U.S. Department of State
FRUS, 1961-63, Vol. IX: Foreign Economic Policy
Office of the Historian

[Section 11 of 18]

Trade and Commercial Policy

208. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, Central Files, 394.41/3 - 1761. Confidential. Drafted by Selma G. Kallis (E/OT/TA) on March 2.

Washington, March 17, 1961.

SUBJECT

Possible Need for Increased Authority to Offer Tariff Concessions in Negotiations Under General Agreement on Tariffs and Trade (GATT)

In your special message of February 6 to the Congress,/1/ you stated that in negotiations under the General Agreement on Tariffs and Trade (GATT), the United States would seek the fullest possible measure of tariff reduction by foreign countries as a means of helping to correct the balance-of-payments deficit.

/1/See Document 2.

In these negotiations, the United States will have to offer tariff concessions to other countries in order to obtain from them tariff concessions which will provide improved market opportunities for United States exporters. Unfortunately, the authority available to our negotiators to offer reductions in United States tariffs is not sufficient to assure achievement of the results we need to obtain in these important negotiations. If necessary, I will submit recommendations to you in the course of the negotiations for augmenting this authority. At this time, I want to explain the background and bring to your attention the potential seriousness of the situation.

On May 27, 1960, the interagency trade agreements organization issued formal announcement of the intention of the United States to participate in these negotiations together with a public list of United States import products on which tariff concessions might be considered./2/ Because of the careful selectivity exercised in its preparation, the list represented only 26.3 percent of our total imports in 1959 from the countries with which we contemplate negotiations.

/2/For text of announcement, see Department of State Bulletin, June 13, 1960, pp. 968 - 972. The interagency trade agreements organization was also referred to as the interdepartmental Trade Agreements Committee (TAC).

The trade agreements legislation provides that the Tariff Commission shall conduct an investigation of the products on the public list and with respect to each item, report to the President, for his information, the level below which individual duties could not be reduced without causing or threatening serious injury to domestic industry. Although there is nothing in the legislation to prevent the President from reducing duties below the level (peril point) found by the Tariff Commission, if he does so, he is required to report his reasons to the Congress. The Tariff Commission found, in its peril point investigation, that the duties on products accounting for nearly one-third of the trade coverage of the list could not be decreased without causing or threatening such serious injury.

In light of the known views of the Eisenhower administration against breaching peril points in trade agreement negotiations, the interdepartmental Trade Agreements Committee (TAC) did not recommend any reductions in rates of duty which would have breached peril points. The TAC had been prepared, however, prior to receipt of the peril points, to recommend reductions on many products important to the negotiations on which the Tariff Commission subsequently reported the peril point to be the existing tariff level. The recommendations of the TAC on offers to be made in the negotiations were approved by the President on January 6, 1961./3/

/3/Not further identified.

The limitations resulting from the Tariff Commission's adverse peril point findings have reduced the trade coverage of the approved offers to only 18 percent of our total imports from countries with which we expect to negotiate. The statutory authority of the President in these negotiations is not great, authorizing him to make reductions in duty of no more than 20 percent of the existing duty, by stages, except in the case of certain duties in excess of 50 percent ad valorem or below 10 percent ad valorem where the authority is somewhat greater. Since we will seek from other countries tariff reductions of much greater depth than we will be able to offer in return, we need to be able to make reductions on as broad an amount of trade coverage as possible.

In the case of some countries we will be able to offer concessions on less than one percent of our imports from them, with the result that the negotiations would be either very meager or without any basis at all. The reduced bargaining potential with the European Economic Community (EEC), where the attrition caused by peril points is nearly 38 percent, is particularly serious. It is possible that the EEC will agree to settle for less than full reciprocity on the offer it has already made to reduce its future common external tariff by 20 percent provided adequate reciprocity is offered by other countries in return. There is a serious risk, however, that the negotiating power available to the United States negotiators will not be sufficient to induce the EEC to implement its offer fully, and that we will be unable to accomplish our objective of furthering the interests of the United States by securing the lowest possible level in the new EEC common external tariff as well as substantial tariff reductions by other countries.

If we find that increased authority is required in order to permit our aims in these negotiations to be accomplished, the only feasible course would be to breach some peril points on a selective basis. In such event, recommendations would be submitted to you as to the particular products on which the breaching of peril points in these negotiations would be in the national interest.

You will receive, in due course, the recommendations of the interagency Trade Agreements Committee on requests for authority to offer tariff concessions on articles selected from the supplementary list, issued by the Committee on November 23, 1960,/4/ of additional products on which tariff concessions may be considered in these negotiations. Although the authority of the United States negotiators will be increased somewhat if you approve recommendations with respect to articles on this supplementary list, it will be impossible, because of the limitations of the supplementary list itself, to enhance the negotiating authority sufficiently to have a significant effect on the problem here described.

Dean Rusk/5/

/4/For text of the supplementary list, see 26 Federal Register 15; the Department of State Bulletin, January 30, 1960, pp. 161 - 162, briefly describes corrections to the supplementary list.

/5/Printed from a copy that indicates Rusk signed the original.

209. Telegram From the Department of State to the Consulate in Geneva

//Source: Department of State, Central Files, 394.41/3 - 2261. Limited Official Use. Drafted by Herbert F. Propps (E/OT/CPT) on March 22; cleared by Edelen M. Fogarty (E/CSD), Joseph E. Jacques (E/OR), Frank P. Butler (E/OT/CPT), Leonard Weiss (E/OT), and Thelma E. Vettel (FE); and approved by Assistant Secretary of State for Economic Affairs Martin. Repeated to Karachi, London, New Delhi, Ottawa, Paris, Hong Kong and Tokyo.

Washington, March 22, 1961, 9:23 p.m.

1508. For ResDel GATT. Dept considering possibility multilateral consideration in GATT framework of problems of trade in cotton textiles and apparel.

Problems U.S. industry now being urgently considered by President's Advisory Cte on Textiles./1/ U.S. industry draws attention approximate doubling of total imports cloth, apparel and other textile products (on yardage basis) last two years and seeks across-the-board import quotas by country and by product as only effective means coping with low-wage imports without undue prejudice interests traditional suppliers. Industry problems being analyzed here, and various approaches being explored.

/1/On February 16, President Kennedy appointed several members of his Cabinet to a committee to study problems in the U.S. textile industry and to offer solutions to these problems. Members included the Secretaries of the Treasury, Commerce, Agriculture, and Labor, and Under Secretary of State for Economic Affairs Ball. (Current Economic Documents, Issue No. 618, February 2, 1961, pp. 1 - 4; Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments)

Rapid rise certain U.S. cotton textile imports seems attributable in part Western European trade barriers.

Restrictions cotton textile exports LDCs have been discussed Cte III. Advantages this forum include liberal terms reference and support of Cte work by LDCs.

WP Market Disruption also discussed these restrictions, but in context efforts define "market disruption" and find multilateral solution problems caused by abrupt increases in imports. LDCs (India and Pakistan) appeared reluctant recognize or deal with problems in this Cte, fearing further restrictions; EEC (France) also not forthcoming, apparently because of unwillingness liberalize toward Hong Kong, Japan and others.

Textile trade problems also related Japan Art XXXV question, now about to come before special WP.

Under circumstances, ResDel requested ask Wyndham White's views regarding: (1) progress made to date on GATT - ILO study of textile industry and earliest date by which Market Disruption Cte might issue textile portion its report on social, economic and commercial factors underlying market disruption problems and (2) most appropriate framework for early multilateral consideration in GATT of problems world trade in textiles and apparel. On latter point, our preliminary thought is that if there is to be GATT meeting this matter, most appropriate framework would be joint meeting Committee III and Committee on Avoidance of Market Disruption. Emphasize to Wyndham White that no U.S. position reached and that his views being sought at this stage so that they may be taken into account in arriving at U.S. position.

Rusk

210. Memorandum of Conversation

//Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, January - April, 1961. Secret. Drafted by William C. Burdett (EUR/BNA). The meeting was held at the White House. The typed notation "uncleared" appears on the source text.

Washington, April 5, 1961, 11 a.m.

THE PRESIDENT'S MEETINGS WITH PRIME MINISTER MACMILLAN WASHINGTON, APRIL, 1961

SUBJECT

International Economic Problems: Commercial Policy and Aid Matters

PARTICIPANTS

United States The President The Secretary of State The Secretary of the Treasury Ambassador Bruce Mr. Walter W. Heller Mr. McGeorge Bundy Mr. George W. Ball Mr. Foy D. Kohler Mr. Charles E. Bohlen Mr. William C. Burdett Mr. James W. Swihart

United Kingdom The Prime Minister Lord Home Ambassador Caccia Sir Norman Brook Sir Frederick Hoyer Millar Sir Robert Hall Honorable Peter Ramsbotham Mr. John Russell Mr. D. B. Pitblado Mr. Philip de Zulueta Mr. A. C. I. Samuel Mr. John Thomson

Mr. Ball referred to the Commonwealth arrangements regarding tropical food stuffs which caused us trouble because of Latin America. He hoped that we could approach this matter together.

The President explained that we were going to have an extremely difficult battle on reciprocal trade legislation. Last time the bill passed the House by only one vote. Now there were depressed conditions. The textile industry had moved to the South which had traditionally supported free trade. 35 - 40 Congressmen were coming to see him next week. Reciprocal trade would be the most important battle of the next two years. Some of the arguments used by the opponents were soundly based. We must organize those who benefit from free trade. Those who are hurt are already organized. It would help us a great deal on this question if the UK could do something about deciduous fruit. This matter was of particular concern to six Senators from the Northwest who supported us on reciprocal trade. Mr. Ball said that he would be glad to furnish the UK with a memorandum on the subject.

The President next referred to the difficulties occasioned by the growth in imports of textiles from Hong Kong. These imports had gone up 400% and are now equivalent to those from Japan. Something must be done or there could be a disastrous effect on the reciprocal trade legislation. Pakistan was also somewhat involved. The President said he would like us jointly to see if something could be done voluntarily.

Commenting on the problem of fruits the Prime Minister said the British interest was to avoid ruining the Federation of the West Indies and having it taken over by a Castro-type regime. Mr. Ball observed that it would help if something could be done about peaches and pears which he did not think involved the Federation. The Prime Minister replied that he thought this could be straightened out. He added the matter of textiles was terribly difficult. Great Britain had voluntary quotas from Hong Kong and Pakistan but these were about to run out. If the West gives aid to new countries to set up industries, they are bound to manufacture. What do we do with these products? For example, Lancaster had shifted from the manufacture of textiles to high-grade machinery. The British Government had spent much money to change the type of manufacture. The problem arises when a new source comes so quickly into the market. This upsets things politically and then one cannot get things done. He would like to have the Hong Kong matter studied. The Prime Minister asked whether it would be possible to obtain a voluntary quota. Lord Home said it had taken the British three years. Mr. Ball reported that when in London last week he had spoken with Mr. Gorrell Barnes of the Colonial Office and they had reached an understanding that the British would send over a mission next week to look at the total economic problem of Hong Kong not only the commercial policy aspects. The broader problem the Prime Minister had mentioned, Mr. Ball said, was pre-occupying us very much. He hoped it might be handled through the DAG. There should be coordination and planning regarding the type of development we would support and also regarding the burden of absorbing imports.

[Here follows discussion of aid to undeveloped countries.]

211. Memorandum of Conversation

//Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, January - April 1961. Official Use Only. Drafted by Avery F. Peterson (FE) on April 21 and approved by S on April 4 and by the White House on April 5. The meeting was held at the White House. Attached to the source text is a May 4 note from Raymond S. Perkins (S/S - RO) to Battle (S/S) recommending the memorandum be repeated to Tokyo, London, and Hong Kong. The recommendation was approved and sent to the White House.

Washington, April 21, 1961.

SUBJECT

Call on the President by the Japanese Economic Mission

PARTICIPANTS

The President Mr. Sato Kiichiro (introduced by Ambassador Asakai) and members of the Japanese Economic Mission Mr. Avery F. Peterson, Deputy Assistant Secretary for Economic Affairs

The President met the Delegation in the Cabinet Room at 3:20 and spoke with them for ten or twelve minutes. He was assured by Ambassador Asakai that all present spoke English. The President was introduced to and shook hands with each member of the Delegation and inquired regarding the individual's business connections.

The President was fully briefed and effective in his conversation. He said the Administration recognized that Japan lived by trade and that the Administration proposed an expansive policy rather than a restrictive one. He indicated, however, that domestic pressures were often against imports and that beneficiaries of foreign trade were seldom articulate; the cotton growers in North and South Carolina who did good business with Japan remained mute, while his neighbors in the textile industry were vociferous in their complaints.

The President said he had been studying the textile situation and had for two weeks in his office a chart showing imports. This (which an aide produced within a minute or two) showed that Japan by its own efforts had kept the volume relatively level at some 180-odd million yards but that others, notably Hong Kong, had been unrestrained in their exports which moved steadily up on his chart to 187 million yards. Something needed to be done to correct this inequity, according to the President.

The President said that he hoped for closer economic relationships between the United States and Japan and between the United States/Japan and Europe, adding that he hoped also that a basis for such relationships could be maintained in the other American Republics.

When some of the visitors were identified as being in the radio- television and heavy electrical industries, the President said laughingly that in the United States these occupations were mostly the bailiwick of Republicans, nevertheless, he got along pretty well with them.

The President did not mention anything about continued import restrictions on Japan.

Mr. Sato's brief acknowledgment expressed great appreciation on the part of the delegation for the President taking time out of what must be an exceedingly harrowing schedule to greet the Japanese mission. The President shook hands with each of the visitors, the Ambassador and a representative of the Embassy when he took his leave.

212. Memorandum of Conversation

//Source: Department of State, Central Files, 394.41/4 - 2861. Official Use Only. Drafted by Paul A. London.

Washington, April 28, 1961.

SUBJECT

US Concern at the Rejection of the US Agricultural Package by the EEC Representatives at GATT XXIV:6 Negotiations

PARTICIPANTS

Mr. George W. Ball, Under Secretary for Economic Affairs Mr. Louis Scheyven, Ambassador of Belgium Mr. Willy van Cauwenberg, Commercial Minister Mr. Roger Coustry, Agricultural Attache Mr. Leonard Weiss, OT Mr. Paul A. London, RA

Mr. Ball called in the Ambassador of Belgium, Mr. Scheyven, on April 28, to present him with a note expressing United States concern at the rejection by the EEC negotiators at Geneva of the US agricultural package./1/ Mr. Ball wished to discuss with the Ambassador the important problems that could result should the EEC Commission continue to maintain such a posture. Mr. Ball explained that we were delivering the aide-memoire to the Ambassador of Belgium because we understood that Mr. Spaak would be chairman of the EEC Council of Ministers meeting on May 2. We were arranging through our posts in the other five member countries and our Brussels Mission to the EEC to communicate the aide- memoire to the other Council members.

/1/For text of the April 28 note, see the Supplement.

Mr. Ball explained that our agricultural package had been developed only after careful consultation at a high level with the Department of Agriculture. We had hoped that the package would permit the successful conclusion of the XXIV:6 negotiations/2/ in Geneva, or at least that it would be possible to go forward on the basis of the package into the Dillon Round/3/ on the assumption that differences in the agricultural field would be worked out while the Dillon Round was in progress. Mr. Ball recognized that the Commission wished to keep some flexibility in order to facilitate the development of a common agricultural policy, but he said that the Commission's attitude in rejecting the US proposals without apparently giving them serious consideration jeopardized the whole structure of the GATT.

/2/Article XXIV, paragraph 6 of the GATT provides that Contracting Parties can renegotiate external tariff rates to compensate for increases or decreases in their bound rates of duty often caused by the imposition of a single, common unified rate. (55 UNTS 272)

/3/Named after Secretary of the Treasury C. Douglas Dillon. The Dillon Round was held in Geneva May 29, 1961 - July 16, 1962.

Mr. Ball emphasized the importance of the Dillon Round to the United States and particularly to the continuation of our liberal trade policies. He noted that should difficulties in the agricultural area at this time lead to a failure to use our negotiating powers in a new round of negotiations, protectionist pressures in the United States will be strengthened and this would endanger the continuance of our liberal trade policies and the extension of the Reciprocal Trade Act, which comes up for renewal in Congress next year. Mr. Ball said that he could not emphasize too strongly the importance to us of an outcome in the XXIV:6 negotiations that would permit us to go forward into the Dillon Round. In closing Mr. Ball said again that he hoped Mr. Spaak and the Council of Ministers would take note at the May 2 meeting of the great importance the United States attached to a change in the Commission's stand on our agricultural package.

Ambassador Scheyven said that he did recognize the seriousness of our concern with this problem and undertook to communicate our aide-memoire to the Belgian Chairman of the May 2 Council Meeting.

213. Editorial Note

On May 2, 1961, President Kennedy announced a 7-point program to help the U.S. textile industry. He asked the Departments of Agriculture, Commerce, Treasury, and State, the Small Business Administration, and Congress to carry out specific tasks: to promote an expended program of research, tax and investment incentives, financial aid for plant modernization; to correct domestic cotton pricing system to help U.S. textile producers; to pass legislation providing assistance to industries hurt by increased imports; to explore escape-clause provision for 12 textile products; and to convene a multilateral conference of textile countries to expand trade. For text of Kennedy's statement, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pages 345 - 346.

These proposals were discussed in circular telegram 1707, April 29, to the Embassies in Paris and Brussels and to representatives in Geneva attending the GATT negotiations. This lengthy telegram stated, among other things, that "in the past several months considerable public attention has focused on the domestic textile situation, which involves wide range of problems resulting from rapid technological change, consumer preference shifts, and increasing international competition." It went on to explain that the administration recognized the serious problems facing the U.S. textile industry, but that to impose unilateral import quotas and other controls on foreign companies, advocated by the U.S. textile industry, could lead to "serious economic, political, and even security problems." Therefore, the preferred policy would promote "bilateral and multilateral international cooperation." (Department of State, Central Files, 411.006/4 - 2961)

214. Telegram From the Embassy in Japan to the Department of State

//Source: Department of State, Central Files, 411.006/5 - 461. Confidential. Repeated to Kobe.

Tokyo, May 4, 1961, 7 p.m.

3174. Depcirtel 1717./1/ Presidential textile announcement featured prominently all Tokyo papers May 3 and 4. Articles cite seven point nature President's program with most space devoted proposed international conference. Editorial reaction mixed. Mainichi takes favorable view ("let's convene international conference"), while Yomiuri alleges Japan textile industry expressing "deep concern" over President's plan, but deferring judgment on proposed conference to permit sounding out view other textile producing countries during international cotton federation meeting opening Osaka May 8. Nihon Keizai makes guarded observation that while "details U.S. plan not fully available no basis yet for pessimism."

/1/Circular telegram 1717, May 2, informed posts of President Kennedy's upcoming textile announcement to be delivered on May 4. (Department of State, Central Files, 411.006/5 - 261)

FonOff and MITI in preliminary reaction stated they very much appreciate U.S. decision not adopt unilateral import quotas. Government spokesman also expressed general approval to idea international conference although indicating detailed reaction could only be determined after learning proposed terms reference.

FonOff also stated it important that consideration Japan's 1961 cotton textile quota increase request not be delayed. According textile industry, decision on 1961 quota levels must be reached by end of this month if Christmas orders for commodities such as velveteens and certain secondary products, e.g. gloves, blouses, knitted goods, trousers not to be adversely affected. Japanese Embassy Washington will be instructed by FonOff in next few days press U.S. for temporary quota increase pending final USG decision on Japan's request for over-all 30 percent increase.

Reischauer

215. Editorial Note

From May 15 to 19, 1961, Contracting Parties to the GATT at the 18th session in Geneva made several important decisions. These included convening a November meeting at the ministerial level to address three problems: 1) tariffs as a hindrance to free trade, 2) elimination of tariff and non-tariff protection in agriculture, and 3) lowering barriers to international trade for less-developed countries. In addition, a decision was made to provide technical advice and trade policy assistance to newly independent countries. (Report of U.S. Delegation to 18th Session of the Contracting Parties to the General Agreement on Tariffs and Trade, Geneva, Switzerland, May 15 - 19, 1961, dated July 10; Department of State, Central Files, 394.41/7 - 1061)

Beginning on May 29, the United States participated in the second phase of the GATT Tariff Conference in Geneva which marked the beginning of the Dillon round of negotiations, despite a failure to reach a settlement with the EEC under Article XXIV, paragraph 6. This article allowed member countries to renegotiate "bound" duties--those established from a single, common tariff to replace the several tariffs of the member countries--in order to obtain appropriate compensation for possible increases in rates of duty. (Current Economic Developments, Issue No. 624, May 23, 1961, pages 17 - 19; Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments)

216. Circular Telegram From the Department of State to Certain Diplomatic Missions

//Source: Department of State, Central Files, 394.41/6 - 1061. Official Use Only; Verbatim Text. Drafted by Emerson M. Brown (E/OT/TA), cleared by Ball and Nicholas A. Veliotes (S/S - RO), and approved by Sidney B. Jacques (E/OR).

Washington, June 10, 1961, 9:08 p.m.

1995. This message addressed Geneva and missions all countries represented on GATT Council except Prague.

1. GATT Council meeting called for June 16 at US request to consider convening international conference principal textile exporting and importing countries. US initiative taken pursuant to directive to Department contained in sixth point President's textile program announced May 2 and following recent trip by Under Secretary Ball to Europe/1/ during which he held informal exploratory discussions several governments, Executive Secretary GATT and Secretary General OEEC. Department has also informed Embassies various other interested countries regarding US plans and intends continue keep them informed.

/1/Ball visited several European countries May 15 - June 4, 1961. For the memorandum of conversation with European officials, May 29, see the Supplement. (Department of State, Conference Files: Lot 65 D 366, CF 1874A) A summary of the highlights of his trip is in Current Economic Developments, Issue No. 625, June 6, 1961, pp. 12 - 13; Washington National Records Center, E/CBA/REP Files; FRC 72 A 6248, Current Economic Developments)

2. Reaction US initiative generally favorable and we confident GATT Council will take affirmative view US proposal. Nevertheless, in interest avoiding misunderstandings or delays by governments in instructing their representatives on GATT Council, missions requested solicit host government support for GATT sponsorship international textile conference and ask that GATT Council representative be instructed accordingly. Geneva being separately requested canvass GATT Council representatives. In view discussions already held by Ball, approaches by Bonn Brussels London Ottawa Paris Rome left mission's discretion. Repeat report Geneva for GATT.

3. Suggested text draft note follows:

Verbatim text

As part seven-point program of assistance US textile industry, President has directed Department of State arrange call conference principal textile exporting and importing countries. Purpose of conference is seek international understanding which will provide basis for trade that will avoid undue disruption established industries. President's program recognizes national interest in expansion of world trade and successful development of less developed countries.

US regards GATT as appropriate international institution to sponsor conference. Accordingly, US has requested meeting of GATT Council June 16 to consider convening international textile conference.

US solicits support BLANK Government for this proposal. US stands ready consult further with Blank Government in this matter as arrangements for conference worked out. End verbatim text.

Rusk

217. Editorial Note

On June 20, 1961, Secretary Rusk held several conversations with Japanese officials on a number of topics regarding U.S.-Japanese relations. One of these conversations on liberalization of trade and payments is scheduled for publication in volume XXII.

218. Memorandum of Conversation

//Source: Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, May - July 1961. Confidential. Drafted by Richard L. Sneider (FE/NA) and approved in S and B on July 14 and at the White House on July 20. A longer memorandum of this conversation, prepared by James J. Wickel (LS/I), is scheduled for publication in volume XXII.

Washington, June 21, 1961.

SUBJECT

U.S.-Japanese Trade and Textile Problem

PARTICIPANTS

Japan Prime Minister Hayato Ikeda Foreign Minister Zentaro Kosaka Koichiro Asakai, Japanese Ambassador to the United States Kiichi Miyazawa, Member of the Upper House of the Japanese Diet Shigenebu Shima, Deputy Vice Minister for Foreign Affairs Toshiro Shimanouchi, Counselor, Ministry of Foreign Affairs, Interpreter

United States The President The Secretary of State George W. Ball, Under Secretary of State for Economic Affairs Walter W. Rostow, Deputy Assistant to the President for National Security Affairs Paul Nitze, Assistant Secretary of Defense for International Affairs Edwin O. Reischauer, United States Ambassador to Japan Walter P. McConaughy, Assistant Secretary of State for Far Eastern Affairs Richard L. Sneider, Officer-in-Charge, Japanese Affairs

The President said that he had informed the Prime Minister in his private meeting of his Administration's intention to maintain a liberal trade policy. However, he anticipates a very tough fight on this question, particularly since the interests benefitting from exports are quiet, while the protectionist elements are vocal and the textile industry particularly well-organized. The President said he had pointed out to the Prime Minister that the United States recognizes Japan buys more from us than it sells to the United States, that he is conscious of Japan's need for trade, and that he in particular realizes Japan has suffered from the voluntary quota program on textiles instituted in 1957. Mr. Ball mentioned that he had informed the Prime Minister of our multilateral textile proposals, and the Prime Minister had said that Japan was prepared to cooperate fully with the United States in this endeavor.

The Prime Minister expressed fears that the importing countries would gang up on the exporting countries in the multilateral talks. The President commented that the best protection for the exporting countries would be an effort to provide a mechanism for orderly expansion of their markets. Under these circumstances, individual countries would not be hurt such as Japan had been by its unilateral restrictions. Mr. Ball mentioned that he had spent that morning with representatives of the importing nations in order to get the agreement of these countries, which have not accepted any substantial amount of textiles from Japan, to increase their imports immediately on a phased basis. We hope to get their initial agreement, as a basis for the Geneva discussion, to the accept-ance on a liberal basis of textile imports. This would provide a larger, rather than smaller, market for Japan. The Prime Minister said the Japanese considered such arrangements favorable.

219. Letter From Members of Congress to President Kennedy

//Source: Department of State, Central Files, 411.006/6 - 2461. Limited Official Use. The source text is a copy of identical letters, one signed by 33 Senators on Senate Committee on Appropriations stationery and the other signed by 122 Representatives on House Armed Services Committee stationery.

Washington, June 22, 1961.

MR. PRESIDENT: On Monday/1/ Members of Congress met with Mr. Ball and received their first information on the details of the Under Secretary of State's proposed international negotiations on certain textile products. Our feeling is unanimous that the Under Secretary is proceeding on the basis of an erroneous understanding as to the nature of the industry, and of the gravity of the textile and apparel import problem. It is the considered opinion of all of us in the Senate and House alike that Mr. Ball's program will insure the continued deterioration of the U.S. industry.

/1/June 19.

The State Department's plan has several basic defects which doom it to failure. These are (a) it pertains solely to cotton textiles, and excludes wool, silk, and man-made fiber textiles and apparel; and (b) it is built on the 1960 level of imports, except for a possible 30% rollback for Hong Kong; would increase Japan's exports to the United States, and assure every country an automatic annual increase in export potential of all textiles and apparel to the United States.

Your seven-point program for the textile industry, as we understood it here in the Congress, was forthright and included all of the industry's products. Mr. Ball has indicated that he considers it impossible to negotiate an international understanding on that basis. In effect, Mr. Ball has come to the conclusion that he cannot discharge the directive contained in Point 6 of your May 2 announcement. We in the Congress prefer your program to the Under Secretary's.

Members of Congress in both Houses have followed carefully your public statements concerning your intentions in behalf of the textile industry. We understood you to mean that you were determined to achieve an over- all solution of the industry's problems. In all candor, Mr. President, we must respectfully advise you of our considered opinion that Mr. Ball has devised a piecemeal and entirely inadequate program which is not in accord with your own pronouncements, and which can succeed only in embarrassing the Administration in its programs relating to trade.

If you are convinced, Mr. President, that Mr. Ball's program is the only one that can be attempted, it is our advice that it would be better to abandon the effort now. His program leads to no real solution and will only compound the injury which we in the Congress feel must be remedied. We know that this is also your objective.

Sincerely and respectfully,/2/

/2/Lists of the signatories from each House are attached to the source text; not printed. For an attached memorandum of conversation between Feldman and Jacques, June 23 - 24, which provides additional context for the origins of these letters, see the Supplement.

220. Editorial Note

On July 7, 1961, a telegram was transmitted to Under Secretary Ball who was in Tokyo for the DAG meeting. This telegram cited President Kennedy's response to the June 22 Congressional letter to him. The telegram stated that the President's June 30 response was sent to Representative Vinson, Senator Pastore, and all the petitioners, and then quoted the text as follows:

"Thank you for your letter on textile negotiations now being conducted by State Department. I have noted your concern and that of your colleagues over possibility that State Department's efforts arrange international conference may not fully meet problems of industry.

"The import problem, I am sure you will agree, must be considered in context our total interest, both foreign and domestic. It should be borne in mind that contemplated negotiations are designed as one of series efforts assist textile industry. Our objective is to assist industry overcome all handicaps which it faces.

"State Department is being instructed to get best possible relief, not only for cotton but other fibers. I am also asking State Department maintain close liaison with Congress and industry in this matter." (Telegram 30 to Tokyo, July 7; Department of State, Central Files, 411.006/6 - 2461)

221. Letter From the Assistant Secretary of State for Congressional Relations (Hays) to Senator Edmund S. Muskie

//Source: Department of State, Central Files, 411.006/6 - 1961. No classification marking. Drafted by Virginia H. McClung (E/OR/CSD) on June 29 and cleared by Warren M. Christopher (B) and Florence K. Kirlin (H).

Washington, July 5, 1961.

DEAR SENATOR MUSKIE: Thank you for your letter of June 19 to Under Secretary Ball,/1/ concerning the State Department's efforts to organize a multilateral agreement on textile trade. Mr. Ball greatly appreciates your understanding of the foreign policy implications of the manner in which the United States decides to handle its problem of low-cost textile imports.

/1/In this letter, Senator Muskie, disappointed by recent U.S. negotiations to resolve problems in the textile industry, urged Ball to press for a significant roll-back in imports of cotton textiles. Muskie believed that "there may not soon be another opportunity comparable to this for securing substantial relief for the domestic textile industry." (Ibid.)

Mr. Ball and those working with him on the textile problem were much encouraged by the preparatory meeting last week (June 21 - 23) with representatives of other major textile importing countries. They found that the nations of the European Economic Community recognized that the time has come for them to relax their trade restrictions against imports from low-cost countries. This recognition is a basic prerequisite to our efforts to induce the low-cost countries to exercise some restraint so as to avoid disruption in import markets. There was also a recognition that the advanced nations have a common responsibility for providing growing opportunities for trade by the developing countries in a reasonable and orderly manner.

At the conclusion of the conference, the participants joined in proposing an early meeting of textile importing and exporting countries directed toward some form of international action which would, in the agreed language of the meeting, (a) "significantly increase access to markets which are at present subject to import restrictions", (b) "maintain orderly access to markets where restrictions are not at present maintained", and (c) "secure from exporting countries a measure of restraint in their export policy so as to avoid disruptive effects in import markets". Although the exact dates are not yet set, we expect the meeting to be convened in the last part of July.

The staff which is engaged in preparations for the meeting is reviewing various possible formulas for achieving the orderly development of trade and will examine S. 1735 with interest in this connection.

The Department is cognizant of the hardship existing in textile communities in Maine. The situation of such communities is a most important element underlying its efforts to bring about more orderly textile marketing conditions and a measure of restraint on the part of low-cost exporting nations. Either Mr. Ball or Mr. Warren Christopher, who has been appointed to represent the United States in the international meeting and is in charge of preparations for it, will be happy to meet with you or to supply any further information on the subject which you may wish.

Sincerely yours,

Brooks Hays/2/

/2/Printed from a copy that bears this typed signature.

222. Telegram From the Embassy in Japan to the Consulate General in Geneva

//Source: Department of State, Central Files, 394.41/7 - 1261. Confidential; Limit Distribution. Repeated to the Department of State as telegram 122, which is the source text.

Tokyo, July 12, 1961, noon.

10. From Ball. Geneva for John Evans, information to Department for Martin. Deeply concerned about state Dillon Round negotiations due to meagerness US offers. I feel it is essential this situation be brought to attention of the President, including indication extent to which limited character of our offers stems from peril point proposal.

Suggest you prepare draft memorandum from Secretary to President which would set forth in simple terms danger extensive withdrawal by EEC and UK of offers tentatively made, in view inadequacies US offers; consequences such restrictive action for free world economy; impact minimal results Dillon Round on US exports, etc.

I will want to discuss general problem with Wyndham-White immediately upon my arrival Geneva and then go over draft memorandum with you.

After transmittal this draft memorandum to Washington I want Martin and Schaetzel to put it in final form, with particular reference steps which might be recommended to President to improve US offers in order to avoid downward spiraling of Dillon Round negotiations.

Reischauer

223. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, Central Files, 394.41/8 - 2861. No classification marking.

Washington, August 28, 1961.

SUBJECT

Acceptance of the Arrangements Regarding International Trade in Cotton Textiles

There is transmitted herewith for signature an instrument of accept-ance of the Arrangements Regarding International Trade in Cotton Textiles done at Geneva July 21, 1961./1/

/1/Not printed here. For an extract from this agreement, see American Foreign Policy: Current Documents, 1961, pp. 1238 - 1240.

In accordance with Point 6 of your Textile Program, announced May 2, 1961, the Department of State arranged for a conference of principal textile exporting and importing countries to "seek an international understanding which will provide a basis for trade that will avoid undue disruption of established industries". At a 16-nation meeting, which was called in Geneva by the Secretariat of the General Agreement on Tariffs and Trade, an ad referendum agreement was reached July 21, 1961 on a short-term multilateral arrangement for the 12-month period beginning October 1, 1961, and on procedures for developing a long-term multilateral arrangement.

Under the short-term arrangement, if the United States finds that imports of cotton textiles are disrupting its markets, it may call upon the exporting country or countries concerned to restrain exports of those textiles at specified levels but not lower than those which prevailed during fiscal year 1961. If the requested restraint is not exercised, the United States may decline to accept imports at any higher level. The short-term arrangement also authorized similar action respecting imports of non-cotton textiles which frustrate the arrangement for cotton textiles.

The multilateral arrangement specifically authorizes bilateral arrangements on terms other than those in the multilateral arrangement.

With respect to a long-term multilateral arrangement, a Provisional Cotton Textile Committee, composed of representatives of all countries which accept the Geneva Arrangements, is scheduled to meet in October, 1961, and, by April 30, 1962, to recommend provisions for a long-term arrangement.

You have legal authority to accept the Geneva Arrangements.

Dean Rusk

224. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, Central Files, 394.41/9 - 1161. Confidential.

Washington, September 11, 1961.

SUBJECT

Need for Additional Bargaining Authority in Geneva Tariff Negotiations

1. When the Trade Agreements Act was extended in 1958/1/ authority was sought to cut tariffs by an additional 20% over a four-year period. This authority was requested primarily in order to enable the United States Government to negotiate reciprocal concessions with the Common Market. This was necessary in order to minimize possible disadvantages to our trade as a result of the internal tariff reductions of the Common Market which under the Rome Treaty would have amounted to 30% over the same period.

/1/P.L. 686, approved on August 20, 1958; 72 Stat. 673.

2. Under the authority granted by the 1958 extension legislation, the United States initiated a round of tariff negotiations in Geneva. Unfortunately, in the bureaucratic process of developing bargaining offers for these negotiations, the Eisenhower Administration threw away most of its chips. First, it made the decision to restrict the commodities for possible negotiation to a very limited list. This list comprehended only 26.3% of our imports from the countries with which we plan to negotiate. Second, the Tariff Commission further limited the Administration's bargaining authority by setting highly debatable peril points for a large number of commodities. The Tariff Commission's action appears to have been taken without serious regard to economic data.

3. As a result of these two bureaucratic actions, the United States Delegation at the Geneva Conference was authorized to offer tariff concessions on only 18% of total US imports from the countries with which we were negotiating. In the case of several countries, the limit of our bargaining authority was reduced to around 1% or less of our imports from these countries.

4. Meanwhile, both the Common Market and the United Kingdom had approached the Geneva negotiations in an entirely different spirit. Both the Common Market countries and the United Kingdom had indicated that they were prepared to make 20% across-the-board reductions in their tariffs on industrial items, subject to certain specified exceptions.

5. They made it clear that they were prepared to go forward with these reductions (on a most-favored-nation basis) even though the United States did not make reciprocal concessions to the same extent. They recognized that the United States had put up with quantitative limitations on their part during the post-war years of the dollar shortage. They recognized also that the United States was having balance of payments difficulties. Finally, they wished to minimize discrimination against the United States resulting from the establishment of the Common Market and the European Free Trade Association.

6. But while adopting this flexible and statesmanlike view, they were reluctant to go forward with their 20% across-the-board offers if there was too great a disparity between their offers and those of the United States. In other words, while they did not insist that the United States reciprocate fully, they did feel that they must obtain at least partial reciprocity in order to withstand their own domestic political pressures.

7. Our present dilemma is, therefore, that we have so hamstrung our own negotiators that they do not have the authority to make the concessions needed to satisfy even the modest requirements of reciprocity which the European nations are expecting. As a result, there is grave danger that both the Common Market and the United Kingdom will withdraw from their initial, generous positions and reduce their offers substantially below the original 20% across-the-board proposals. If this occurs, we shall lose the chance to minimize the discrimination against our producers which the external tariffs of the Common Market will otherwise create.

8. I need not emphasize to you the difficulties that this will cause us in working toward an adequate modus vivendi with the Common Market. Nor need I emphasize the advantages that we would gain in the Trade Agreements fight next year if we could show that, by using the authority provided by the 1958 extension legislation, we had succeeded in obtaining a 20% across-the-board reduction in both the Common Market and the United Kingdom industrial tariffs.

9. The measure of our difficulty is shown by the fact that the Common Market's offers to the United States in the industrial area alone cover more than $347 million, or 60% of our requests in this area, while our offers to the Common Market countries cover only $153 million, or less than one-fourth of their requests. Much the same situation prevails with the United Kingdom. Annex A provides further details./2/

10. Faced with these disturbing facts, we requested our Delegation to the Geneva Conference to cull the list of peril point items on which concessions had been requested by the Common Market and the United Kingdom and to extract those items that might be included in additional offers at a minimum political risk. This operation has now been completed and our Delegation has produced a list of items with a total trade value of $130 million for the EEC and the UK, as indicated in the attached List I./2/

/2/Not printed.

11. In view of the gross inadequacy of our present offers and the critical importance of successfully concluding the Geneva negotiations, I strongly recommend that we authorize our negotiators at Geneva to increase the United States offers to cover the additional trade items indicated in List I, even though this involves disregarding peril point findings on these items. Our negotiators would use this authority only to the extent they feel it necessary in order to obtain the kind of concessions from our European friends that we require.

12. This action would be clearly within your authority. Under the terms of the law you are not bound by the peril points. The law merely requires that you notify Congress of the items with respect to which peril points have been disregarded. This notification does not have to be given, moreover, until thirty days after a trade agreement has been concluded. If we proceed with this course your report to the Congress would probably not be required until about the middle of December, since it is presently planned to complete the Geneva negotiations by about the middle of November.

13. I recommend one additional measure for increasing our offers to the EEC and the United Kingdom. At my request the United States Delegation had assembled a list of items on which the Tariff Commission found peril points which coincide exactly with existing tariff rates. On these items, as shown in the appended List II,/3/ the United States would be able to offer tariff bindings at present rates, without breaching peril points and without the necessity of reporting to the Congress. Offers for bindings on these commodities were not originally included in our offer lists, because they were thought to be of little value in obtaining reciprocal concessions. But I now feel that they should be included for whatever benefit they may bring, little as it may be.

/3/Not printed.

14. By increasing our offers through the inclusion of all or part of the suggested list of peril point items we should, with good luck, be able to insure not only the 20 percent across-the-board reductions by the Common Market and the United Kingdom but also obtain reductions on certain specific items of special interest to American producers. In this way we could demonstrate to the Congress and the American people that by the extensive use of trade agreement authority we are able to minimize the discrimination resulting from the Common Market. We could then pave the way for future trade agreement authority in new legislation enabling us to bring about the further reductions in the external tariff of the Common Market as the Common Market moves progressively into effect. This is, of course, the fundamental basis upon which next Spring's trade agreement fight must be founded.

Recommendation:

15. I recommend, therefore, that we move promptly to enlarge the bargaining authority of our negotiators. I suggest that you ask Secretary Hodges, as Chairman of the Trade Policy Committee, to convene a meeting of that Committee as quickly as possible to review the list of items on which it is proposed to make new offers. I suggest also that you make clear to the Trade Policy Committee that they should resolve doubtful cases in favor of granting our negotiators the necessary increased bargaining authority, with the understanding that the negotiators will use that authority only if they deem it necessary in order to achieve the results we need.

I recommend you also make clear that if any items are deleted, substitutions should be made covering a comparable amount of trade. Since there are compelling reasons for concluding the negotiations in Geneva by October 31, I suggest that the Trade Policy Committee be asked to report to you on this matter not later than September 22.

Dean Rusk/4/

/4/Printed from a copy that indicates Rusk signed the original.

225. Memorandum From the Under Secretary of State for Economic Affairs (Ball) to President Kennedy

//Source: Department of State, Central Files, 394.41/9 - 2661. Confidential.

Washington, September 22, 1961.

SUBJECT

Request for Authority to Make Additional Offers to the European Economic Community and the United Kingdom

In accordance with your instructions, the Departments of Commerce and State have reviewed the list of items appended to the memorandum of September 11 from Secretary Rusk,/1/ for which authority was requested to make tariff reduction offers below peril point levels established by the Tariff Commission. In this joint review agreement has been reached between the two Departments with respect to certain modifications of the list, as set forth in a letter which the Secretary of Commerce transmitted to you today./2/ There is attached for your approval a revised list of commodities/3/ reflecting the modifications agreed to between the two Departments. Of the 66 items contained in the previous list, 58 have been retained without change, two items have been wholly deleted, three have been modified by exclusion of certain parts, and three have been made subject to a condition. On the other hand, three new items have been added to offset the deletions. Trade coverage has been increased by $7.3 million for the EEC and by $3.3 for the U.K.

/1/Document 224.

/2/Not found.

/3/Two attached lists are not printed.

You will recall that the memorandum of September 11 also recommended that the United States Delegation be given authority to offer tariff bindings at present rates on a second list of commodities, which would not involve any breaching of peril points. The Department of Commerce has also concurred in this recommendation.

Recommendation:

I recommend that you authorize the United States Delegation to the current tariff conference in Geneva to make additional offers of tariff reductions or tariff bindings to the EEC and the U.K., as indicated in the attached lists and to the extent deemed necessary by the Delegation in order to achieve significant and substantial reductions in the tariffs of the EEC and the U.K. Your approval is requested at your earliest conven-ience since we are trying to conclude the negotiations as soon as possible./4/

George W. Ball/5/

/4/On September 26, President Kennedy approved Under Secretary Ball's recommendation. (Memorandum from Bundy to Rusk, September 26; Department of State, Central Files, 394.41/9 - 2661)

/5/Printed from a copy that indicates Ball signed the original.

226. Memorandum From the Under Secretary of State for Economic Affairs (Ball) to the President's Deputy Special Counsel (Feldman)

//Source: Department of State, Central Files, 411.006/9 - 2561. Confidential. Transmitted to Feldman under cover of a memorandum from Battle, September 26. (Ibid., 411.006/9 - 2661) Ball also sent a copy to President Kennedy under cover of a September 29 memorandum, which urged a delay in the escape clause announcement until after tariff negotiations in Geneva had been completed. He emphasized: "action at this time approving the tariff increase might seriously jeopardize the development of our international textile agreement as well as the tariff negotiations presently underway in Geneva." (Ibid., 411.006/9 - 2961)

Washington, September 25, 1961.

SUBJECT

Escape Clause Proceedings on Carpets

The State Department is separately forwarding its departmental view regarding the escape clause proceedings on carpet. I believe, however, that there are reasons not emphasized in the official Department statement that have special relevance to other matters with which we are both very much concerned.

As you well know, the two countries that would be affected by a general affirmation of the Tariff Commission's recommendations are Belgium and Japan. In deciding the issue, it is important that the President be aware of the following considerations:

I

CONSIDERATIONS WITH REGARD TO BELGIUM

The Belgian Government has made it clear that it would strongly resent the application of the escape clause so as to increase duties on Belgian carpets. The Belgian Ambassador in Washington has made strong representations to this effect. The Belgian position has also been made clear to us in Europe.

At the moment our relations with Belgium are already strained, and at a time when we need solid European support for our Berlin policy. Even before the Lumumba fiasco, the Belgians felt--rightly or wrongly--that we had a heavy responsibility for pushing them prematurely out of the Congo. Within the last week Belgian bitterness toward the United States has been intensified by the UN military action against Katanga, which had long been a rich feudal province of the great Belgian banking and mining interests. While reluctantly accepting Congo independence, the Belgians had hoped to maintain their essential interests in Katanga.

Today they see the last vestige of those interests threatened by our vigorous support of the Adoula Government and by our endeavors to bring about a reintegration of Katanga into the Congo through an Adoula - Tshombe settlement that would necessarily mean the elimination of Tshombe's Belgian advisers and officers. When this event comes to pass-- and it is settled American policy to hasten the event--the Belgian people will quite likely regard this as a final humiliation brought about as a result of American influence.

These are only some of the elements that contribute to Belgian unhappiness with our current activities. As is the case with other small nations, Belgium is feeling left out of the Four-Power Berlin talks. Foreign Minister Spaak, who has been most helpful to us in the past, is very prickly as a result of the Big Four treatment of his talk with Khrushchev.

Leaving aside its unhappy consequences for our foreign political interests, a decision to increase tariffs on Belgian carpets would have the following effects on other aspects of our commercial policy:

A. Effect on Textile Agreement.

At the last meeting of the EEC Ministers, Belgium blocked a decision that the EEC should sign the Geneva textile agreement on the ground that it wanted to await the outcome of the carpet proceeding. We succeeded in having this action reversed, and we understand the EEC is to sign the agreement today (Monday). But Ambassador MacArthur in Brussels had to take a strong line at the top level to obtain this reversal.

Belgium's reluctant agreement to go along with the one-year textile agreement is, of course, only the first stage of the battle. I had a hard time persuading the Belgian representative to play ball with us during the Geneva conference, and an intransigent Belgium can make it difficult for us to work out a longer-range textile agreement that will meet our interests. Belgium is a member of the EEC and none of the other members has any real interest in a long-term agreement. If the escape clause proceeding is permitted to operate against Belgian carpets, we can confidently count on Belgium's being in an obstructionist mood.

B. Effect on Current Tariff Discussions in Geneva.

The carpet action may have an effect of even greater importance on the current round of tariff negotiations in Geneva. As you know, we are strenuously working to obtain concessions from the Six regarding their common agriculture policy which will meet the requirements of our own agriculture. When Secretary Freeman was in Brussels recently, it was made clear to him that in the event the President approved a tariff increase on Belgian carpets the Belgian Government would drag its feet on agreeing to concessions on the part of the EEC that would make the common agriculture policy palatable to US interests. Secretary Freeman was told in effect that the Belgians would regard the President's decision on carpets as a test of our commercial liberalism.

The proposed increase in carpet duties is relevant to the current tariff negotiations in Geneva for an additional reason. As you know, we are seeking to obtain a 20% reduction in the common external tariff of the EEC on industrial items. It is for this reason that we have recently obtained authority from the President to disregard "peril points" on a number of items in order to provide our negotiators with more bargaining power.

An increase in carpet tariffs would not only invite a reaction from an influential EEC country, which might result in the withdrawal or holding back on the 20% reduction offer, but it would actually operate to reduce our bargaining position. Our carpet concessions cover a trade of some $28 million. If the President increases the tariffs on this trade by adopting the escape clause recommendations of the Tariff Commission, the United States will be required, under GATT rules, to give compensation in a corresponding amount. The net effect of this would mean that our offers in the current Geneva negotiations would be reduced by $28 million. This would materially detract from the effect we are hoping to achieve by the "peril point" actions.

II

CONSIDERATIONS WITH REGARD TO JAPAN

If relations with Belgium are difficult, our relations with Japan are even more sensitive in the particular area of commercial policy. [3-1/2 lines of source text not declassified]/1/ The Japanese Embassy here has made strong representations to us in connection with the pending carpet action. Similar representations have been made to Ambassador Rei- schauer. The carpet problem was also put up to Christopher when he was in Tokyo.

/1/Not attached but identified in Battle's September 26 memorandum to Feldman (see the source note above) as telegram 842 from Tokyo. (Ibid., 611.9441/9 - 1261) The telegram is scheduled for publication in volume XXII.

In the light of these considerations, I urge you to call the following considerations to the President's attention before a final decision is made on the carpet proceeding:

A. Effect on Bilateral Textile Agreement with Japan.

The coming into effect and operation of the bilateral textile agreement just concluded with Japan are subject to certain specific conditions. One of these conditions is that cotton fabrics from Hong Kong shall be restrained at or about the level of imports into the United States during US fiscal year 1961, and that imports of secondary products such as household made-up goods, apparel and knitted goods shall be reduced to 30% or more below the level of 1960.

At the present moment we cannot be at all sure of obtaining a firm agreement with Hong Kong. The most we can do is to try to induce Hong Kong to join the Geneva agreement by threatening action to enforce restrictions unilaterally if Hong Kong refuses to do so. The Hong Kong authorities are sophisticated and they may call our bluff. They know that under existing law our authority to act unilaterally is far from clear. They may or may not be persuaded to accept the Geneva agreement by our assertion that Congress will provide the necessary legal clarification in January--and that in the meantime we are prepared, if necessary, to enforce restrictions anyway.

The Japanese are well aware of our dilemma. They have had a legal opinion on Section 204/2/ prepared by an American lawyer. They have been needling our Consul General in Hong Kong regarding the slow progress of the Hong Kong negotiations. If handled diplomatically, I think they will accept whatever solution we work out for limiting Hong Kong imports-- whether by an agreement or by a promise to enforce restrictions either now or as soon as our authority to do so is cleared up in January.

/2/Section 204 of the Agricultural Act of 1956, P.L. 540, approved on May 28, 1956, authorizes the President, as he deems necessary, to negotiate agreements with foreign nations limiting any of their agricultural exports into the United States and limiting U.S. imports of any agricultural commodity. (70 Stat. 200)

But if we embarrass the Ikeda Government again by an increase in carpet tariffs, it may be difficult to hold Japan to the present bilateral agreement. In these circumstances the Japanese may use our difficulties with Hong Kong as a basis for requesting some further concession under the bilateral agreement.

B. Effect on Long-Term Arrangement.

As in the case of Belgium, we shall need Japanese cooperation in working out a long-term textile arrangement. The Japanese are not presently in a cooperative mood. They will be even less so if we now initiate an action for an equalization fee on cotton. (I am suggesting in another memorandum to you that this action be temporarily postponed.) The carpet action would be interpreted in Tokyo as one further evidence of our illiberalism.

It would, moreover, appear to the Japanese as quite irrational for us to strain their patience further over only a few million dollars in trade. After all, the Japanese are running a balance of payments deficit with us which will amount this year to about $900 million.

C. Effect on US-Japanese Economic Committee Meeting.

When Prime Minister Ikeda was here last June the President gave him substantial assurances of our determination to pursue liberal commercial policies toward Japan. The proposal to create a US-Japanese Economic Committee was put forward in our attempt to recognize Japan's importance as a major industrial power and to strengthen our ties with a nation on which we must rely as a major source of strength in Asia. The Committee is having its first meeting, as you know, early in November and we have a vital interest in insuring that it meets in a propitious atmosphere. While there is no intention of discussing the textile problem at the meeting, the harrowing experience of the textile negotiations, which seriously weakened the government's position, will have a definite effect on the climate of the proceedings. A decision to increase tariffs on Japanese carpets--coming just before the meeting--would seriously prejudice its outcome.

We would do well to remember that it was only fifteen months ago that Communist-inspired mobs in Tokyo caused the cancellation of President Eisenhower's visit. President Kennedy's friendliness and understanding manifested during Prime Minister Ikeda's trip went far to repair the damage, and Ambassador Reischauer's brilliant efforts in Tokyo have contributed to a further improvement in relations. But in the vital area of our commercial relations with Japan, disillusionment is setting in.

The Japanese have the impression that we talk a good game but do not play it. I certainly cannot be sanguine about the prospects of improved Japanese-US relations if we take further actions against Japanese imports--particularly at a time when the Japanese Government is being forced to take Draconian measures to deal with an alarming trade imbalance.

III

THE MERITS

Both the Belgians and Japanese are aware of the fact that the US carpet industry's difficulties derive not from imports but from the domestic production of machine-tufted rugs. This, as you know, is also the view of the executive agencies of our own Government.

Since the carpet industry cannot make a persuasive case for escape clause relief, both the Belgians and Japanese will be inclined to construe an upholding of the Tariff Commission's recommendation as another action directed against them. Under such circumstances we can count on their being extremely skeptical of our protestations of liberal intentions in the future.

George W. Ball/3/

/3/Printed from a copy that bears this typed signature.

227. Paper Prepared by the President's Special Assistant (Petersen)

//Source: Department of State, Central Files, 411.004/10 - 461. Confidential; Limited Distribution. Transmitted to Ball under cover of an October 4 memorandum from Petersen, which indicated that several other agencies also received copies of the paper (Kennedy Library, Petersen Papers, Trade Policy, 1961)

Washington, October 4, 1961.

PROPOSALS FOR 1962 UNITED STATES FOREIGN TRADE AND TARIFF LEGISLATION

The President's authority to enter into trade agreements with other countries for the reciprocal reduction of tariffs and other import restrictions will expire in June 1962. The trade agreements program has always rested on two quite distinct bases: on the need for buttressing our international political and security aims with suitable economic meas-ures; and on the grounds of increasing this country's economic well-being through international trade.

The relevance of the trade program to our political and security aims is more direct and immediate than it has ever been in the program's 27-year history. The creation and enlargement of the European Economic Community pose a basic issue: whether the tremendous economic potential of this area will be used in harness with the resources of the United States, Japan and the other free world countries toward common political and security aims; or whether, despite the desires and intentions on both sides of the Atlantic, the newly created preferential trading area will draw the enlarged EEC and its overseas associates into a separate political force.

This memorandum concentrates upon the trade issue,/1/ taking the larger political and security considerations as given. Even on these more restricted economic grounds, however, four major questions are involved.

/1/It does not deal directly with problems of trading with the Soviet Bloc or maintaining orderly commerce among the Western nations in the face of Soviet economic aggression. However, the contribution it proposes to the general strength and solidarity of free world trade would serve as a vital indirect influence. [Footnote in the source text.]

1. How does the US propose to ensure reasonable access to the European Economic Community for its exports and those of other countries in whose well-being we have a major interest?

2. In this process, how can trading opportunities be widened in the other markets of the free world?

3. How do the industrialized nations propose to promote a constantly growing market for the exports of the less developed countries?

4. And, finally, how does the US propose to secure the benefits of increased foreign trade without serious injury to segments of the domestic economy?

Major Changes Proposed

We propose that the President receive renewed authority over a five-year period to negotiate trade agreements reducing present rates of duty by as much as 50 per cent. The authority should be sufficient to enable a broader type of bargaining with the European Economic Community. It will be necessary to change the peril point procedure. To avoid serious injury to domestic producers, an appropriately revised escape clause should be supplemented with a program of trade adjustment assistance. With these basic modifications, the main outlines of the legislation would go on unchanged. The principle of reciprocity in the negotiation of trade agreements and gradualism in putting reductions into effect would remain. While the general approach would involve broad reductions, the problems of certain groups of producers would receive special consideration. Domestic industry will continue to have an opportunity to be heard.

The Basic Negotiating Authority

On its present timetable, the European Economic Community will have eliminated substantially all its tariffs and other import restrictions on trade among its members at an early date, no later than 1969 and probably much sooner. From now on, goods from outside the Community will face a growing measure of discrimination. This will develop even though it is anticipated that the EEC will in the 1961 GATT negotiations make a 20 per cent reduction in its external tariffs on manufactures without equivalent reciprocal grants by the US. Now the United Kingdom has declared its intention to enter the EEC and gain tariff-free access to the markets of the Continent. Probably most of the other members of the OEEC will eventually join, increasing the effective discrimination against the outside world. The resulting union will have a population 43 per cent greater than that of the US and exports more than twice as large. Last year the US sent one third of her merchandise exports, nearly $6.7 billion, including $2.1 billion of agricultural products, to the OEEC countries. The external tariff of the EEC thus affects access to what is potentially the world's largest single market.

If we fail to protect our access to Europe's markets, we risk a shrinkage of our favorable merchandise trade balance which was $4.7 billion in 1960. Moreover, we would not diminish the incentive to a large flow of US direct investment in Western Europe provided by the existence of a high tariff wall. Both considerations would aggravate our vexing balance of payments problem and propel us toward the last resort of import restrictions, which would induce retaliation and permanently cost us the economic leadership of the free world. If we fail to achieve reciprocal tariff reductions with the EEC, we cast away a powerful tool for restraining inflation and encouraging innovation in the American economy.

The timetable of EEC is not absolutely fixed, and the evidence is that the process of internal tariff reduction may well be completed in three to four years. The faster the pace of internal reduction, the greater the degree of tariff discrimination. The President's authority to negotiate tariff reductions and the period within which he is authorized to do so should relate to these basic considerations. To insure some time flexibility on the part of the United States the President should have authority to enter into trade agreements over a five-year period although in fact, with the acceleration of the internal tariff reductions of the EEC, negotiations may have to be completed within two or three years. To insure a minimum of discrimination against our products, the President must have authorization to reduce all US duty rates by 50 per cent. Even this authority may not be sufficient to achieve a "tolerable" level of discrimination and a larger quantum of authority may be needed. (The authority here recommended is thought to be the maximum politically possible of achievement.)

Any negotiation sufficient to accomplish our objectives will probably have to involve commitments on both sides to cut tariffs broadly on large groups of products. As for the EEC, that organization would find it impossible to reach agreement among its six countries on a single list of offers and demands in individual products. On the side of the US, we are pushed toward the same pattern. Our broad objective is to ensure that the EEC market is available to the export interests not only of this country but also of other nations not in a position to bargain effectively, such as those of Latin America. Even if the interests of domestic exports were our sole concern, it would be hard to pick the products critical to our exporting interests. The EEC offers a new, dynamic opportunity for US exporters, whose full implications will not generally be understood until the US has tested the market.

This negotiating authority could provide the vehicle for major enlargements of the market opportunities of the less developed countries in the industrialized areas. The need for this enlargement is critical. Foreign aid is a costly substitute for foreign trade. Furthermore, the development of the EEC raises the possibility that goods of the associated territories of its members will enter the Community duty-free while competing products of other less developed countries face the external duties of the EEC. The United States should use its trade agreements authority in seeking multilateral agreements among the industrialized countries to promote access for products such as those of tropical agriculture and the growing volume of manufactures likely to come from the developing areas.

Peril Point Provision

For the United States to win the necessary general reductions in the EEC's external tariffs, we shall have to agree to equally general cuts. These might involve significant average reductions in large groups of our tariff rates, with some limits on the way in which we (and other nations in the agreement) achieve the average. We must change both the substance of our peril point and the escape clause provisions and the procedure by which we apply them if we are to enter upon this kind of negotiation.

Under the present procedures and criteria, the peril point findings of the Tariff Commission have ended any hope of further substantial reductions. This blockage grows from procedures and criteria which are basically unreliable and illogical. The Commission must make findings on a great number of products in a relatively short period of time. These findings involve difficult predictions subject to a low degree of accuracy even if the Commission had full information. It must pretend to set the peril points on particular products of integrated industries, independent of what happens to tariffs on other products. It must estimate the threat of injury to an industry without knowing what new exporting opportunities may be created for that same industry by the international bargain to come. It is natural that, in the absence of a clearly defined tariff reduction goal, the Commission feels free to resolve all areas of ignorance and uncertainty about the effects of imports in favor of a finding that a rate below the existing level may result in injury.

In addition, however, the possibility of broad negotiations renders the definition of serious injury which governs peril point and escape clause provisions, inappropriate in any case, especially incongruous. At present, the peril point and the escape clause require the US to take account of the domestic production of every individual product, even if the industry is a multi-product industry. In negotiations of broad scope, however, many US industries can anticipate a broad liberalization in their export opportunities even as they face a like liberalization in import competition; significant shifts in the composition of production, therefore, are bound to occur. Some of these shifts will take place within industries and some across industries. The critical question is and ought to be whether, on balance, US labor and US productive facilities will be or have been idled in the process. The thrust of our proposed amendments would be to find injury only where such idling of labor and facilities occurs and to offer adjustment assistance of various kinds to speed the necessary shift.

The following sequence illustrates the negotiating procedures which could be employed under the proposed authority of the President:

1. A proposal would be framed under which the US would agree tentatively with the EEC, Japan and other industrial countries to reduce our respective tariff rates, for instance, by some average percentage. To deal with some of the "hard core" trade problems of which we are already aware, we and the other countries would reserve a limited number of products for special treatment. The average reduction, according to the agreement, might have to be reached separately for each of a number of broad categories of products.

2. Subsequent to the negotiation of this tentative agreement, a suitable schedule of rate reductions would be fixed tentatively after hearings, and the Tariff Commission would determine whether serious injury would ensue for a US industry if these particular rates were adopted. The criteria of injury applicable in peril point proceedings would be the redefined criteria of the escape clause.

3. Peril point findings by the Tariff Commission might indicate that the tentative weighted average reductions could not be reached for some groups without threat of injury. These findings would then be taken into account by (a) reducing these items no further than was possible under the peril point finding, (b) reducing the items beyond the peril point with or without instituting an investigation which may lead to a program of adjustment assistance for the vulnerable portions of the affected industry, (c) proposing other tariff reductions to the Tariff Commission for peril point findings to serve as offsets to deleted items, or (d) renegotiating the targets of the tentative international agreement to conform with the peril point restraints.

This procedure plus the new criteria for injury would greatly improve the peril point process. In the process of fixing a peril point for each individual commodity, the Commission would examine the effect of the whole tentative bargain on each industry or segment of the economy, i.e., the effects of specific proposed reductions on all competing imports and the new opportunities for exports created by the reciprocal concessions of other countries.

Escape Clause and Adjustment Assistance

A new test of serious injury, the idling of an industry's capital and labor directly and substantially due to increased imports, would govern the Tariff Commission's deliberations in escape clause proceedings. The present practices of taking an increase of imports as itself an indication of injury and defining the facilities producing a single product as an industry should be discarded. Neither feature reflects the conditions of true economic injury, nor the way in which American industry typically responds to economic change. However, there should be more remedies available than just tariff increases when the Tariff Commission finds that injury has occurred under this more appropriate standard. The President should be authorized to accept or reject the Commission's recommendations as at present, but he should also be able to invoke adjustment assist-ance for the injured industry, either with or without the temporary relief of import restrictions.

Adjustment assistance, administered by the Departments of Commerce and Labor and any other appropriate agencies, should include such types of aid to firms in affected industries as assistance in labor retraining programs, low interest loans for financing new equipment, and special amortization privileges. Workers should be aided through the provision of moving expenses, retraining and extended unemployment benefits and early retirement privileges.

The above proposals cover the major ingredients of the recommendations for the trade agreements legislation. Many subsidiary aspects of this legislation have not been covered in this paper. Moreover, it is expected that the proposals with respect to trade agreements legislation will constitute only a part, albeit the most important, of a broader set of policies in the field of trade some of which may require legislative action independent of the trade agreements legislation.

228. Memorandum From the Deputy Assistant Secretary of State for Economic Affairs (Trezise) to the Under Secretary of State for Economic Affairs (Ball)

//Source: Department of State, Central Files, 411.0041/10 - 1061. Confidential. Drafted by Trezise.

Washington, October 10, 1961.

SUBJECT

Comments on Petersen's Trade Legislation Proposals

There are two considerations that we think bear upon the Petersen trade legislation paper./1/

/1/Document 227.

First, as a tactical matter, the Petersen proposal suggests that we begin, so to speak, with a minimum position. The theory is that by pre- senting a familiar concept, the peril point, and a well-known framework, the old Trade Agreements Act, we can hope to get a much improved and substantially more workable trade policy law. If enacted, it is argued, the Petersen proposal would give the Executive Branch a considerable range of negotiating authority. Further, its procedures would put the Tariff Commission in a position in which it would be usually awkward and difficult to find that peril points had been reached, since we would already have completed an extensive negotiation with our major trading partners. At worst, the President could always breach peril points if the Tariff Commission acted contrary to this expectation.

Even if all this is granted, there is a preliminary question as to whether it is tactically advisable to ask for a small package. Petersen, and I believe Ray Vernon and Stan Metzger, evidently are persuaded that nothing more can be obtained from the Congress and that to ask for more would be to risk an explosion on the Hill that would ruin the prospects for acceptable trade legislation. The other side of the argument, of course, is that by beginning low you insure that Congress will give you the rock bottom minimum. If you offer Congress the peril point and other features of the past, it will be driven to improve on all the protectionist aspects of the legislation and thus to leave us worse off than we are now, if that is possible.

The other point is strategic in nature. It is forcefully represented to me by the staff in E that the problem with our present trade agreements law is not only that restrictive features have been added to it over the years but that there has also grown up an environment of hypercaution and negativism about trade policy that is associated with the existing law. Thus, in preparing for the current Dillon round of negotiations (which had been advertised to the Congress as promising to be the largest and most complex tariff negotiations in our history), the Trade Agreements Committee whittled away at the preliminary negotiating list until it represented only but 26 per cent by value of the relevant 1959 imports. The whittling process reflected, in part, the prospect that items would be peril pointed by the Tariff Commission anyway and, in another part, the prevailing and pervasive negativism of the other Departments, built upon ten years of an increasingly protective atmosphere surrounding the trade agreements law. When the Tariff Commission was brought in, the list was further cut to about 18 per cent of our 1959 imports by value, this, of course, directly on the basis of peril points. I am advised that when we have completed these negotiations, which as I say have been represented in hyperbole to the Congress, the net reduction in our tariffs will be in the order of 2 to 3 per cent.

With this background, the staff people who have lived with this problem over the years feel very strongly that the time has come for a clean break, that unless we can get a law which in its language and spirit suggests a forward movement, tariff reductions of any significance simply will not be feasible. They argue that retention of the peril point concept in the law implies in a larger sense the retention of the negative bias that has progressively strangled the trade agreements program over the past decade. Thus, the Petersen proposal, even if enacted into law without restrictive amendments, would not give us the basis for a trade program suited to the requirements of 1962 and thereafter.

In the E view, therefore, the issue is not merely tactical. Although we feel that it would be dangerous to begin with a proposal designed in part to placate protectionist sentiment, since Congress quite likely would not stop there, we also feel that legislation built around the peril point and serious injury approach would in fact merely perpetuate a situation that has grown up in which a workable trade policy is not practicable of achievement.

We would recommend, therefore, that the Department hold out for a strong beginning position: broad tariff reduction authority; no peril point; and adjustment assistance to be the normal response to an injury finding.

229. Paper Prepared by the President's Special Assistant (Petersen)

//Source: Kennedy Library, Petersen Papers, Trade Legislation, 1/13/61 - 11/5/61. No classification marking. Transmitted to Ball under cover of an October 18 memorandum from Petersen.

Washington, October 17, 1961.

The alternative which has been suggested is to defer submission of a trade bill for the time being, presumably until the 1963 session of the Congress. There are some persuasive arguments in favor of this view. One is that the full implications of the expanded EEC have not yet sunk in among Americans and that another year would be helpful in rousing them both to the extraordinary challenge and the extraordinary opportunity created by the enlarged Community. A second argument is that the negotiating situation between Britain and the EEC will be much clearer a year hence; and, as a corollary, that it will be much more obvious what statutory powers the United States will need in order to deal with the EEC. Still a third argument turns on the asserted risks of submitting legislation of this sort in an election year. If it were decided to postpone, according to the proposal, this would not be done in any casual or laconic way; the President would make a major statement emphasizing the need for closer economic ties with the EEC, observing that this would require a major statutory overhaul, and noting that the time was not yet ripe for deciding exactly what changes would be needed.

Despite the persuasiveness of this view, I do not recommend such delay. My reasons are these:

First, any delay will be interpreted as a prelude to retreat. However artfully the President's statement may be, the public impression will be one of vacillation and uncertainty. Groups in support of liberal policies in the foreign economic field will lose heart and momentum; the protectionists will gain in strength and will use the added year to gain even further.

Second, I see no clear reason to suppose that a year's delay will make the American public more willing to take a bolder approach toward ties to the EEC. True, there may be more heightened interest and education about the Community a year hence than today. But if the United States were not already in motion toward closer economic ties, the interest could easily take a dangerous isolationist and nationalist form. This is a case in which our tone toward the EEC has to be set clear and early, not only by a speech but by action on the part of US leaderships.

My third point has to do with the plausibility of the view that we will be in a better position to gauge our negotiating needs a year hence than we are at the present time. This position presupposes that we cannot hold serious negotiations with the EEC until about June 1963. I question the realism of that view. Already we are being dragged into one aspect or another of the EEC negotiations, with or without powers of negotiation. We are already deep in negotiations over the treatment of tropical product imports by the EEC, and, if we were not already in those negotiations, mounting pressure from Latin America would probably push us in very soon. We are already being drawn into discussions of the EEC treatment of temperate agricultural items such as wheat and feed grains; once again, we would be forced into these discussions by the mounting fear of some exclusionary deal if we did not move into them of our own accord. As I read the record, therefore, the notion that we can hold aloof from the EEC negotiations for another 21 months seems grossly unrealistic.

As for the election-year versus election-off year timing issue, there is little to be said on this point. All years are bad years for trade legislation. Election years may be worse than off years. On the other hand, the 88th Congress may be poorer in composition than the 87th from the viewpoint of trade legislation. This is an issue on which honest judgments will differ but no judgment can claim much in the way of superiority as a basis of action. The need to maintain the momentum and support of public groups on the side of a liberal trade policy seems more important than the need to avoid an election year.

230. Memorandum From the Under Secretary of State for Economic Affairs (Ball) to President Kennedy

//Source: Department of State, Central Files, 411.0041/10 - 461. Confidential. Secretary Rusk forwarded this memorandum to President Kennedy under cover of a memorandum. (Ibid.)

Washington, October 23, 1961.

In the attached memorandum/1/ I have set forth a proposal for dealing with the trade agreements problem. This suggests an alternative to the course of action recommended by Mr. Petersen.

/1/For text of the enclosed memorandum from Ball to President Kennedy, October 23, see the Supplement.

Mr. Petersen has sought to design a new trade program within the basic framework of the old reciprocal trade agreement program. I believe that this is the wrong approach. I think that the old trade agreements program was well suited to the conditions of the trading world which has existed until recently, but in today's world that program is substantially bankrupt. Even if Mr. Petersen's proposals were adopted by the Congress without further watering-down I do not believe they would be good enough.

Mr. Petersen's proposals are, in my view, too little and too soon. Within the next year the conditions of a whole new trading world will be largely established. A new trading community in Europe, with a larger population and over twice the imports of the United States, will be emerging. The pattern of world trade in such temperate-zone products as wheat, coarse grains, and dairy products will be undergoing radical alterations. The trade arrangements for tropical products such as cocoa, coffee, and oilseeds may be subject to similar far-reaching changes. These developments will unlock new political pressures from various directions--from US exporters, from Latin American countries, from the British Commonwealth, and from the European Economic Community itself.

My earnest suggestion--arrived at after considerable soul-searching--is that we announce the general directions of a new policy appropriate to the changed conditions of the trading world, but that we hold off the drafting and introduction of an explicit legislative proposal until 1963, which will not be an election year.

The principles which the American people must be prepared to accept are these: We shall have to give up the item-by-item tariff negotiating approach of the past and shall have to negotiate for a major across-the- board reduction on our import restrictions and those of the European Economic Community, aimed at opening both economies further to one another's exporters. At the same time, we must find a coordinated way of opening the markets of all industrial nations to the expanding industrial exports of developing countries. We shall have to develop an assistance program for a limited number of domestic industries which may have difficulty in absorbing the adjustment impact. And we shall have to negotiate explicit international trading arrangements in a number of key agricultural products.

By next fall, if we use the intervening year wisely the American people should be much better prepared to accept the need for major changes of this sort. They will see and, I hope, begin to understand the shape and implications of the new trading world. We ourselves will have a great deal clearer conception of the exact legislative tools that are needed. Against the background of this understanding we can ask Congress in the Spring of 1963 for the necessary legislation with far greater assurance of success.

This course seems to me preferable than to attempt to obtain legislation next Spring that will be inadequate for the problems that will confront us. There is no compelling reason why we should ask for new legislation immediately on the expiration of the negotiating powers provided under the 1958 extension. Existing agreements will remain in effect even though the authority lapses.

There is a further consideration of great importance. If we seek legislation next Spring we shall run grave risks of confusing the Congression-al debate with the sensitive and difficult negotiations in which we shall be engaged in Europe. The negotiations to expand the Common Market to include not only the United Kingdom but other Western European countries will be of major concern to the United States. It is essential that you and the Executive Branch have as much maneuvering room as possible in order to influence those negotiations in a way beneficial to the whole complex of our national interests.

But we may seriously compromise that maneuvering room if we must, at the same time, engage in a debate on trade policy. We can count on the protectionists doing everything possible to tie your hands and to try to force the United States to take positions in the European negotiations that run counter to our long-range interests, both political and economic.

These are only certain of the considerations that have led me to recommend against an immediate decision to begin the trade fight next Spring. In the attached memorandum I have attempted to argue the case fully as well as to suggest in some detail a course of action that I recommend you follow./2/

George W. Ball/3/

/2/Not printed.

/3/Printed from a copy that indicates Ball signed the original.

231. Telegram From the Department of State to the Embassy in Japan

//Source: Department of State, Central Files, 400.0041/11 - 161. Confidential; Priority. Drafted by William T. Nunley (B) on November 1, cleared by EUR/NA and William H. Brubeck (S/S) and approved by J. Robert Schaetzel (B). Also sent to Hakone for Secretary Rusk who was attending first meeting of the Joint United States - Japan Committee on Trade and Economic Affairs November 2 - 4. The committee's purpose was to promote, among other things, closer cooperation and consultation on economic affairs between the two countries. The committee was established after an exchange of notes between Secretary Rusk and Foreign Minister Kosaka following Prime Minister Ikeda's June 20 - 23 trip to Washington.

Washington, November 1, 1961, 7:23 p.m.

1215. Central theme Under Secretary Ball's speech to National Foreign Trade Convention on November 1/1/ is necessity adapting US trade policies and business practices to radically new trading world now emerging. Speech cleared with White House and Petersen. For purposes illustration, speech places heavy emphasis on opportunities and problems arising from European Economic Community and prospective British adherence thereto. Japan mentioned only once, in context of Japan's economic weakness during early post-war period. Therefore, Japanese may possibly be disturbed by preoccupation of speech with Western Europe and failure emphasize US-Japanese trade relations. If Embassy or US delegation at Hakone detects any evidence such Japanese disturbance, Japanese should be informed:

/1/For text of Ball's address, see Department of State Bulletin, November 20, 1961, pp. 831 - 837.

1. Western European emphasis deliberate for it is on enlarged Common Market, its implications and policies, that our new commercial policy must rest. Speech therefore omits significant reference to problem of LDC's as well as US-Japanese relationship. These problems encompassed however in penultimate quoted paragraph this telegram.

2. Department considers major premises and conclusions of speech apply to Japan as well as Western Europe.

If deemed advisable you may wish to cite following excerpts from speech which apply to US trade with entire free world, including Japan:

First excerpt: "In blunt terms, we dare not turn our backs on the logic of our own economic position. For almost thirty years we have led the world toward freer trade. If at this late date we should yield to the importunings of those who would shelter the low-wage industries in our economy and penalize the most efficient, let us be quite clear about the consequences. We would set off a chain reaction of retaliation and counter-retaliation that would do irreparable harm to the whole Free World but would hurt us most of all. We would give up any claim to a role of leadership in the Free World. We would deny the strength and vitality of the economic system for which we stand."

Second excerpt: "In concentrating upon the paramount problem--the problem of the European Common Market--I do not wish to overlook the fact that our new legislation must also establish a basis for continuing an open trading world with other nations. Of course, to the extent that the United States and the Common Market lower their trade barriers as a result of the negotiations between them, they will also be expanding the opportunities of others. For any such reductions in trade barriers must, of course, be on a nondiscriminatory basis. Yet authority to negotiate directly with other countries also will be needed, to increase the mutual opportunities of all nations and to weld a close-knit trading system in the Free World."

Third excerpt: "We are engaged at the moment, as all of us are constantly aware, in a struggle that can determine the future of mankind--or, indeed, if mankind has any future at all. In that struggle we must make certain not only that we are economically and industrially strong, but that the Free World is united as closely as possible in pursuit of our common purpose."

Full text being carried Tokyo USIA wireless file.

Bowles

232. Telegram From the Embassy in Japan to the Department of State

//Source: Department of State, Central Files, 411.9441/11 - 1361. Confidential.

Tokyo, November 13, 1961, 8 p.m.

1466. Dept please pass White House, Treasury, Interior, Agriculture, Commerce, Labor, Council Econ Advisers for Secretaries Udall, Freeman, Hodges, Goldberg, Under Secretary Fowler, Dr. Heller, Messrs. Feldman and Hatcher. Hakone./1/

/1/See the source note, Document 231.

1. Summary

As seen from Tokyo on basis week's perspective and close study of outpouring of interviews, articles, and commentaries in Japanese press, radio and TV, Embassy believes Hakone conference should be accounted great success. In its symbolic purpose Hakone provided dramatic demonstration to millions of Japanese overriding importance of U.S.- Japanese relationship. In Hakone's substantive aspects we believe Japanese Govt derived real sense that, as President and Ikeda intended, genuine and equal consultations have taken place on economic matters of mutual concern. We would estimate that effect of these consultations will prove very helpful to our interests in fields of Japanese public opinion, in domestic political situation, and in development of GOJ's fiscal and economic policies.

2. Impact on Japanese public opinion, setting of conference in bringing together principal political officials both governments concerned with economic affairs outside capitol city for two and half days frank talk across table on each other's problems and policies was dramatic in itself. Press, radio, and TV followed and have continued report on Hakone as matter highest interest in Japan. While some editorial comment has criticized lack of specific results, such as U.S. commitment refrain from protectionist actions limiting Japanese exports to U.S. markets, on whole press has been satisfied with outcome. Public deeply impressed as well as flattered by "unprecedented participation of so many Cabinet members of both countries in conference" (words used in para 21 of communique at specific request Prime Minister Ikeda). Furthermore, press has made public fully aware of satisfaction of GOJ members of committee, and Japanese public has been deeply flattered and impressed by statements of President, Secretary Rusk, and other Cabinet officers on Hakone following return U.S. Del.

3. Of particular benefit to U.S. image in Japan was "sincerity" U.S. members of committee as it came through in press summaries of conference, in communique, in private meetings in press interviews, and as climaxed by TV interview of Secretary Rusk. Impression of friendliness toward Japan on part U.S. Cabinet members was most helpfully furthered by such extracurricular performances as Secretary Udall's climb of Fuji, post-conference meetings and interviews of other Cabinet officers, and activities of Cabinet wives whose personal charm and interest in Japanese culture were widely publicized in Japan.

4. Effect on domestic political situations. One of most important effects of Hakone was its significance for future of Ikeda administration. Prior to conference, Ikeda's position was sagging as combination of serious disequilibrium in Japanese payments, apparent upsurge trade protectionism in U.S., and formation regional economic groupings excluding Japan. These developments threatened to undermine twin pillars of Ikeda's policy: partnership with U.S. and program to double national income within decade. Seepage of confidence in Ikeda and his policies was showing signs of developing into threat to domestic political stability.

5. At Hakone Ikeda very skillfully made his unofficial presence evident to Japanese public. By attending opening session and by private talks with Secretary Rusk, Ikeda reminded Japanese public that joint committee sprang from Kennedy - Ikeda talks last summer and conveyed impression that successful meeting was one of fruits of his U.S. - Japan "partnership" diplomacy. In so doing he limited political mileage Agriculture Min Kono and Trade Min Sato obviously hoped to get from active participation in discussion. At same time he managed preserve party and Cabinet unity to unusual degree in Japan and neither Kono nor Sato espoused different positions from those officially expressed in GOJ talking papers. Kono, who seemed resentful and disgruntled at start of conference, was later reported to be thoroughly satisfied with outcome and with his role. On balance it appears to us Ikeda gained most from conference in terms domestic political situation and that whatever subsequent favorable developments on economic scene can be attributed to it will strengthen his position as party leader.

6. At very least Hakone has won time for Ikeda. While there are obvious limits to continued decline in Japan's reserves and tempo its economic activities beyond which Ikeda could not hold line or hope preserve his own political position, his immediate problem is to slow down excessive import push, to apply deflationary brakes, and to do both in ways which do not appear to represent bankruptcy his policies of partnership with U.S. and national income doubling.

Concepts of partnership and cooperation Hakone has strengthened have, we feel, greatly assisted Ikeda in giving him room to turn around as he adjusts economic policies to slower growth patterns. Over week-end/2/ Ikeda, in press conference, found it possible to refer almost casually to prospective measure of financial retrenchment and to next year's growth rate as "somewhere" between three percent and ten percent. Fact that he could do so with little public outcry and with complete absence factional sniping inside his own party owes much to Hakone conference. Hakone may in fact have succeeded in producing indispensable factor for Ikeda's survival beyond next spring, providing means to reinforce U.S. - Japan partnership while disengaging Ikeda from albatross of overly specific national income statistics and from personal identification with slogan of "9.2 percent annual growth over next three years."

/2/November 11 and 12.

7. Implications for GOJ policies. At Hakone itself, acrimonious debate of narrow, specific issues was largely avoided while major policy problems were debated openly, frankly, and in friendly and respectful manner. Conference avoided opposite dangers "honorable picnic" with no substance which Japanese feared and hard bargaining session on specific problems with likelihood unimpressive results and impairment usefulness of committee from U.S. standpoint. In Japanese commentaries, major theme of discussion has clearly emerged as balance of payments problem both sides. Japanese public has been made aware its side argued that U.S. must allow and encourage greater imports from Japan to pay for steeply rising exports from us, and that U.S. countered that GOJ should regulate imports through more careful domestic economic policies, that over-all U.S. - Japan accounts (i.e., including invisible and capital items) gave much better picture, and that Japan must take approach of multilateral rather than bilateral balancing.

8. We would judge that inside GOJ Japanese believe that at Hakone they impressed U.S. members of committee with importance of U.S.-Japanese trade to both countries, with need to expand Japanese exports to sustain economic growth, and with significance of Japanese economy in free world trade and in aid to developing countries. We believe U.S. side was very effective in putting across its viewpoint. U.S. Delegation succeeded admirably in avoiding morass of conference debate on specific U.S. - Japan trade problems and in focusing on major issues (see Embtel 1349)./3/ In discussion problem of balance of payments management, U.S. Delegation brought home to senior officers GOJ importance of U.S. international responsibilities rather than concern for commercial interests, as basis for U.S. necessity for large surplus ordinary current account. Further, in discussion trade problems, while laying suitable stress on realities of U.S. situation and admitting possibility future difficulties, U.S. Del appeared to convince Japanese of continuing dedication Kennedy administration to liberal trade policies and prospect therefore of continued orderly expansion Japanese exports to U.S.

/3/Not printed. (Department of State, Central Files, 411.9441/10 - 2961)

9. How long friendly aura diffused from Hakone will remain depends both on U.S. actions and on actions GOJ obliged take in dealing with internal economic problems of "overheating" and inflation and with external difficulties stemming therefrom. Statements of Chairman Heller and other U.S. members may help Econ Planning Minister Fuji-yama and Finance Minister Mizuta in shaping politically acceptable but forceful measures to dampen and control boom. Possibility still remains real, however, serious political difficulties could result if reduction in growth rate too steep, if unemployment should increase too noticeably by next summer, or if resort to emergency financial assistance from U.S. and IMF has to be much greater than now foreseen.

10. In circumstances, Japanese political leaders will unquestionably be watching closely in immediate future for demonstration of spirit of Hakone in U.S. economic policy decisions affecting Japan. Possibility of number of tariff increases adversely affecting Japan as result of recent escape clause recommendations by Tariff Commission poses obvious immediate danger. While Hakone may have given GOJ Cabinet members better concept U.S. problems in trade field, impression of sincere U.S. dedication to liberal trade policy would hardly survive series of protectionist actions following closely on Hakone conference.

Reischauer

233. Telegram From the Department of State to the Embassy in France

//Source: Department of State, Central Files, 394.41/11 - 2361. Official Use Only; Priority. Drafted and approved by Ball and cleared by Lawrence Pezzullo (S/S). Also sent to Brussels, Bonn, Rome, The Hague, Luxembourg and repeated to Geneva for GATT.

Washington, November 23, 1961, 2:23 p.m.

3005. Embassy deliver Friday/1/ following letter from Under Secretary Ball to Minister of Government who will represent addressee country at GATT Ministerial Meeting. USEC also deliver mission.

1/November 24.

Begin verbatim text. Dear Mr. Minister:

I am looking forward to the prospect of seeing you in Geneva next week during the GATT Ministerial meeting./2/ In addition to the matters that may be presented during the formal sessions of the GATT I should like to have an opportunity to talk with you about the problems raised by the continued failure to bring to a conclusion the Geneva tariff negotiations.

/2/A summary of the meeting, held November 27 - 30, 1961, is contained in the Report of the U.S. Delegation to the 19th Session of the Contracting Parties to the General Agreement on Tariffs and Trade, February 13, 1962. (Department of State, Central Files, 394.41/2 - 1362)

These problems are of deep concern to the United States. The issues that prevent the satisfactory conclusion of the negotiations seem now to have assumed such a character that they can be resolved only by agreement among responsible ministers. I greatly fear that unless we can reach such an agreement during the early days of next week the situation may get out of hand.

I am sure you will agree that it is to our mutual political and economic interests to complete these negotiations at the earliest possible date. On our part, we are presently perfecting plans for the presentation of a new liberal trade program to Congress. Without the assurance of a satisfactory conclusion to the present round of tariff negotiations we can hardly go forward with this initiative.

I would hope, therefore, that I might have the opportunity in Geneva of meeting privately with the responsible ministers of the Six member countries EEC and a Commissioner of the European Economic Community in an effort to resolve the differences still remaining between the Community and the United States concerning these negotiations.

I am sending this letter to you in advance of the meeting so that, if you share the sense of urgency I have expressed, you might arrange for authority from your own Government to make whatever decisions are necessary for a mutually satisfactory solution to the present stalemate.

Sincerely yours, End verbatim text.

Rusk

234. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Confidential. Drafted by Herman H. Barger and approved in U on December 1.

Washington, November 30, 1961.

SUBJECT

Status of Tariff Negotiations

PARTICIPANTS

Mr. Freeman, Secretary of Agriculture Mr. Duncan, Assistant Secretary of Agriculture Mr. Ball, Under Secretary Mr. Petersen, Special Assistant to the President Mr. Barger, OT

Under Secretary Ball and Mr. Petersen reported on the discussions in Geneva regarding the tariff negotiations. Under Secretary Ball indicated that the EEC is evidently embarked on a policy of establishing self- sufficiency in agricultural production while liberalizing in the industrial sector. He noted that the pressures in this direction were increasing and probably resulted from the fact that the industrial sector feels that it can meet foreign competition successfully.

He reported that he had taken a hard position in trying to move the EEC Ministers to be more forthcoming in the Dillon round and the Article 24:6 negotiations but that the Ministers indicated they were powerless to move although personally they were so disposed. As a result of these talks, he doubted that the agricultural package could be improved. He was also concerned that the longer the negotiations continue the greater the danger is that the EEC will pull back on the offers on the industrial items. This is particularly affected by the fact that as the U.K. gets closer to association with the EEC the incentive to generalize the U.K.-EEC concessions will decrease.

Under Secretary Ball suggested that one possible way of handling the impasse was to seek a rebinding of current concessions and to keep the way open for negotiations after the common agricultural policy is established.

Secretary Freeman indicated that he was concerned that if we concluded the current negotiations we would be giving away our bargaining position in trying to get a better bargain on agricultural items in the post CAP period. He suggested that the President is the only one who can decide on whether or not we should conclude the negotiations on the present basis.

Mr. Petersen pointed out that if the negotiations are not concluded when the new trade legislation is sent up to the Hill, Congress could refuse to give any further authority since it could say that we were not successful in using the current authority with the EEC.

Under Secretary Ball suggested two possibilities as a way out of the current impasse: one would be to seek a slight improvement in the agricultural package and sign it pretty much as it is, or, secondly, to have Secretary Freeman and Under Secretary Ball go to the EEC Ministerial Meeting in Brussels on December 4 and 5 and try to push the EEC once more toward a more acceptable agricultural component of the agreement.

Subsequently, a meeting was set up for Secretary Freeman, Under Secretary Ball, Under Secretary of Commerce Gudeman and Mr. Petersen to meet with the President at 11:00 A.M. on December 1./1/

/1/President Kennedy met off the record with Freeman, Petersen, Ball, and others on December 1 from 11:18 a.m. to 12:17 p.m., but no further record of this meeting has been found. (Kennedy Library, President's Appointment Books)

235. Telegram From the Embassy in Japan to the Department of State

//Source: Department of State, Central Files, 411.006/12 - 561. Confidential. Repeated to Kobe.

Tokyo, December 5, 1961, 8 p.m.

1625. Embtel 1554./1/ I was called yesterday to FonOff by Vice FonMin Takeuchi who protested forcefully proposed equalization fee on cotton textiles./2/ In strongest terms Takeuchi pointed out that while Japanese cotton textile exports to US were $71 million in 1960, Japan bought $251 million of raw cotton from US in 1960 - 61 crop year. Should equalization fee be imposed, he maintained, it would do irreparable damage to Japanese cotton textile exports to US. At one point he said if fee imposed, bilateral textile agreement would be dead and it would be too late for further cooperative efforts regarding world cotton textile trade.

/1/Telegram 1554 from Tokyo, November 24, conveyed the negative reactions expressed by Japanese Government officials and businessmen over the U.S. proposal to impose an equalization fee on cotton textiles from Japan. (Ibid., 411.006/11 - 2461)

/2/In a letter to Ben D. Dorfman, Chairman of the U.S. Tariff Commission, November 21, President Kennedy asked the Tariff Commission to investigate a duty on cotton imports. See Public Papers of the Presidents of the United States: John F. Kennedy, 1961, p. 736.

Takeuchi stressed following points which also developed in talking paper:

(1) GOJ cooperated with US in adhering to short-term Geneva arrangement and participating conference on long-term arrangement. Interests US cotton textile industry would be fully safeguarded by such arrangements. Equalization fee would subject Japanese exports to double restriction which clearly inconsistent with Geneva cooperative spirit.

(2) US cotton product imports FY 1961 in terms raw cotton only 3 percent of American cotton crop while US exports of cotton products in raw cotton equivalent were larger than imports. Therefore, US should not argue that cotton textile imports adversely affect US cotton price support program or export program.

(3) Export subsidy is domestic measure to make US raw cotton competitive in world market. Solution, therefore, is domestic problem and should not be at expense cotton textile exporters to US. Moreover, percentage US grown cotton in textiles exported from Japan to US has been as low as 21 percent. Unreasonable that equalization fee be imposed on textiles manufactured from raw cotton grown other countries.

(4) Equalization fee would on average be tantamount to 10 percent increase in ad valorem duties on cotton textiles, and would reduce Japanese cotton textile exports to US by one-half making system of voluntary export restraints meaningless. Neither enlargement of quotas nor increased flexibility among categories could compensate for such losses.

Takeuchi maintained that confidential letter/3/ (exchanged in connection 1962 US - Japan bilateral regarding application nondiscriminatory equalization fee) means only that imposition equalization fee would not make arrangement inoperative. [1-1/2 lines of source text not declassified] Agreement does not mean, as has been suggested, that GOJ agrees, or has abandoned right to object. Japanese business interests will actively oppose fee at Tariff Commission hearings. Moreover, confidential letter commits US to "consider taking appropriate action to remedy an adverse effect which might result therefrom," and Takeuchi stressed that FonOff wished to know as soon as possible what action US plans to take if fee imposed, because remedial action, if delayed until effects of fee are felt, would then be too late to be effective. Regarding long-term Geneva arrangement, Takeuchi said no progress can be made in negotiations while serious doubts exist about worth of agreement in view possible US action. While GOJ will make every effort to conclude long-term arrangement, FonOff believes it would be extremely difficult to secure industry cooperation if fee imposed.

/3/Not found.

On basis press reports from Washington regarding President's press conference, Japanese now assuming that referral to Tariff Commission merely pro forma and determination in effect actually made. Some of FonOff claims outlined above are of course exaggerated, but both government and public reacting strongly to this "undercutting" of textile agreement and "reversal" of Hakone spirit./4/

/4/See Document 232.

I would appreciate any guidance Dept can supply on how to respond to FonOff protest, particularly to insure [garble] properly coordinated with stand Dept taking in reply to any representations made by GOJ Embassy there. Also need to reply specifically to Takeuchi's formal query re US plans for consultation with GOJ in case imposition of equalization fee approved.

Talking paper being pouched.

Reischauer

236. Editorial Note

On December 7, 1961, the Department of State, reacting to the Japanese Government's protest of the President's November 21 request for a Tariff Commission investigation on the establishment of an equalization fee on cotton textiles from Japan, sent telegram 1465 to the Embassy in Tokyo. This telegram, serving as guidance, outlined several points with which to respond to the protest, and is scheduled for publication in volume XXII.

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[End of Section 11]

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