing the memorandum at Tab III and the new NSSM (to get a position) at Tab IV.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 338, HAK/ELR Meetings 1/70-3/70. Secret. Drafted by Bergsten and concurred in by Sonnenfeldt. This memorandum and its attachments form Tab A to a March 13 memorandum from Haig to Kissinger, regarding his lunch with Richardson that day. No record of the luncheon discussion was found.
2. Drafted by Bergsten on March 11; not printed. No evidence has been found that the memorandum went to the President. It reported a State Department proposal for reconsideration of NSDM 45 (Document 227), specifically to give Spain and the EC a 3-year window to bring their preferential trade agreement into conformity with GATT rules.
3. March 7-8. Reference is to NSDM 45.
4. See Document 222.
5. Not further identified.
6. NSDM 68, “Policy Towards the Economic Community,” July 3, 1970, is in the National Archives, RG 59, S/S Files: Lot 83 D 305. See also Foreign Relations, 1969–1976, vol. III, Documents 42–47.
7. Document 226.
8. Not further identified.
9. Not printed. A memorandum with much the same substance was sent on March 27; see footnote 2, Document 226.
10. Neither printed.