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

[Section 12 of 18]

237. Letter From the Under Secretary of State (Ball) to Secretary of Agriculture Freeman

//Source: Kennedy Library, National Security Files, Subject Series, Trade, General, 10/61 - 12/61. No classification marking. Drafted by Ball.

Washington, December 11, 1961.

DEAR ORVILLE: As you know, a week ago I brought our experts back from Geneva and Brussels to make a complete review of the tariff negotiations. They have restudied the entire problem as carefully--and, I hope, as objectively--as possible and have prepared the attached memorandum./1/

/1/This memorandum has not been found. Freeman and Ball discussed the conclusion of the Dillon Round of tariff negotiations on the telephone on November 22. Ball conveyed to Freeman his belief that ending the tariff negotiations were vital to carrying out President Kennedy's proposed plans for a new trade program. (Memorandum of telephone conversation; Kennedy Library, Ball Papers, GATT, Telcons, 4/12/61 - 8/14/62) In another telephone conversation, October 2, Ball and Wyndham- White discussed concluding the tariff negotiations quickly in order to avoid the possibility of the EEC seeking U.S. concessions. (Memorandum of telephone conversation; Department of State, Central Files, 394.41/10 - 261)

This memorandum shows conclusively, I believe, that we have no practical alternative but to close the negotiations substantially on the basis of the last package offer from the EEC. If we do not do so promptly--and the 111 Committee meets toward the end of this week--I think we must surely anticipate that the EEC will withdraw its offers and the whole negotiation will collapse. Without overstating the consequence of such an event I think it could very well mean the destruction of the GATT and a return to anarchy in our international commercial relations.

The memorandum I have sent to you makes clear that the overall results of the negotiations, if we were now to accept the EEC offer, would be highly advantageous for the United States. Except for the 30 percent of agricultural trade covered by the Common Agricultural Policy, the results are not disadvantageous even with respect to agriculture. As to that 30 percent, I am convinced that the best we can do is to try to preserve our rights and obtain the agreement of the EEC nations to negotiate regarding these products when they have reached a larger measure of agreement among themselves regarding their Common Agricultural Policy.

Concretely I would propose the following course of action:

1. Go back to Geneva with a request that the EEC obligate itself to negotiate with respect to rice after the Common Agricultural Policy is decided upon, as it has offered to do with respect to corn, sorghum and poultry.

2. Seek joint approval of a declaration along the lines of the one attached, recognizing the special circumstances of the 1960 - 1961 negotiations and looking forward to new negotiations when the EEC has worked out its Common Agricultural Policy.

3. Upon receiving agreement regarding these two points, accept the EEC package.

I am convinced that this program is the best course for us to follow under all the circumstances. We have carefully considered the possibility of trying to mobilize support from other countries and we have concluded that nothing would be gained by such an effort. Certainly the United Kingdom would not join with us in trying to exact a better deal from the EEC at a time when it is desperately trying to negotiate entrance into the Common Market. On the contrary, it would simply withdraw its industrial and agricultural offers from us (which on the whole we consider quite advantageous) and would then make its own deal within the EEC and avoid generalizing the benefits under the most- favored-nation principle. The same is undoubtedly true of the other EFTA countries.

If one eliminates the EFTA countries there are no trading nations left that have any effective bargaining power with the EEC. Canada, Argentina, etc., are trying to ride on our coat tails rather than the other way around.

Nor do I think there is any chance at all that we could obtain any firmer commitments to assured access to the EEC market for the products that are to be covered by the Common Agricultural Policy. The EEC is having an enormously difficult time arriving at a Common Agricultural Policy and the member nations are simply not going to complicate their lives by postponing the effective operation of the policy through offering us assured access over even a limited period of time.

These represent the conclusions we have come to after the most sober and careful review of the situation with our experts who have been on the firing line conducting the negotiations and who are most familiar with the views of the EEC and its member nations.

I would not think, however, that the long-range result would necessarily be unfavorable even for our trade in those commodities to be covered by the Common Agricultural Policy. We would certainly pursue negotiations with the Europeans vigorously and persistently, after they arrive at a measure of agreement regarding the form and operation of the Common Agricultural Policy. I would hope also that we would be able to obtain sufficient new powers through the new trade legislations to give us the ability to make better industrial concessions in order to obtain concessions on the agricultural side.

I recognize that you face a difficult problem in attempting to explain the closing of the negotiations to American agricultural interests. I do not believe, however, that the problem is an insuperable one. I had a discussion the other day with Mr. Herschel Newsom and Mr. Joseph Parker of the Grange. After reviewing the situation with them, I found them quite understanding of our predicament. I should be very glad to see any representatives of farmers' groups that you might suggest.

Nor do I believe that the political consequences are likely to be too serious for our trade bill. We could certainly make a very good showing on the industrial side. Even in the case of those Congressmen primarily interested in tobacco and Common Agricultural Policy products a careful explanation, coupled with a promise to pursue a vigorous negotiation at an appropriate later date, should in many cases be effective.

I am sending copies of our memorandum to the other interested Departments. I spoke with Doug Dillon before he left for Europe and he expressed complete sympathy with the point of view I have outlined in this letter and strongly endorsed the need for an immediate closing on the basis of the offers we have received. Against the background of his long experience, not only with the current negotiation but with events preceding it and with the structure of the Common Market itself, he was quite categorical in stating that in his view the European nations would not--and indeed could not--negotiate at this time for maximum variable levies for CAP items nor would they be prepared to give us any assured access to the EEC market for such items for even as much as a year.

I understand that he passed these views on to the President.

I am advised that the Department of Commerce also joins in the views expressed in the memorandum.

I am looking forward to our discussion this afternoon in the hope that we can bring this matter to a resolution. I would hope that we could arrive at an understanding between us, but if not I believe it essential that we discuss it with the President tomorrow. We must get some word to the 111 Committee when they meet later this week or I think we shall be in very bad shape. As you know, the Council of Ministers is meeting on December 22 and this seems to me to be our last clear chance to dispose of this long and painful negotiation.

The President is intending, I believe, to outline his new trade program in the State of the Union message. I am sure he will be reluctant to do so unless the Geneva negotiation has been closed out first.

Yours ever,

George W. Ball/2/

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

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

//Source: Department of State, Central Files, 411.006/12 - 1261. Confidential; Priority.

Tokyo, December 12, 1961, 7 p.m.

1681. Reference: Deptel 1465./1/ I gave Vice Minister Takeuchi US reply on cotton textile equalization fee today as outlined reftel. After thanking me for information, Takeuchi said that FonOff could probably present written response along following lines, which I could report to Washington in meantime if I wished as preliminary FonOff views:

/1/See Document 236.

1. GOJ is scheduled begin discussions in Geneva during December on long- term cotton products trade agreement in preparation January multi- national meeting. Unless GOJ knows whether US will impose equalization fee in spring it will find it difficult to discuss long-term trade agreements in Geneva in January. US should recognize that there is close connection between two questions. Takeuchi added that some Japanese felt Geneva setting premature since would be better to wait to see how recently concluded short-term bi-national and multi-national agreements work out. At US urging, however, Japan had agreed to meet.

2. Uncertainty re possible imposition equalization fee already affecting Japanese export trade. Cancellations on orders for delivery after May have occurred while unusually high number of orders received for delivery prior May. Net effect is serious disturbance cotton textile industry regardless of what ultimate decision on fee may be.

3. GOJ has given thought to possible remedies in event fee imposed but feels that even if remedy found which would provide for maintenance present over-all level of cotton product sales, imposition of fee would produce disruptions orders within industry, resulting in hardships on various segments. Moreover, if certain segment unable export for six months or a year pending remedial action its sales contacts would be interrupted with losses which would be impossible calculate.

Takeuchi expressed strong view that because of these considerations would be far better start US - Japan consultations immediately even though ultimate decision on equalization fee will not be known for several months. He maintained such consultations at this time would give opportunity for US side gain clearer picture of problems face by Japanese in connection equalization fee. Takeuchi emphasized that he understood problem US faces (he remarked in passing it would be more equitable lower cotton prices to domestic consumers in US than to penalize foreign products which in many cases contain little or no US cotton) but said impression developing in Japan that after providing for protection US cotton industry in bi-lateral and multi-national agreements US now wished provide double protection through equalization fee.

Reischauer

239. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Official Use Only. Drafted by Vettel and approved in U on January 19, 1962. Attached to the source text is a note from Battle (S/S) to Freeman (U), January 17, 1962, requesting his approval of the memorandum prior to its distribution.

Washington, December 21, 1961.

SUBJECT

Proposed Equalization Fee on Cotton Textile Imports under Section 22 of the Agricultural Adjustment Act

PARTICIPANTS

Mr. Koichiro Asakai, Ambassador of Japan Mr. Tadao Kato, Counselor, Embassy of Japan Mr. George W. Ball, Under Secretary of State Mr. W. Michael Blumenthal, Deputy Assistant Secretary for Economic Affairs Miss Thelma E. Vettel, Special Assistant to the Director, Office of Northeast Asian Affairs

The Ambassador called at his request. He referred to the current Tariff Commission investigation of the possible imposition of an equalization fee on the raw cotton content of cotton textile imports under Section 22 of the Agricultural Adjustment Act.

The Ambassador said that the President's request for such an investigation was embarrassing to the Japanese Government, following so soon after the Hakone meeting of the Joint U.S. - Japan Committee on Trade and Economic Affairs. He said that if the fee were imposed (as feared by the Japanese in view of the President's subsequent statement to the press), it would be tantamount to an increase of 10 to 30 percent in ad valorem duty on Japanese cotton textile exports to the United States. In light of the understandings between the two countries, discussions regarding compensation (or remedial action) would be called for should the fee be imposed.

The Ambassador expressed the strong view that discussions of such compensation would be undesirable. He hoped to avoid possible acrimonious discussions of this kind, saying that textile discussions once a year were enough. In his view it would be difficult to agree on compensation which would be equitable for both the United States and Japan. He urged that, instead of negotiating such compensation, the Japanese industry be permitted to enjoy the level of export to the United States of the past five years (about $70 million). He emphasized that the level should not be decreased. He said that in his judgment the United States could find a way to make an adjustment of the raw cotton price differential without assessing this "tax at the time of importation,"and could permit Japan to enjoy the level of trade of the past five years without asking it to try to reduce textile exports. He pointed out that the Japanese Government had requested a small increase in exports to the United States. He was urging that the level remain the same and not be cut back, and that, at the same time, the United States not impose the equalization fee.

The Ambassador said the foregoing represented his personal views and that he was recommending this position to his government. He asked that careful consideration be given to these points.

The Under Secretary responded that we had already instructed Ambassador Reischauer to indicate to the Japanese Government that this was not a decision. The President had instructed the Department of Agriculture to explore means of taking care of the raw cotton price differential. From the viewpoint of the industry the maintenance of the two-price system, causing high textile prices, would not be healthy. The Tariff Commission has been asked to study the situation; Agriculture is also studying it.

The Under Secretary expressed regret that this had not been explained in advance. An unfortunate impression had been created in Japan. The Under Secretary expressed the hope that a satisfactory way could be found to take care of the inequities suffered by the domestic industry without the imposition of the equalization fee.

The Ambassador complimented the Under Secretary on his statement of December 12 before the Joint Economic Committee regarding the Common Market./1/ He said the Japanese had had the impression that the Common Market was disturbing to the United States and had had misgivings that the United States, in order to appease protectionists, might introduce measures against certain third markets which might be disadvantageous to Japan.

/1/Not found.

The Under Secretary responded that the United States is committed to a policy of non-discrimination.

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

//Source: Department of State, Central Files, 411.004/1 - 3062. Official Use Only. Drafted by Trezise (E), Leonard Weiss (E/OT), and Selma G. Kallis (E/TA) on January 29; cleared by Philander P. Claxton (H), Leonard Wilson (P), and Myer Rashish (White House); and approved by Trezise. Sent to 34 Embassies and Consulates and pouched to all other missions except Moscow, Budapest, Prague, Bucharest, and Sofia.

Washington, January 30, 1962, 8:09 p.m.

1332. Depcirtel 1309./1/ Following is guidance for mission use in official and public discussions new U.S. trade legislation.

/1/Not printed. (Ibid., 411.00/1 - 2462)

1. New trade bill sent Congress by President January 25 represents watershed in U.S. foreign economic policy. It is most important development in U.S. trade policy since 1934 and makes marked advance beyond present trade agreements program. It complements new look in foreign aid policy and is intended give U.S. the means to take fullest part in building economically strong and progressive free world.

If Congress provides President with legislation requested, result will be to fix U.S. course for indefinite future squarely in direction liberal, multilateral, expanding world trade system. Legislation placed before Congress would give President far-reaching and flexible authority further reduce U.S. tariffs beyond anything previously authorized in trade agreements program; it would open prospect for mutual reduction and even elimination tariffs between two largest economic units in world, U.S. and European Common Market; it would generalize tariff concessions multilaterally and would progressively widen trade opportunities for less developed countries. Forthcoming great national debate on trade issue will present to American people, as never before, stake they have in international trade. It will thus develop basis of informed opinion for carrying out dynamic international trade policy by USG.

2. New statement of purposes in bill illustrates advance made in developing forward-looking concept of objectives of liberal trade program. It sets forth essential general welfare, foreign policy and security purposes of U.S. trade policy, and objective of promoting these purposes through international trade agreements affording mutual benefits. It refers explicitly to strengthening of economic and political relations with EEC and other foreign countries, assistance to LDC's, and countering of Communist economic penetration.

3. Proposed bill gives President four separate authorities for reducing tariffs.

(a) He may reduce U.S. duties by one-half, over a five-year period, on any product, in negotiations with trading partners around world.

(b) He may reduce in an agreement with EEC to any level, including zero, duties applicable to categories of commodities in which U.S. and Common Market account for 80% or more of world trade. He has similar authority reduce tariffs to zero with respect agricultural commodities in Common Market negotiations, but without limitation of foregoing 80% formula.

(c) He may reduce or eliminate U.S. duties on tropical agricultural and forestry products not produced in substantial quantity in U.S., provided Common Market takes comparable action.

(d) He may eliminate U.S. duties now established at 5% or less ad valorem or equivalent.

Foregoing authorities represent greatest ever previously requested or provided in trade legislation. In 1934 and 1945 President was granted authority reduce then existing rates by 50%. Subsequent new grants of authority were 15% in 1955 and 20% in 1958. In new bill, President would have not only basic 50% authority but substantial additional authority as well. He would for first time be authorized eliminate duties completely under specified conditions.

4. Tariff cutting powers will be exercised within most favored nation framework. As under present legislation, new bill explicitly requires generalization of tariff concessions, including those made to EEC, to all other countries except Soviet Bloc. We are thus not proposing construct exclusive club with Western Europe. Intent rather is to press forward with large scale reduction tariff barriers to trade, benefits of which will be available all free world countries. We expect give impetus to steadily increasing volume total international trade from which all participants will gain.

5. Legislation would exclude from tariff negotiation power of President only those few commodities previous subject of national security or escape clause provisions present Trade Agreements Act. Petroleum only item covered by national security provision while following 11 commodities are subject escape clause: women's fur felt hats and hat bodies, dried figs, watches, bicycles, toweling of flax, hemp or ramie, spring clothespins, safety pins, clinical thermometers, lead and zinc, stainless-steel table flatware, and cotton typewriter-ribbon cloth. Such reservation reflects current practice, under which items under national security or escape clause action are not offered as concessions. As noted para 7 below, bill contains time limit for termination escape clause actions, including existing ones listed above, in which case items would then be available for negotiation.

Apart this minor restriction, President, as now, will have discretion which commodities or categories of commodities he will offer for negotiation. Legislation puts this in explicit terms in order make clear to Congress and public that tariff cutting authority is discretionary. Among items which might be put on reserve list are those where benefit concession, if granted, would go largely to country not participating in negotiations or unwilling provide adequate compensation.

6. New legislation modifies substantially so-called "peril point" provision of expiring trade law. As in past, President will furnish Tariff Commission with list commodities or categories proposed as subjects tariff negotiation and Commission would be required give its judgment as to economic effect of reduction or elimination duties on competitive industries. Under proposed law, however, there would be no provision, as in present legislation, calling for Tariff Commission to establish the tariff below which the President could not reduce duty without causing serious injury domestic industry.

Furthermore, new legislation drops provision in present act which requires escape clause investigation if Tariff Commission finds that "peril point" should be rate of duty above existing level. In addition, criteria which Tariff Commission would take into account in advising President are more stringent than under present legislation. These criteria are "probability significant idling production facilities, prolonged and persistent inability of firms to operate at profit, and unemployment or underemployment of workers." Tariff Commission advice not binding on President.

7. Other safeguarding provisions in new bill likewise represent considerable advance over previous legislation. Legislation includes for first time executive branch proposal that adjustment assistance be used as means coping with competitive impact of imports. Expectation would be that adjustment aid--loans, technical assistance and tax benefits for firms, extended unemployment insurance, retraining, and relocation allowances for workers--would be principal means deal with problems individual firms and workers.

Bill also provides escape clause under which increased tariffs or other import restrictions could be imposed. However, such relief is clearly labelled in legislation as "extraordinary" and is to be used only (a) when types of assistance described above for firms and workers are not sufficient to mitigate difficulties involved; (b) when difficulties to be remedied are widespread in the industry concerned as whole as distinct from individual firms and workers; (c) after other, more stringent criteria than under existing legislation are met, namely "significant idling of productive facilities, etc." Finally, tariff or other extraordinary relief, if granted, would not be for period to exceed four years, subject to extension by President.

In connection with last point, escape clause actions already in effect for three years at time new trade bill comes into force would be terminated after another year unless President extends period. If such escape clause action is so terminated, item concerned need no longer be withheld under reserve list (see para 5 above) and could be included in negotiations.

It is expected these provisions would substantially remove irritant in our international trade relations represented heretofore by escape clause. We would expect fewer instances of petition for tariff relief from imports and comparatively few cases in which extraordinary relief would be considered relevant form of assistance.

8. While new bill defines President's authority for trade agreement negotiations, it does not specify precise way this authority would be used internationally. Such negotiating plan for new round tariff reductions will have to be worked out with other countries and is subject of GATT Working Party which was established at GATT Ministerial Meeting last November. Working Party now not expected to meet until late spring or early summer. On assumption President obtains authority requested, we would hope Working Party would work out techniques for some type across-board tariff reductions. We would not expect new tariff negotiations themselves begin until some time in 1963.

While bill provides different authority in relation to negotiations with EEC as distinct from other countries, we anticipate we will negotiate with EEC and with other contracting parties at same time in broad multilateral negotiation under GATT and that results will be reflected in customary single agreement under GATT, under which concessions granted by one party to agreement would be automatically extended to all others. In this one large negotiation we would utilize, in different combinations with different countries, various types of authority under the act.

9. Though emphasizing positive elements in program and bold U.S. initiative in advancing liberal trade principles, Missions should make clear this is not unilateral program for increasing access for foreign products to U.S. markets. It is instead basis for reciprocal program whose implementation for free world benefit requires lowering of tariff barriers by all trading countries and opening of new market opportunities for products of LDC's as well as industrialized countries. Statements by President and other high Governmental officials have made abundantly clear that through this program U.S. intends seek improved access for its exports abroad in exchange for concessions by U.S. and that we mean see to it that tariff concessions made to us are not frustrated by quotas or other restrictive devices. In acting upon President's proposals Congress will undoubtedly register its own intent that authority is to be utilized this manner. Accordingly other countries should clearly understand that extent to which President's new authority can be utilized in final analysis depends on their willingness enter wholeheartedly into new round tariff negotiations with view exchanging meaningful tariff concessions on broad range commodities.

10. It is of utmost importance that other countries respond positively to new initiative of President. Question has been raised here, notably by Chairman Mills of Ways and Means Committee, how we know other countries are interested in negotiating with us on basis provided in bill. We intend reply that informal discussions with various representatives of other Governments, including EEC, as well as sentiments strongly expressed in GATT Ministerial Meeting indicate general readiness undertake further tariff negotiations and on across- the-board basis. Missions may feel free respond along same line if question comes up.

Ball

241. Memorandum From the Under Secretary of State (Ball) to Secretary of State Rusk

//Source: Department of State, Central Files, 394.41/2 - 1062. Confidential; Eyes Only. Ball sent this memorandum to Rusk under cover of a February 10 memorandum that reads in part: "Since dictating the attached memorandum a couple of days ago Mike Blumenthal has succeeded in concluding the negotiation of a long-term textile agreement in Geneva. This agreement has been reached, however, on an ad referendum basis and it has been made clear on behalf of the Japanese and several other governments that final approval will depend on our willingness to yield on the equalization fee." (Ibid.)

Washington, February 9, 1962.

I am seriously concerned that we may be pressing the Japanese too far in trying to placate various domestic interests.

You will recall that the Hakone meeting took place just two months after a long drawn-out and bitter negotiation for a temporary cotton textile agreement. Ambassador Reischauer reported at the time that the atmosphere in which that agreement was negotiated weakened the position of Prime Minister Ikeda personally and undermined the strength of his Government.

The Hakone meeting apparently had the effect of eliminating most of the ill feeling. It also gave Mr. Ikeda a substantial boost.

Unhappily, a series of events following that meeting have led some of the Japanese newspapers to question whether anything like a "Hakone spirit" ever really existed. These events include the following:

1. At the instance of the Administration, the Tariff Commission has undertaken an investigation which may lead to a recommendation for an equalization fee for cotton textile imports. This would add what would amount to an additional tariff on cotton textile imports computed on the basis of 8-1/2# a pound of raw cotton content. Japanese textile imports into the United States are presently frozen at a level below that of 1960 by the existing bilateral agreement. The Japanese estimate--I do not know how accurately--that the equalization fee would reduce imports 50 percent. The news of this investigation has blown up a considerable storm in Japan and has proved again a considerable embarrassment to the Ikeda Government.

2. In November the Japanese believed that they had been assured of the opportunity to participate in bidding for a part of the AID fertilizer procurement for South Korea. At the last moment they had to be disabused of this belief.

3. In the past, our restrictive procurement policy in Japan was not applied to purchases of petroleum products for use by our military forces stationed there. Recently, however, the Defense Department announced that it was discontinuing purchases from a major Japanese supplier. The decision (based on our concern over Soviet crude oil sales abroad) unfortunately was announced in a press release which dealt only with the Japanese refinery concerned. It again produced additional resentment.

4. The Ikeda Government will shortly have to face up to introducing into the Diet the agreement for the settlement of the GARIOA account amounting to $490 million. This is a highly unpopular action and will undoubtedly create a good deal of unpleasant debate.

The cumulative effect of these actions is accentuated by the exist-ence of a serious Japanese balance of payments problem which has necessitated substantial domestic retrenchment and deflation. The bilateral trade account between Japan and the United States was unfavorable to Japan last year in the amount of about $700 million and Japan's global balance of payments deficit amounted to $650 million.

The present situation is sufficiently serious to be a cause for concern. However, we are about to make it considerably worse by two escape clause actions that are expected to be announced some time this month. In spite of opposition from the State and other Departments, the decision has been made by the President to grant tariff increases under escape clauses on two products of which Japan is a major exporter: Wilton rugs and carpets and sheet glass.

Japanese Wilton rug imports into the United States amounted last year to $8.4 million. The Japanese Wilton rug industry is concentrated almost entirely in the already seething Osaka textile area, which has been seriously inflamed by the bitter negotiations that preceded the short- term textile agreement. Sheet glass is also a major item of trade. Imports of Japanese sheet glass into the United States amounted last year to $4,250,000.

The Japanese Government has made repeated representations to us with regard to both of these escape clause actions, as has the Belgian Government, which is also affected by both of them.

The heckling that the Attorney General received at the hands of students a day or two ago is symptomatic of the instability of Japanese opinion./1/ The Japanese will see in the two escape clause actions a further frustration of the prospects of "economic cooperation" evoked by Hakone. They can hardly overlook the fact that practically every decision affecting Japanese trade that we have taken since then has been adverse to their interests.

/1/Attorney General Robert F. Kennedy visited Japan February 4 - 10, as part of a worldwide good will trip February 1 - 28.

I am sorry to have to bother you with this matter, but I have been unable to persuade the President that we should not grant the Wilton carpet and sheet glass escape clauses. I have heard rumors that the carpet industry may have been given the impression some time ago that they would receive the relief they requested. Sheet glass, unfortunately, is principally produced in West Virginia. The President has a special interest in alleviating the depressed conditions in that state, in view of his firsthand experience there during the primary campaign.

Quite understandably the President is anxious to demonstrate that escape clauses are not wholly meaningless in order to encourage support for the trade bill. There are at the moment two other escape clauses pending. These cases concern mosaic tile and baseball gloves. They also affect Japan, although their impact would be relatively slight. However, there is little domestic mileage in either of them, and a tentative decision has been taken to reject the escape clause actions in those two cases.

At the moment we are attempting to negotiate a long-term textile agreement in Geneva. The Japanese have made a proposal that, we are hoping, may form the basis for a definitive agreement. However, the Japanese insist that final acceptance be held up until they see whether we are going through with the equalization fee on cotton textiles. At some point, we shall certainly have to yield on the equalization fee if we are to get the textile agreement concluded. How seriously the granting of escape clauses on Wilton carpets might affect the ultimate conclusion of a textile agreement, I cannot say. Both Wilton carpets and textiles involve Osaka interests which are politically powerful.

I have written this memorandum both to inform you and with the thought that you may wish to discuss this whole question with the President. Perhaps it would be wise to wait until after the Attorney General returns, since he will undoubtedly have been made aware of the Japanese sensitivity at repeated evidences of apparent American protectionism. I talked with him about the problem before he left and told him that I would make sure that the prospective escape clause actions were not taken while he was still in Japan.

My own ability to influence the decision on these matters has been impaired by the fact that I have of necessity felt compelled to oppose all escape clause actions, since I have not seen one yet in which an adequate economic case had been made for the claims presented. This consistent opposition has, I am afraid, given my position an appearance of pig-headedness and negativism.

George W. Ball

242. Editorial Note

On February 16, 1962, the White House released the text of the long-term cotton textile arrangement agreed upon by the Cotton Textile Committee of the General Agreement on Tariffs and Trade held in Geneva January 29 - February 9.

Valid for 5 years beginning October 1, the arrangement was similar to an earlier one in effect from October 1, 1961, to October 2, 1962, which "enabled importing countries threatened by or subject to market disruption in any of 64 categories of cotton textiles to restrain imports to the level of fiscal year 1961."

This new arrangement, however, allowed any importing nation threatened by or subject to market disruptions to "freeze imports for 1 year to the level of the first 12 of the preceding 15 months." The freeze could be extended for another year if market conditions persisted but a maximum 5 percent increase per year was the limit. For full text of the White House announcement, see American Foreign Policy: Current Documents, 1962, pages 1411 - 1412.

243. Memorandum From the Under Secretary of State (Ball) to President Kennedy

//Source: Department of State, Central Files, 394.41/2 - 2662. Confidential. Transmitted under cover of a similar memorandum, February 26, from Ball to Secretary Hodges.

Washington, February 26, 1962.

SUBJECT

Conclusion of GATT Tariff Negotiations

I am transmitting herewith Memoranda from the Chairman and the Alternate Chairman of the Interdepartmental Committee on Trade Agreements (TAC)/1/ recommending that you approve the results of tariff negotiations with the European Economic Community and with other countries including the United Kingdom, and that you authorize the termination of certain bilateral trade agreements suspended in 1947 when the countries concerned acceded to the General Agreement on Tariffs and Trade (GATT).

/1/The memorandum from the Chairman of the TAC is printed as Document 244. The memorandum from the Alternate Chairman was not attached.

The signing of the agreements is now scheduled for March 5 at Geneva, with publication of the results the following day, March 6. This timing is governed by our interest in announcing the results of the Geneva negotiations before the opening on March 12 of the hearings on the Administration's trade bill in the House Ways and Means Committee. Your approval is requested in time to enable our representatives at Geneva to sign on March 5.

The negotiations thus far concluded over all countries with which we negotiated at Geneva except Spain. Due to a late start by the Spanish these negotiations cannot be completed in time for signing on March 5. When they are completed, a further memorandum requesting your approval will be sent to you.

I recommend that you approve the recommendations as set forth in the Memoranda from the Chairman and the Alternate Chairman of the Interdepartmental Committee on Trade Agreements.

George W. Ball/2/

/2/Printed from a copy that indicates that Ball signed the original.

244. Memorandum From the Chairman of the Interdepartmental Committee on Trade Agreements (Walker) to President Kennedy

//Source: Department of State, Central Files, 394.41/2 - 2662. Confidential. Drafted on February 20. This memorandum was another enclosure submitted to President Kennedy under cover of the February 26 memorandum from Ball to Secretary Hodges (see the source note, Document 243).

Washington, February 26, 1962.

The Interdepartmental Committee on Trade Agreements herewith recommends that the President approve the results of United States negotiations thus far concluded in the 1960 - 61 Tariff Conference, held in Geneva under the sponsorship of the Contracting Parties to the General Agreement on Tariffs and Trade (GATT).

Because of the scope of the negotiations and the complexity of some of them, the conference was held in two separate phases. The first, which commenced on September 1, 1960, was concerned primarily with negotiations held under Article XXIV:6 of the GATT with the European Economic Community (EEC) for a new single schedule of tariff concessions in the General Agreement to replace the previously existing separate schedules of the EEC Member States: the Benelux countries (Belgium, Luxembourg and the Netherlands), France, the Federal Republic of Germany and Italy.

The second phase, which began on May 29, 1961, was concerned with the reciprocal exchange of new concessions among interested contracting parties, and with the accession of new contracting parties.

Concurrently with the major negotiations in both phases, there were a number of renegotiations pursuant to Article XXVIII and certain other provisions of the GATT. In these negotiations the United States obtained compensatory concessions for changes that several other countries had made in previously granted concessions. On its side, in turn, the United States paid compensation for certain changes which it had made since the last tariff negotiations in 1956.

In the first phase, United States negotiators dealt with tariffs involving nearly $2 billion of United States exports. In the second, they dealt with export-import trade of some $2.2 billion. (Annex 1/1/ contains a more detailed breakdown of the trade involved.)

/1/None of the annexes is printed.

Pending completion of other countries' negotiations among themselves, the United States proposes to enter into formal bilateral agreements with the EEC and the United Kingdom, and such other countries as are prepared to do so promptly in order that the larger part of the results of negotiations may be made public in the United States. When all negotiations are concluded, the results, including those bilateral agreements of the United States that are now to be proclaimed and made public, will be incorporated into a multilateral GATT protocol. This will include the consolidated schedules of tariff concessions of the individual countries.

XXIV:6 Negotiation

The major negotiation of the first phase was that with the Commission of the EEC arising in connection with the establishment of the common external tariff of the Common Market. This negotiation was a complex one, involving as it did the replacement of four separate and widely- differing tariff schedules by one new schedule. According to GATT provisions, this single schedule is to maintain the general level of concessions provided for in the composite prior schedules of the Member States, and the purpose of the negotiation was to assure that this obligation was complied with.

The United States had a large stake in this negotiation. Approximately $1,028 million of United States trade entered the Community in 1958 under tariff classifications on which the rate commitment had been negotiated in past years with the United States by Member States, plus an additional $611 million under commitments negotiated by them with other countries. These figures are exclusive of United States trade in products within the domain of the European Coal and Steel Community (ECSC) and the EURATOM.

The difficulty encountered by the United States and other major exporters of agricultural products in finding a basis for dealing with the EEC's projected Common Agricultural Policy, coupled with the unprecedented and complex nature of the negotiations, led to slow negotiations which were settled finally only at the time agreement was reached in the reciprocal negotiations and with the intervention of the special representative of the President, Mr. Petersen.

The result of the XXIV:6 negotiation is three-fold: First, for the bulk of United States trade, the EEC granted concessions on trade of $1,677 million in the base year, or on more than 60 percent of its imports from the United States. Of this, $1,583 million is in the form of direct bindings to the United States, representing a 60 percent increase in the trade covered by direct bindings. Further, there was also an improvement in the average rate level; increases in previously bound rates affecting $300 million were offset by new bindings at lowered rates affecting $530 million.

Second, for products on which the CXT rate of duty has not yet been determined, principally manufactured tobacco products and refined petroleum products, accounting for about 3 percent of United States exports, it was agreed that existing national tariffs would be maintained until such time as the CXT rate is determined, when it would be examined under the usual Article XXVIII procedures.

Third, for products to be put under the variable import fee system of the Common Agricultural Policy, agreement was reached on formulae postponing the final negotiation on them and providing certain interim safeguards. This agreement covers wheat, corn, rice, grain sorghum, and poultry, accounting for about 10 percent of our total exports to the Community area. In addition the EEC subscribed to a Joint Declaration envisaging renewed negotiation in future for more satisfactory rates on various products, notably tobacco, vegetable oils and chemicals.

The remaining 15 percent of United States exports not dealt with is accounted for almost entirely by products under the jurisdiction of the European Coal and Steel Community.

A more detailed explanation of the Article XXIV:6 exercise is contained in Annex 2 which has attached to it the agreements reached in the over- all settlement with the EEC.

Reciprocal Phase

In the reciprocal phase (or so-called "Dillon Round") for the exchange of new concessions, which commenced on May 29, United States negotiators reached satisfactory agreements with the EEC and the following 16 countries: Austria, Cambodia, Canada, Denmark, Finland, Haiti, India, Israel, Japan, New Zealand, Norway, Pakistan, Peru, Portugal, Switzerland, and the United Kingdom. Of these, Cambodia, Israel and Portugal are newly acceding countries. Negotiations are still under way with Spain, which also expects to accede. The only other outstanding negotiation is with Sweden, and this appears to be nearing conclusion.

Details on the results of these negotiations are included in Annex 3. Annex 3(a) contains a country-by-country description of the agreements reached. The bilateral lists of the concessions obtained by the United States are attached as Annex 3(b). The lists of the concessions granted by the United States are attached as Annex 3(c). In the final protocols these concessions will be combined.

In reciprocal negotiations with all countries, the United States obtained direct concessions covering trade amounting to $1,206 million. The figures used in each instance are for the latest year for which import statistics were available as of the time of negotiations with the country concerned, usually 1959 or 1960. Annex 1 shows in tabular form the trade coverage of concessions obtained from each country. In addition to these direct concessions, the United States trade will benefit, to an as yet undetermined extent, from concessions which other countries are granting each other.

In exchange, the United States granted concessions covering base year imports of $1,003 million from the countries with which the concession was directly negotiated. United States concessions in the reciprocal phase covered $1,725 million in terms of imports from all sources in 1960. United States imports of the products on which concessions were granted are shown in Annex 1.

Participation of the less-developed countries in the reciprocal phase was limited. In its negotiations, both in this phase and in the renegotiations undertaken by many of the less developed countries, the United States made a gesture in taking into account their needs by accepting agreements balanced in their favor in terms of strict trade coverage. It was unable within the framework of policy laid down under existing legislation, however, to accede to their wishes for completely unreciprocated concessions.

The most significant of the reciprocal negotiations was that with the EEC. The United States made direct concessions to the EEC covering imports of $597.4 million which represented 59 percent of those granted by the United States. In exchange, the EEC made direct concessions to the United States covering imports of $750.2 million or more than 62 percent, in terms of trade coverage, of the concessions obtained by the United States in the second phase of the conference. EEC statistics subsequent to 1958 are not available. However, by projection from United States export figures, the 1960 value of the EEC concessions is estimated at about $1 billion, as against a 1960 value of $795 million for the United States concession.

A recapitulation of the combined results of XXIV:6 and the reciprocal negotiations with the EEC, in terms of what the United States yielded in return for what it obtained, net basis, may be graphically presented as follows:

U.S. Grants EEC Grants to EEC to U.S.

Increase in Bound Trade 446 769

Improved Duty Rates 549 977

The foregoing may be projected into 1960 (estimated) by increasing all figures by one-third.

Negotiations with the United Kingdom were second only to the EEC and accounted for 17 percent of the concessions obtained by the United States and 18 percent of the concessions granted by it.

As the result of an unusually cautious approach to the selection of offers taken by the United States Government during the 1960 preparatory period, and of an unprecedented and economically questionable number of "peril point" determinations by the Tariff Commission, United States offers were limited in scope and of generally poor quality because of the exclusion of many key products. This, coupled with the 20 percent reduction limitation of the trade agreements legislation, led to individual offer lists which in many cases lacked appeal to the other countries negotiating. Partly because of this, the majority of the individual negotiations were small.

Early in the negotiations it became apparent that these limited offers would not enable the United States Delegation to obtain the concessions it had hoped for on the basis of the linear offers both the EEC and the UK had indicated a willingness to make. In an effort to improve the negotiating situation, especially with the EEC, the Department of State requested Presidential authorization to make additional offers by breaching peril-point determinations of the Tariff Commission on products dutiable under 27 tariff paragraphs. Such authorization was communicated to the Delegation on September 25, 1961. The additional authority covered imports amounting to $164 million in 1958, of which slightly more than half was for offer to the EEC. Of this United States negotiators used $76 million as direct concessions to the EEC and $7 million to the United Kingdom, with total trade affected amounting to $152 million. A list of the products on which peril-point determinations were exceeded is contained in Annex 4.

In addition, there were several products on which the Tariff Commission found as "peril-points" rates of duty higher than existing rates. Under the trade agreements legislation the Tariff Commission automatically initiates escape-clause investigations. In view of this, and in accord- ance with earlier experience, no attempt was made to negotiate the increased rates. Annex 5, attached, contains a list of the products involved, and an explanation of their current status.

Under the trade agreements legislation, the President is required to report to the Congress on each case in which a concession exceeds the "peril points" found by the Tariff Commission or in which he fails to negotiate the higher rates when "peril points" are found above the existing rates. The statute requires that the President send to the Congress a copy of the agreement in each case in which the finding of the Tariff Commission is not followed, together with reasons for the action. A separate draft communication to the Congress is being submitted to the President for this purpose. It will show the President's action to have been fruitful and eminently justified.

As part of the reciprocal negotiations, the United States proposed to Belgium, Luxembourg, the Netherlands, France, Canada and the United Kingdom that pre-GATT bilateral agreements, in suspense since 1947, be altogether terminated. This proposal was generally acceptable to the delegations of the several countries but the matter had to be referred to capitals. Canada, the only Government replying thus far, does not wish to take the suggested action. Presidential authorization for the termination of these bilateral agreements, on the part of the United States, is hereby requested against such time as decisions are reached by the other governments to which the proposal was made.

In the negotiations, it was found desirable for technical reasons to offer a rate of duty of 9 percent for one item on which Presidential authority to offer 9.2 percent had been obtained. This situation is explained in Annex 6, as is a correction of a typographical error.

A number of concessions which had been authorized for offer were not made. These items, covering total imports of $815.8 million, were not used in the negotiation either because countries for which they had been earmarked were not ready to negotiate, or else were not prepared to make counter-offers sufficiently large to warrant their use. A summary of these unusual [unused] offers is attached as Annex 7.

United States Compensation Negotiations

During the conference, the United States Delegation treated with several countries concerning their claims for compensatory concessions for actions taken by the United States Government since 1956 that had the effect of impairing concessions previously granted on 12 products. The President's approval has been sought separately on the negotiations which were completed as of November 24, 1961. Since then settlements have been reached with the United Kingdom and Italy. A recapitulation of the claims made and agreements reached is included in Annex 8(a).

Renegotiations of Changes in Concessions Made by Other Countries

The United States negotiations on changes being made by other countries in previous concessions involved 14 countries: Australia, Brazil, Canada, Ceylon, Finland, Haiti, Indonesia, Japan, Netherlands Antilles, Pakistan, Peru, South Africa, Sweden and Turkey. These renegotiations ranged from small ones involving one to four items to entire tariff schedules covering a total of several hundred tariff items. United States trade involved in the individual negotiations ranged from less than $100,000 to more than a $100 million and totalled about $220 million. The United States obtained compensatory concessions in exchange totalling about $202 million. A tabulation showing, by country, the trade involved is contained in Annex 8(b).

Action Remaining

If the President approves the recommendations in this memorandum, the final steps will be taken formally to conclude the negotiations and give effect to their results. The President will be requested to issue a full power for the signature of the bilateral trade agreements and eventually a protocol embodying the results of the 1960 - 61 Tariff Conference and separate protocols for the acceding countries. The putting into effect as domestic law of the United States obligations embodied in the agreements requires the issuance of a Presidential Proclamation.

Herman Walker/2/

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

245. Memorandum From the Under Secretary of State (Ball) to President Kennedy

//Source: Department of State, Central Files, 411.006/3 - 2962. No classification marking.

Washington, March 29, 1962.

In replying to a question at your press conference this morning regarding the recent escape clause actions on glass and carpets,/1/ you justified the decisions, in part, by the problems of our own balance of payments./2/

/1/On March 19, President Kennedy signed Proclamations 3454 and 3455 increasing the duties on woven carpets and sheet glass, effective after the close of business April 18. On March 27, he issued Proclamation 3458 delaying the effective date of these proclamations until June 17. A summary is in Department of State Bulletin, April 16, 1962, pp. 649 - 650.

/2/At his March 29 press conference, President Kennedy recognized that his decision to raise tariffs on glass and carpets would burden foreign producers. He argued however, "our unemployment is substantially greater than theirs, their balance of payments situation is substantially better than ours--in the case of Belgium, they've been adding gold rather than losing it, their unemployment rate is half of ours." (Public Papers of the Presidents of the United States: John F. Kennedy, 1962, p. 277)

I think it might be preferable in dealing with questions such as this in the future if this justification were not employed. We have taken the position with the rest of the world that we are seeking solutions of our balance of payments through non-restrictive measures. For that reason we are asking the cooperation of other nations in expanding our exports and developing international trade. We have been urging with some success that other countries follow lines of policy similar to ours.

To the extent that we justify restrictive actions, such as tariff increases, on balance of payments grounds we impair the effectiveness of our position. These actions should continue to be defended, it seems to me, with the argument that imports were exacerbating already serious unemployment in the affected industries. This is the basis on which I shall explain the tariff actions to the Europeans while I am in Europe during the next few days.

George W. Ball/3/

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

246. Telegram From the Department of State to the Embassy in Germany

//Source: Department of State, Central Files, 411.004/3 - 3162. Secret. Drafted by Robert M. Beaudry (EUR/WE) on March 31, cleared by Leonard Weiss (E/OT) and Arthur A. Hartman (U) in substance, and approved by Trezise (E). Repeated to Brussels for the Embassy and USEC.

Washington, March 31, 1962, 2:22 p.m.

2692. For Under Secretary. Following is an informal translation of a letter to Under Secretary from Spaak dated March 27. Letter received March 30 from Belgian Ambassador.

"Dear Mr. Ball:

I have received your letter of March 19/1/ and wish to thank you for the trouble you have taken in writing it to me.

/1/Not found.

I presume that you desire from me my sincere impressions. I would not conceal from you that the measure taken by the Government of the United States to increase the customs duties on glass and carpets has caused a very great reaction in my country and has even resulted in press articles extremely disagreeable for the United States.

What has struck everyone, if you will permit me to mention it, is that this action was taken a few days after an agreement had been reached between the Common Market and the United States. Even if it is not exact, one cannot overcome the impression of a great number of my compatriots that the United States has waited for the success of the Dillon negotiations to take vis-a-vis Belgium extremely prejudicial measures.

My colleague, the Minister of Foreign Commerce, is strongly protesting what has happened before the European Community which seems to have promised him its support. This affair is going to have certain ramifications, and I consider that regrettable. It would be in my view highly desirable that the Government of the United States review its position.

Accept, dear Mr. Ball, best wishes.

(Signed) P. H. Spaak."

Rusk

247. Editorial Note

On May 31, 1962, Secretary of State Rusk wrote Belgian Foreign Minister Spaak expressing the hope that the United States and Belgium would be able to resolve the carpet and glass dispute through some form of compensation. This letter, along with other documentation tracking the developments of the consequences following the President's March announcement of the increase in duties, is printed in volume XIII.

On June 4, despite U.S. efforts, the EEC Council took retaliatory action against certain U.S. imports in reprisal for the U.S. decision to increase duties on carpets and glass. The Council suspended the concessions it had made during the Dillon Round negotiations on U.S. exports to the EEC of polystyrene, polyethylene, synthetic and artificial clothing, and varnishes and paints. (Current Economic Documents, Issue No. 652, June 19, 1962, pages 3 - 5; Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments)

For additional documentation on this issue, see volume XIII.

248. Memorandum of Conversation

//Source: Department of State, Central Files, 411.004/6 - 962. Confidential. Drafted by Douglas MacArthur II and approved in S on June 15.

Washington, June 9, 1962, 10:30 a.m.

SUBJECT

Carpets and Glass

PARTICIPANTS

Belgian Foreign Minister Spaak Ambassador Scheyven, Belgian Embassy Baron Rothschild, Chef de Cabinet to Mr. Spaak The Secretary Ambassador MacArthur

The Secretary said that before joining the others he wanted to say a few words about the carpets and glass problem. We greatly regretted the action that we had been obliged to take with respect to these two items and we equally regretted the EEC action in the form of retaliation./1/

/1/See Documents 245 - 247.

Belgium, the Secretary explained, had been the victim of a conjuncture of circumstances that had forced us to increase tariffs on carpets and glass. In the first place there was substantial unemployment in these two industries, which had suffered serious injury as a result of a substantial increase in imports.

Another aspect of the problem which he wanted to mention most confidentially to Mr. Spaak was the need for the Administration to get the necessary Congressional support for the President's Trade Expansion legislation. This was truly a most far-reaching and indeed almost revolutionary bill in terms of our traditional rather conservative approach to trade. Although the Administration was pleased with the extent to which it had been able to muster wide support, there were some hard-hitting opponents who had charged that the Administration had in the past ignored peril points and escape clause action and that the features in the new bill designed to give legitimate security to American industry would be similarly ignored. It had been necessary to give evidence of the Administration's will to act and the items, by unfortunate coincidence, had been ones in which Belgium was primarily interested. While regretting this, the Secretary emphasized again that both the carpet and glass industries were in serious condition and the action had been justified.

As to the future, the Secretary believed that we must let matters stand where they now are and consider the matter closed. We had taken action that the EEC countries had felt injured them and they had retaliated instead of negotiating compensation. Therefore, we would withdraw our compensation offer and the negotiations, which had been terminated by EEC retaliation, would end.

Mr. Spaak said that he understood the situation but asked whether, in the case of carpets, it would not be possible to establish some "contingent" (quota). He explained that several thousand families in the Courtrai area would be unemployed because substantial segments of the carpet industry which traditionally had supplied the American market could not survive. He said this fact had created particular "emotion" with the public and with Foreign Commerce Minister Brasseur and also with Finance Minister Dequae, who came from Courtrai. Mr. Spaak believed it was most important for the President to obtain passage of his Trade Bill, but at the same time hoped something might be done in the case of carpets to permit the industry to survive.

The Secretary replied that for the moment he did not believe it possible to do anything. As to the future, we would see.

249. Memorandum From the Under Secretary of State (Ball) to President Kennedy

//Source: Department of State, Central Files, 411.006/8 - 2162. Confidential. Drafted by Ball on August 21.

Washington, August 21, 1962.

SUBJECT

Present State of the Textile Import Problem

As we recognized in our discussion last night,/1/ the textile industry is acutely aware of the fact that once the trade bill is passed its bargaining power will be greatly diminished. It is, therefore, using the Senate action on the trade bill as the occasion for a last minute effort to squeeze out maximum concessions to insulate the American market from foreign competition.

/1/On August 20, the President held two off-the-record meetings with Ball and others from 4 to 6:25 p.m. (Kennedy Library, President's Appointment Book), but no further record of these discussions has been found.

The industry is mounting pressure through its Congressional supporters along three lines:

1. It wants the structure of multilateral agreements that has been worked out for limiting cotton textile exports either to be made more rigid or preferably junked in favor of mandatory unilateral quotas;

2. It wants favorable action on its request for a cotton equalization fee now pending before the Tariff Commission; and

3. It wants some form of quota limitation on woolen textile exports as well as cotton.

I

Short and Long Term Cotton Textile Agreements

The short-term agreement worked out at Geneva last year expires September 30. Meanwhile, the member nations have agreed on a new five- year agreement. Apart from Great Britain, none of the nations has definitively committed itself to sign the new agreement, and presumably signatures will not be received until after the Trade Expansion Act is finally passed. The Governments concerned wish to make sure that nothing is done through the Trade Expansion Act or otherwise that would impose further burdens or limitations on cotton textile imports into the United States.

Both the short-term and long-term agreements provide for some administrative discretion in imposing restraints on imports, since, before requesting that imports from a particular country be limited, the Administration must find that additional imports would be market disruptive.

In practice, you have told the industry that the agreements will be so administered as to limit imports to six percent of domestic production. This was explicitly stated in your letter to Carl Vinson./2/

/2/For the President's letter to Representative Vinson, June 27, see the Supplement.

During the first few months of the short-term agreement there was a certain amount of slippage primarily for three reasons: First, adequate administrative machinery had not yet been established, and no one had any experience in operating the mechanical arrangements. Second, it was not until June 18, 1962 that Congress provided us with the authority to impose restraints on countries not members of the agreement. Third, the foreign governments themselves did not fully understand how the agreement worked and there were questions about its interpretation which have since been cleared up.

In spite of this slippage, however, which resulted in shipments at an annual rate well over six percent during the early months, we are confident that for the whole year of the short-term agreement imports will not exceed the six percent limit you set in your letter to Chairman Vinson. The Department of Commerce has now perfected its administrative apparatus and by August 6 over 75% of the import movement of cotton textile products had been put under restraint.

There should be no serious problem of slippage under the long-term agreement which comes into effect on the first of October and runs for five years. In the case of one or two of the countries where the base under the long-term agreement has been slightly inflated due to the slippage it may be necessary to negotiate some downward adjustment of that base. However, this should not be too difficult once the long-term agreement has become operative.

In short, I see no reason why we cannot maintain the six percent import ceiling you have promised.

II

Cotton Equalization Fee

The objections to the imposition of any cotton equalization fee are the following:

1. It would have disastrous consequences for our relations with a number of textile producing countries--particularly Japan. The Japanese have made this issue a test of our good faith. They have been among the principal victims of almost every trade action we have taken during the past year and are in a highly sensitive mood. At the same time, they are acutely aware of the fact that US-Japanese trade in 1961 benefitted our balance of payments by a net $700 million.

2. Imposition of the cotton equalization fee would destroy the long-term agreement. There is no question about this. The leading textile- producing nations have put us on notice that, if we impose the equalization fee, they will reject the long-term agreement. (In this connection, we should not be misled by statements of some members of the industry that they would prefer the equalization fee to the long-term agreement. These two devices would not accomplish the same purpose. The equalization fee would principally operate to restrict the import of primary processed textiles such as yarn and grey goods. It would not materially affect the rate of importation of household textiles or of apparel since the raw cotton content is a much smaller proportion of the value of those products. Thus, if we were to impose the equalization fee and let the long-term agreement go down the drain, we would inevitably be confronted with a situation of greatly expanded exports of apparel and finished textiles and anguished demands for the imposition of quotas. In other words, we would be back where we started from eighteen months ago.)

3. The imposition of an equalization fee would require the United States to provide compensation in the form of tariff concessions on other products with respect to over $200 million of annual trade, since cotton tariffs are bound under earlier trade agreements. As a consequence we would begin the operation of the Trade Expansion Act by using up a substantial part of your authority to make tariff concessions without receiving any quid pro quo. On the other hand, if we were to fail to make adequate compensation, our trading partners would be entitled under GATT rules to retaliate against us by increasing tariffs on other products of their own choosing, as they did in the case of carpets and glass.

4. The equalization fee is a logical monstrosity. It does not make sense for the United States Government to maintain high cotton price supports which result in an artificially high price for cotton on the domestic market; pay an export subsidy in order to make it possible for cotton exporters to sell at the world price; and then put a tariff on cotton textile imports to equalize the raw cotton cost to American textile producers. The cotton textile industry would be better advised to terminate its alliance with the large cotton farmers who oppose a compensatory payment system. Even if the textile producers had the protection of an equalization fee, they would be pricing cotton textiles out of the market as against the competition of man-made fibers.

III

Woolen Textiles

There are several reasons why we cannot negotiate a multilateral woolen textile agreement:

1. Unlike cotton textiles, where there are a large number of low-wage countries that export to the United States, our woolen textile imports are concentrated in three countries: the United Kingdom, Italy, and Japan.

Our trade with the United Kingdom is of long standing and reasonably stable. We cannot deal with the United Kingdom as though it were a low- wage producer pouring disruptive imports into our market, as we dealt with the cotton textile-producing countries.

Imports from Italy have been rising over the last two or three years due to the modernization of the Italian industry. But again we cannot treat Italy as though it were Hong Kong.

2. Any attempt to negotiate a wool agreement at this point would mean the death of the long-term cotton textile agreement. When we first began negotiating the cotton textile agreement, the United Kingdom, Italy, Japan and certain other countries put us on notice that they were participating in the negotiations only on the condition that the principle of the agreement would not be extended to other fibers on other products.

Present Rate of Imports. New high import duties became effective on January 1, 1961. These had the effect of imposing restrictions on woolen fabrics imports almost at the level of the Smoot - Hawley Tariff. Since those new duties came into effect, imports have never regained the 1960 peak. They are presently running at an annual rate just slightly above the 1961 level, and one-third under the 1960 level.

Raw Wool Tariff. As in the case of the cotton textile industry, our wool textile producers face the problem of high raw material costs. The United States is the only major manufacturer of wool textiles that imposes a protective duty on raw wool imports. Since we import more than two-thirds of our raw wool requirements, the logical point at which to tackle the problem is the tariff on raw wool. Here again the solution could best be found through some form of compensatory payment to wool producers.

If we go on increasing the tariff on woolen textiles--or if we impose some restrictions that have the same price effect--we shall simply be pricing woolen textiles out of the domestic market by encouraging the development and production of man-made fibers. Unfortunately, the woolen textile industry persists in aligning itself on the side of the raw wool producers. It follows this course not only to improve its political leverage but also because a part of its tariff protection has been justified as a compensation for the raw wool tariff and the industry feels that there is some concealed extra protection for it in this compensatory element.

International Wool Study Group. In order to lay the basis for a fresh approach to this problem, we have arranged a meeting of the International Wool Study Group this coming November. However, in order to induce other nations to attend that meeting we had to assure them that we were not going to use it as the occasion for proposing an international arrangement.

Recommended Course of Action. During the course of the day we shall be in touch with Secretary Hodges and try to work out an agreed position for you to take when you see the textile industry representatives. I would expect that we can report this to you when we meet this evening. Meanwhile, I hope you will not find it necessary to make any firm commitment to Senator Kerr with regard to woolen textile imports since the problem requires more analysis than we were able to give it last night.

George W. Ball/3/

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

250. Message From Foreign Secretary Home to Secretary of State Rusk

//Source: Department of State, Central Files, 411.414/8 - 2462. Confidential. Transmitted under cover of a letter from Lord Hood, the British Charge, to Secretary Rusk, August 24.

London, August 21, 1962.

We have been very disturbed by the progress through Congress of the Bill which would double the duty on lightweight bicycles with curved frames. I understand that the Senate is expected to vote on it very shortly, and that, if this vote is favourable, the Bill will become law unless it is vetoed by the President.

In itself this would be a severe blow to the British bicycle industry, which has been doing a valuable trade in these machines with the United States. But what disturbs me even more is that this Bill is only the latest of a series of obstacles put in the way of our exports to the United States. I have in mind the difficulties we have experienced over glass and carpets, the wool tariff, the valuation for duty on chemicals, the duties on bottled whisky, certain aspects of the "Buy-American" Campaign, and so on. The cumulative effect of all these measures, particularly if the latest Bill is added to them, is to raise serious doubts about the United States Administration's ability to withstand protectionist pressure from domestic industry.

We here have made no secret of our admiration for the lead you have given the world by advocating liberal trade policies. If, however, public opinion in the United Kingdom decided that the United States Government were themselves unable in practice to apply these policies, the reaction would be very serious, and would not be confined to the commercial firms chiefly concerned. This is something which both of us are anxious to avoid, and it is this which prompts me to address this message to you. I know that you have done everything you can to oppose this Bill, and I am most grateful. If it should be passed by Congress despite your efforts, however, I do most earnestly beg of you to do everything possible to see that it does not become law./1/

/1/On September 4, in a letter to Lord Hood, Secretary Rusk informed him that the bill to revise the tariff on lightweight bicycles was passed over on objection in the Senate and that no further Senate action had yet been taken. "Let me assure you," he concluded, "that we are closely following the legislative proceedings on this bill and will do everything we possibly can." (Ibid.)

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

//Source: Department of State, Central Files, 611.0041/9 - 2762. Unclassified. Drafted by Selma G. Kallis (OTF) on September 26, cleared by John Bertram Rehm (L/E) in draft, and approved by Leonard Weiss (OTF). Sent to 30 posts and pouched to all others except Moscow, Budapest, Prague, Bucharest, and Sofia.

Washington, September 27, 1962, 5:25 p.m.

537. House Senate conferees September 26 approved final form of trade bill with following principal changes in bill as passed by Senate (Depcirtel 484):/1/

/1/Dated September 19. (Ibid. 411.00/9 - 1962)

(1) Senate receded on its amendment which would have continued President's authority to extend MFN treatment to Poland and Yugoslavia. Thus Act will require denial of trade agreement benefits to "products, whether imported directly or indirectly, of any country dominated or controlled by Communism." Ways and Means Committee report makes clear Committee contemplated that, in addition to those countries and areas designated pursuant under existing legislation, Poland and Yugoslavia will be designated under new Act.

(2) Senate receded on its amendment which would have permitted President to include in agreements negotiated under special EEC authority not only EEC but also any EFTA member countries designated by him. Thus special authority can be used only in negotiating trade agreements with EEC, as originally proposed by Administration and passed by House.

(3) Senate receded on an amendment which would have authorized President, when he finds it in national interest, to increase tariffs to any extent necessary or impose other import restrictions to any extent necessary. However, conferees agreed retain other Senate amendments somewhat strengthening House provision on President's authority to take action against foreign import restrictions adversely affecting U.S. trade interests.

Agreed bill now goes to House and Senate for final action which expected next week./2/

/2/The Trade Expansion Act of 1962 was enacted on October 11, 1962. (P.L. 87 - 794; 76 Stat. 872) For excerpts, see American Foreign Policy: Current Documents, 1962, pp. 1383 - 1396.

Ball

252. Memorandum From Secretary of State Rusk to President Kennedy

//Source: Department of State, Central Files, 411.006/10 - 1262. No classification marking. Drafted by Bayless A. Manning (U) and cleared in substance by W. Michael Blumenthal (E) and Herman Barger (E/OTF). A typed notation on the source text reads: "Withholding approval. See Press Release from W.H. 10/22/62." The attached press release is printed in Public Papers of the Presidents of the United States: John F. Kennedy, 1962, p. 805.

Washington, October 12, 1962.

SUBJECT

Recommended Veto of H.R. 8938 on Bicycle Tariffs

H.R. 8938 was passed by the Congress on October 5 and is now before you for consideration. This bill has the effect by reclassification of doubling the duty on half our imports of bicycles. The bill has been consistently opposed by the Department of Commerce, the Department of State, and other Executive agencies.

I strongly recommend that you veto H.R. 8938.

The reasons for my opposition are that:

--The Bill is an example of unilateral tariffmaking by special legislation, and as such is contrary to the new Trade Expansion Act.

--In doubling bicycle tariffs, the Bill will likely produce prompt retaliation by the United Kingdom, the Common Market countries, Japan and Austria--retaliation of the kind recently generated by escape clause action on carpets and glass. This retaliation will adversely affect United States exports at a time when we are trying to increase them.

--The Bill will undermine confidence in United States negotiated tariff commitments, and prejudice the bargaining position of your Chief Negotiator in the upcoming crucial negotiations with the European Economic Community.

--The bicycle industry has made no effort to show that it is suffering serious competitive injury from imports; in the absence of such injury, unilateral action on this tariff will violate an existing international agreement of the United States.

--The industry has not availed itself of the administrative remedies open to it under the tariff laws.

A proposed draft of veto message is attached./1/

/1/Not attached but presumably the draft veto message was the same as, or very similar to, the White House Press Release.

Dean Rusk/2/

/2/Printed from a copy that indicates Rusk signed the original.

Notation: If Congressional adjournment permits, a "pocket veto" is available./3/

/3/The notation is in unidentified handwriting. Because the second session of the 87th Congress had adjourned, the President's disapproval was a "pocket veto" of the bill.

253. Letter From President Kennedy to Christian A. Herter

//Source: Kennedy Library, Herter Papers, Herter Appointment. No classification marking. The date is handwritten on the source text as the date the letter was received.

Washington, November 15, 1962.

DEAR MR. SECRETARY: In requesting that you accept the responsibility of serving as Special Representative for Trade Negotiations,/1/ I believe it appropriate that I indicate to you the importance with which I view this assignment, the scope of the task, and the goals toward which our efforts should be directed.

/1/Chapter 5, Section 241 of the Trade Expansion Act of 1962 confers on the President the authority to appoint individuals to this position. The law specifies that the Special Trade Representative's primary responsibility is to "seek information and advice with respect to each negotiation from representatives of industry, agriculture, and labor, and from such agencies as he deems appropriate." (American Foreign Policy: Current Documents, 1962, p. 1390)

As you know, I accorded to the Trade Expansion Act of 1962 the high priority, the non-partisan support, and the unqualified commitment which must be provided legislation which affects the vital security interests of the United States both here and abroad. I requested and received authority from the Congress not only to pursue agreements on trade and tariffs which would accommodate our national needs for expanding markets and thereby contribute to our economic strength and growth, but also to create entirely new reciprocal trading arrangements which would measurably contribute to the economic, political and military strength and solidarity of the free world. Notable among these broader purposes is the determination to build a more closely-knit Atlantic Community, to accord to other industrialized countries outside the Common Market such as Japan and Canada a role in world trade commensurate to their importance as partners in the struggle with world communism, and to afford the less-developed countries the consideration and access to markets and sources of supply which will hasten their development under circumstances of free choice. Thus, the importance of this task and the scope of interest and endeavor of the Special Representative transcends the particulars of negotiations on trade and tariff matters. This work goes to the very heart of the many policies and programs, domestic and foreign, which will help to shape the world environment in which the United States must maintain initiative, command respect, and provide leadership.

Accordingly, I shall look to the Special Representative to advise and assist me directly in helping to shape our international trade and economic policies as well as spearheading the major negotiating effort abroad which lies ahead.

To this end, the Special Representative will necessarily be accorded a central role in the formulation of trade policy. He will chair the new Cabinet-level interdepartmental committee which will replace the present Trade Policy Committee. He will be directly responsible for preparing the proposed objectives and strategies for negotiations and for directing those negotiations while they are in process. In a broader sense he will become, along with the Secretaries of State and Commerce, one of the top policy officials of the U.S. Government in shaping and achieving our international objectives in the commercial, trade, and economic fields.

I am confident that we fully agree on the broad purposes and goals sought in this program; that we fully share the sense of urgency and determination with which this effort must be pursued; and that we appreciate the magnitude and difficulty of the task. It is on this basis that I have sought to enlist your efforts to the historic task which presents such opportunity and challenge for our country.

Sincerely yours,

John F. Kennedy

254. Memorandum From the Assistant Secretary of State for Economic Affairs (Johnson) to the Under Secretary of State (Ball)

//Source: Department of State, Central Files, 400.11/11 - 2962. Confidential. Drafted by Gerald A. Pollack (E/OTF/FN) on November 29 and concurred in by Herman Pollack (A) and Theodore Hadraba (E) in draft, Leonard Weiss (E), Bernard Norwood (E/CPT), and Mortimer Goldstein (E/FN).

Washington, November 29, 1962.

SUBJECT

Meeting of Messrs. Ball, Bell, Dillon, and Gudeman on November 30, 1962 to discuss the Commerce Department's proposed export expansion program

Introduction

In the Treasury's submission of September 28 to the Cabinet Committee, the payments projections for 1964 indicated an over-all U.S. deficit of $1 billion rather than our stated objective of equilibrium. In view of the shortfall, Commerce undertook to prepare a detailed program designed to raise the export level, presently projected at $23.2 billion. The report under review (Tab A) contains the recommendations that have resulted from Commerce's work./1/

/1/For text of the Department of Commerce's proposal for an Export Expansion Program, November 8, see the Supplement.

The Commerce program comprises twelve major elements, summarized below. With a few exceptions, the program presents no problems for us. Commerce has not shown, however, how the program's elements, singly or in combination, can be expected to contribute to the necessary $1 billion increase in exports, but such a showing is probably not feasible. Commerce estimates that, to carry out the program, $4.05 million in supplemental appropriations will be needed for FY 1963 and that appropriation requests for FY 1964 will have to be increased by $13 million.

Recommendations

A. We recommend that the following proposals should be particularly supported as offering special promise for export gains:

(1) Expanding the number of overseas trade centers;

(2) Subsidizing American exhibitors at overseas trade fairs;

(3) Promoting private trade missions abroad; and

(4) Bringing foreign buyers to the United States under the reverse trade mission program.

B. We recommend opposing the following proposals:

(1) Establishing a separate commercial service;

(2) Submitting the proposal for a separate commercial service to the Cabinet Committee on the Balance of Payments;

(3) Giving the National Export Expansion Coordinator explicit or implicit supervisory authority over Ambassadors; and

(4) "Reversing" our approach to government representation of business abroad, if that means departing from our policies, as stated by Secretary Rusk, of not "participating in actual sales or giving unfair competitive advantage to one American company over another."

C. On the Commerce proposal for a tax incentive, we recommend:

(1) Explaining its implications with regard to GATT and our commercial policy relations with other countries which cause us concern; and

(2) Urging study of other possible tax incentives which do not have adverse GATT implications and hold more promise.

Details of the Commerce Program

/2/1. Tax incentives. Allow deduction of export marketing expenses when computing income taxes at 120 percent of outlays rather than 100 percent. (See p. 5 of Tab A.)

/2/Requires new legislation. [Footnote in the source text.]

/3/2. Export financing. Provide an additional $1 billion for medium-term export financing, improve administrative procedures, and revise priorities (p. 5).

/3/3. Expanded domestic and overseas service. Reconstitute the Overseas Commercial Service, now under State, as a separate service (p. 7).

/3/Requires new legislation. [Footnote in the source text.]

4. Trade centers. Establish centers in the twenty top markets for U.S. exports (p. 8).

5. Changed orientation of trade fair program. Instead of constructing new pavilions, subsidize participation by U.S. companies at specific fairs (p. 9).

6. Trade missions. Encourage U.S. business groups to finance their own missions abroad (p. 10).

7. Reverse trade missions. Bring foreign buyers to trade shows in the United States, if necessary at government cost (p. 11).

8. Overseas market studies. Expand work on market studies, with a larger role to be played by trade association or industry groups (p. 12).

9. Government representation. Make the National Export Expansion Coordinator responsible for assuring government representation for the interests of particular businesses overseas in specific transactions (p. 12).

10. Regional Export Expansion Councils. To support these Councils and make them more effective, provide additional funds for rejuvenating field offices and expanding the staff of the National Export Expansion Coordinator (p. 13).

11. Promotional "tactics." Introduce an "E" award program, a nationwide, state-by-state export contest, and an export symbol (p. 14).

12. Enlarging the National Export Expansion Coordinator's staff. Provide the Coordinator with a staff of 25 "Senior Foreign Trade Advisors" (p. 16).

Comments

The following comments deal only with the major issues raised by the Commerce paper.

Proposal for a Separate Commercial Service/4/

/4/For a point-by-point rebuttal of Commerce's arguments for a separate service, see Tab B. [Footnote in the source text.]

1. This is a matter to be resolved jointly between State and Commerce, and should be eliminated from the proposals. The Cabinet Committee on the Balance of Payments is an inappropriate forum for discussion of the Commerce proposal, inasmuch as it relates to the jurisdiction over services of the Department of State abroad, from which the proposed separate commercial service would be withdrawn and transferred to Commerce.

2. There is no apparent need for a separate overseas commercial service.

(a) The present joint State - Commerce commercial program, under an agreement between the two departments signed on November 15, 1961, has been in operation only some seven months--too short a time to judge its performance.

(b) The present arrangement permits realization of all the advantages that Commerce sees in a separate service. It does not, in any way, preclude expanding the overseas service staff, increasing its quality and effectiveness, and enlarging the scope of its activities.

(1) Commerce presently had primary responsibility for nominating and training expert personnel.

(2) Commerce already participates fully in budgeting procedures and in administrative and communications matters.

(3) State has already taken steps to assure the full support of our overseas missions to export expansion efforts.

3. The present arrangement preserves a unified operation abroad, and is thus preferable to a separate service reporting directly to different bosses in Washington.

4. Commerce is on record as favoring a commercial specialty within a unified Foreign Service.

5. Commerce's proposal may be based on the hope that a separate service would be able to attract larger appropriations from Congress than has the present organization. Congress rejected Commerce's request for increases in commercial positions in FY 1963. However, the composition of appropriations committees and the past treatment of requests for overseas commercial positions give us reason to believe that future requests for this purpose would receive no better treatment for a separate service than for the existing organization.

Proposal for Improved Governmental Representation

1. Commerce would subordinate Ambassadors to the National Export Expansion Coordinator in representing U.S. business interest abroad. We believe that the Ambassadors must retain principal jurisdiction over commercial matters in their respective countries, so that such matters can be coordinated with other aspects of U.S. foreign policy. There is nothing in this Ambassadorial role, however, which precludes the Export Expansion Coordinator from defining broad policy objectives and providing specific guidance.

2. Commerce states that our approach to government representation in helping U.S. business win contracts "must be reversed." It is already our policy to do as much as other countries, short of acting as agents for U.S. firms or giving an unfair competitive advantage to one American company over another. We must certainly intensify our general efforts, but should not reverse ourselves on these qualifications, to which Commerce itself adheres in its dealings with U.S. business.

Proposal for a Tax Incentive

1. Commerce has orally confirmed that it contemplates overexpensing of only those export marketing expenses that exceed the level of a recent, and as yet undefined, base period. This has the advantage of providing an incentive for export promotion without permitting windfall profits as a result of expenses which, more or less, would have been made in any event.

2. Commerce suggests that additional export marketing expenses be deducted at 120 percent instead of 100 percent when income taxes are computed. As a result, such expenses would cost a profitable company only 37.6 cents per dollar after taxes, compared with 48 cents per dollar for all other deductible business expenses.

3. There is international precedent for such an incentive measure. Australia permits the deduction of all export promotion expenses at 200 percent, and New Zealand at 150 percent. This results in after-tax export promotion costs of 30 cents and 25 cents per dollar, respectively, by profitable firms in each country, compared with 65 cents and 50 cents, respectively, for all other deductible expenses.

4. Adoption of a tax incentive would conflict with our objective of getting foreign countries to drop their export subsidies. (In a letter of October 4, 1962 to the President, Secretaries Hodges and Wirtz, Chairman and Vice Chairman of the President's Advisory Committee on Labor-Management Policy, said: "Our Government must continue and intensify its efforts to obtain the elimination or reduction of subsidies which aid export industries of foreign countries and place American industry at a disadvantage in world trade.")

5. The proposed incentive would violate the GATT if it led to lower foreign than domestic prices for the same American goods. It would be difficult to deny that the proposed incentive is a subsidy within the meaning of GATT Article XVI:4. In particular, it is generally considered that this article applies to the remission of direct taxes calculated in relation to exports.

6. Considering the important position of the United States in world trade, the tax incentive might touch off an export subsidy race.

7. It is doubtful that the incentive, as proposed by Commerce is large enough to have a significant effect on exports. If it does prove to be too small and if it is therefore enlarged, the dangers of a GATT violation and subsidy race would be increased.

255. Letter From the Under Secretary of State (Ball) to the President's Deputy Special Counsel (Feldman)

//Source: Department of State, Central Files, 411.006/12 - 562. Confidential.

Washington, December 5, 1962.

DEAR MIKE: I have your note this morning/1/ regarding the President's interest in a specific program for meeting the commitment to maintain wool textile imports at no more than 17-1/2%.

On the basis of my personal memorandum to members of the Cabinet Textile Committee, dated November 23,/1/ and the discussions at the Cabinet Textile Committee meeting on November 30,/2/ the Committee, as I understand it, reached the following conclusions:

/1/Not found.

/2/No record of this meeting has been found.

1. Neither a multilateral international agreement nor individual bilateral agreements providing for voluntary restraint are feasible with respect to woolen textiles. Any effort to negotiate such voluntary arrangements would be not only futile but extremely prejudicial to our larger program of negotiations contemplated by the Trade Expansion Act.

2. The imposition of mandatory quotas on woolen textile imports would not only undermine our efforts to enlarge our foreign markets by eliminating quota restrictions on American agricultural products but would subject us to claims for compensation in the form of tariff concessions on other goods in an amount approaching $250 million a year.

3. The only practicable way to achieve the necessary restriction on woolen imports is through a well-designed system of tariff increases utilizing the powers granted by the Trade Expansion Act.

In the light of these conclusions, I would suppose that the program I set forth in my memorandum of November 23 would still stand. That program, in essence, was as follows:

1. Mr. Herter should be requested to give attention to the wool textile problem as one of the first tasks to be undertaken by the President's Special Representative for Trade Negotiations. The assignment of this responsibility to Mr. Herter is required by the Trade Expansion Act. The statutory language requires that the Chief Representative conduct "each negotiation" under the Act, and there is no available solution that does not involve the use of the authority granted by that Act.

2. The Commerce Department should immediately undertake a detailed study and analysis to determine the exact nature and extent of the import pressure and recommend the tariff increases necessary to restrict imports to the required level on a category by category basis. Quite possibly the President will wish to request the staff of the Tariff Commission to participate in this study.

3. The International Wool Study Group is meeting in Plenary Session beginning December 10th. We are seeking that Group's expression of a continuing interest in the avoidance of disruption in world wool textile markets. The meeting will not itself result in any agreement but it should set the climate in which a negotiation can be conducted.

4. The Special Representative should, as soon as practicable, visit Europe to undertake preliminary discussions with a view to working out a deal for tariff increases on woolen textiles. Although undertaken within the GATT rules this would be a special negotiation undertaken with only those countries with which we have bindings on our relevant woolen textile tariffs.

5. Upon the completion of the Study Group meeting in December, we should set in motion the machinery for a special negotiation under section 201 of the Trade Expansion Act/3/ with regard to import duties on wool textiles. This procedure would involve the publication of a list of the articles--wool textiles upon which we want higher duties plus other articles upon which we would cut tariffs as compensation--to be considered during such a negotiation. The list would be submitted to the Tariff commission for advice concerning the probable economic effect of tariff modifications with respect to each article. Public hearings would be held simultaneously by the Tariff Commission and an interagency trade committee. When the Tariff Commission makes its recommendation based upon its hearings and when the President receives a summary of the hearings held by the interagency committee, he may then initiate the negotiation. While the statute gives the Tariff Commission six months to make its findings, this process could be speeded up in this instance since the list of articles would not be broad and the White House interest in quick resolution could be brought to bear.

/3/Under Section 201 (a) (1) of the Trade Expansion Act of 1962, the President had the authority to "enter into trade agreements with foreign countries or instrumentalities thereof" after June 30, 1962, and before July 1, 1967. (American Foreign Policy: Current Documents, 1962, p. 1383)

I recognize that the above program may cause disappointment in Congressional circles. But, as was made abundantly clear in the discussion of the Textile Committee, there is no cheap, quick, or easy way to achieve the required restraint on woolen textile imports. The situation is wholly different from that prevailing with regard to cotton textiles and--even with the best of luck--we shall be able to meet our commitment to restrain woolen textiles only at substantial cost to our political and trading interests.

The suggested program is the best I have been able to devise. It is awkward and costly, but any alternative I can think of would be far worse for us in every way.

Sincerely,

George

256. Report by the Cabinet Committee on Balance of Payments to President Kennedy

//Source: Kennedy Library, Herter Papers, Balance of Payments. Official Use Only. Copies were attached to a January 29 memorandum from Dillon to members of the Cabinet Committee on Balance of Payments. For further documentation on the balance-of-payments problem, see Documents 1 ff. and 40 ff.

Washington, January 24, 1963.

SUBJECT

Program for Expansion of U.S. Commercial Exports

The Committee has reviewed all of our programs designed to achieve a reasonable equilibrium in the balance of payments of the United States. It concludes that good progress has been made in our programs for reducing or offsetting U.S. Government expenditures abroad and for strengthening the international monetary system so as to protect the dollar against strains arising from large international movements of short-term funds. These programs must be vigorously followed up.

In the Committee's judgment, however, we must look mainly to exports for substantial further reductions in our basic payments deficit. Government and business together must make vigorous efforts to increase our commercial surplus--the excess of exports of goods and services over imports--to a level adequate to cover our necessary net payments abroad for defense, economic assistance, and private investment. This task is not easy. It can only be accomplished through a broad and determined national effort.

At present, our exports account for only 4 percent of our gross national product, whereas Italy exports about 12 percent of GNP, Germany about 15 percent and the United Kingdom over 16 percent.

Our businessmen must do more. But government can in many ways provide leadership, point out export opportunities and help sales. We have established new, and have expanded existing, programs--notably in the Department of Commerce and the Export-Import Bank--to do this. However, the Committee has concluded that additional sales promotion efforts by the business community and the U.S. Government are now required if we are to achieve our goal of balance of payments equilibrium within a reasonable period.

These efforts must, of course, occur against the backdrop of continued policies to ensure that our products are competitive with those of other nations and have fair access to their markets. This means continued price stability, as well as continuous improvement of our products. It also means vigorous negotiations on tariff and non-tariff barriers to trade with other nations--particularly those of the European Common Market. Especially important over the long run will be a successful outcome of negotiations under the Trade Expansion Act.

An Action Program to Promote Exports

Bearing in mind that government cannot itself increase exports, but can only lead the way and provide assistance to the thousands of U.S. businessmen on whose efforts achievement of balance of payments equilibrium depends, the Committee recommends adoption of the following action program:

1. Export financing.

Pursuant to your directives at the beginning of your administration, the Export-Import Bank has improved existing facilities and, in cooperation with a large group of private insurance companies, has formed the Foreign Credit Insurance Association (FCIA), which provides completely new export - credit insurance facilities.

These programs must be and are being continually reassessed to assure their maximum effectiveness and their continued adaptation to changing circumstances. During recent months, the Bank, in cooperation with Treasury, Commerce, and the FCIA, has sought out and carefully reviewed comments and specific suggestions from major commercial banks and exporters as to the adequacy and usefulness of these programs, and a number of significant improvements in the coverage and administration of the programs have been adopted. The latest such improvements, announced early in January, are a general reduction in rates charged for FCIA coverage combined with a revised classification of countries for rate- fixing purposes and the offering of an optional coverage for political risks only.

Accordingly, American exporters now enjoy credit facilities which are believed to be the equal of those anywhere in the world.

In addition, the Bank and the FCIA, in cooperation with the Department of Commerce, must now make a major and continuing effort to bring these facilities to the attention of banks and businessmen throughout the country. This effort is already under way, but must and will be further broadened and intensified. Effective promotion of these new facilities will do more than simply inform businessmen of the export-financing aids now available: it can also be a major tool for making them better aware of the potentialities of foreign markets.

2. Export promotion.

The Department of Commerce and American embassies and consulates abroad have long provided an array of different types of services designed to aid individual American exporters in locating potential foreign markets and successfully selling their products abroad. Among these are the development of U. S. export opportunities, the preparation of general and specific market analyses, the provision of credit information, and help in contacting foreign business firms.

Broader and more intensified efforts are now called for in these areas, as well as to get companies already exporting to do a better job; to persuade top management that exporting should become one of its major concerns; to interest new firms in the potentialities of the export market; and to intensify our marketing efforts.

A. Promotion at home.

The first task is to see that top management gives greater attention to exports. This is a task to which the Administration at all levels must devote itself. Major responsibility must rest with the Department of Commerce, particularly with its Bureau of International Commerce. The export expansion activities of this Bureau and other parts of the Department of Commerce must be substantially increased in strength. It is also proposed that the Office of the Export Coordinator be strengthened, that a number of export sales promotion officers be appointed, and that the Department of Commerce field staffs devoted to trade promotion be doubled in strength. The roving export sales promotion officers should supplement the efforts of the expanded Commerce field offices in bringing to the attention of every exporter and potential exporter the profit and growth opportunities to be found in exporting.

Information on potential export markets has been available, but not in the depth businessmen require. Much more detailed surveys of markets for particular products are needed. Trade associations and industry groups could supplement the efforts of individual government experts in evaluating the markets for a particular product in a number of countries, with a portion of the expense borne by the Government. These studies need to be sharply and rapidly expanded.

B. Promotion abroad.

Related both to the task of promotion abroad, and to that discussed above, is a proposed increase in the budget for the overseas commercial services. It is on our commercial officers overseas that the continuing, day-to-day, responsibility of reporting on export opportunities and market potential rests. It is they who must lay the groundwork and establish contacts for the special teams of Washington experts or businessmen who come to seek out specific export opportunities.

When firms have been interested in exporting, the task remains of actually getting American salesmen overseas with samples and order books, and foreign buyers here with check books. To this task, existing programs can make a direct contribution, and should be expanded.

Through participation in trade fairs, the dispatch of trade missions, and the establishment of trade centers, a wide variety of American goods can be shown abroad to the maximum number of potential buyers.

(a) Trade Fairs. Up until now, trade fairs have been utilized primarily to sell the United States, rather than to sell our products. Only in FY `63 has the Department of Commerce been given money for trade fairs specifically planned to sell U.S. goods and services. The $1.6 million granted by Congress will permit Commerce to mount or prepare for pavilion-type exhibits in seven major cities, selected on the basis of probable export opportunities. More American business firms can be persuaded to exhibit at trade fairs on a continuing basis, provided government initially assumes a share of the expense. (For example, the first year the government might pay 75% of the cost of participation by a particular firm, the second year 37-1/2%, and the third year nothing. This procedure would encourage a maximum number of U.S. companies to explore the market.) The amount provided for this program next year should be more than doubled.

In addition, a small appropriation should be provided to pay for mobile trade fairs, as recently authorized by the Congress.

(b) Trade Centers. Trade centers (miniature merchandise marts) have already been set up in London, Bangkok and Frankfurt. A fourth will be opened in Tokyo this spring. The trade center makes it possible for an American manufacturer to test the sales appeal of his goods in a foreign market at relatively low cost, serves as a magnet to attract potential buyers, distributors and agents, and can bring about direct sales far in excess of the government's expenditures for the trade center.

But the significance of the trade center is not to be measured in terms of on-the-floor sales. Properly programmed, it generates continuing interest in U.S. goods by month-after-month demonstration of the fact that "there is always something new and wonderful" coming from America. With proper follow-up by the exhibiting exporter, the volume of repeat sales should substantially exceed the initial orders taken in the center.

It is important to establish trade centers in another seven top export opportunity markets, in addition to the five already authorized, as soon as practicable.

(c) Trade Missions. An increasing number of specialized trade missions are necessary. Such missions are composed of business people representing one industry or segment of industry seeking export opportunities in their own particular field in places which market surveys have determined to have the highest potential. Some missions will also be needed to introduce U.S. businessmen to growing markets in newly-independent countries. In these missions, industry supplies the men but the government pays their travel expenses. With the funds appropriated, Commerce has been able to mount about a dozen such missions annually.

In the fall of 1962 Commerce sponsored the first industry-organized trade mission. This differs from previous missions in that the industry selects the mission's members, and it or the members pay their own expenses. The mission is briefed in Washington by the Department of Commerce, the facilities of the Foreign Service are utilized to make appointments and plan itineraries overseas, and a Commerce represent- ative accompanies the group. On its return, the mission reports to the Department of Commerce, with the understanding that its findings will be used for the benefit of all in the industry, whether they are members of the sponsoring association or not.

The cost of such missions to the government is substantially less than that of an official government mission. Two other trade associations have already taken the initiative to form missions, others have expressed interest. It is hoped that as many as sixteen of these missions might be formed through industry groups, and the National Association of Manufacturers and the U.S. Chamber of Commerce have already agreed to help Commerce in doing so.

(d) Foreign Buyers Program. Another technique of export promotion which has proved successful in many other countries is to bring foreign buyers to the exporting country. Selected foreign buyers should be brought to this country for such events as the furniture show, the housewares show, the appliance show, etc. The American businesses which will benefit should bear all of the costs of such a program, although in certain cases it may be desirable for the government to pay part of the costs. Particular efforts will be made to get American business to advertise its shows overseas. A major part of the modest cost of this operation lies in determining what items should be promoted, where they should be promoted, and following up to ascertain the exports resulting.

Conclusion

The budgetary costs of the program outlined above are very small when contrasted to the importance of achieving equilibrium in our balance of payments. A table showing the amounts which have been included for this program in the Budget is attached as Annex I./1/

/1/Not printed.

Adopting the above recommendations will not guarantee the increased export effort we need--only American business can do that; but failure to adopt them would be to avoid a small cost and accept a high risk--one that we should not and need not take.

Douglas Dillion

257. Memorandum From Secretary of the Treasury Dillon to President Kennedy

//Source: Kennedy Library, Dillon Papers, Memoranda to the President. No classification marking.

Washington, January 24, 1963.

SUBJECT

Suggested Course of Action to Implement the Export Expansion Program

The program submitted to you by the Cabinet Committee involves a modest increase in expenditures, approximately $11 million, for the purpose of improving our export expansion program. These funds are contained in the budget requests which you have forwarded to the Congress. The chief difficulty in obtaining acceptance of this program will be with Congressman Rooney who has been consistently averse to any personnel increases in non-political activities abroad. Without some special effort on your part it is certain that he will sabotage this program.

I recommend that you arrange to see Mr. Rooney at the White House on this matter at an early date, either alone, or with Secretary Hodges and me present. The object would be to point out to him the extreme gravity of our balance of payments situation and the contribution which can and must be made by expanded exports. This being the case, any doubts about the efficacy of a modest program such as has been recommended must, in the overall national interest, be resolved in favor of acceptance of the full program.

I would also suggest that you formally approve the report of the Cabinet Committee on Export Promotion, and forward it to Commerce, State and the Export-Import Bank for prompt implementation preferably accompanied by a brief memorandum indicating your personal interest in export expansion./1/ It could then be transmitted to the Congress in the most appropriate fashion for use in the appropriation hearings, stressing that it has your full support, as well as that of the entire Cabinet Committee on Balance of Payments. This should give Mr. Rooney an adequate excuse to reverse his long-standing position on this matter.

/1/On January 29, President Kennedy sent a brief memorandum to Secretary Dillon and all the members of Cabinet Committee on Balance of Payments, informing them that he had read the memorandum on the Export Expansion Program and that "it has my full support and I would like you to give top priority to carrying out its recommendations, in view of the importance of exports to our balance of payments." (Kennedy Library, Herter Papers, Balance of Payments, 1963)

Since appropriation hearings will start very soon it would be helpful if you could see Mr. Rooney some time next week.

Douglas Dillon/2/

/2/Printed from a copy that indicates Dillon signed the original.

(###)

[End of Section 12]

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