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

[Section 13 of 18]

258. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Confidential; Limited Distribution. Drafted by Vettel on January 29 and approved in U on February 18. The source text is labeled "Part III of III."

Washington, January 29, 1963, 3 p.m.

SUBJECT

Wool Textiles

participants

Mr. Koichiro Asakai, Ambassador of Japan Mr. Akira Nakashima, First Secretary, Embassy of Japan Mr. George W. Ball, Under Secretary of State Mr. W. Michael Blumenthal, Deputy Assistant Secretary for Economic Affairs Mr. Robert W. Barnett, Deputy Assistant Secretary of Far Eastern Economic Affairs Miss Thelma E. Vettel, Special Assistant to the Director for East Asian Affairs

The Ambassador said that when the Japanese applied voluntary controls to cotton textiles, they were apprehensive about the possibility that these restrictions would be applied to woolen textiles. The U.S. gave assurances that this was not intended. He pointed out that Article 1 of the LTA/1/ recognized that the cotton textile industry had "special problems." At the London meeting of the International Wool Study Group assurances were received from the U.S. that it was not considering the extension of the LTA to wool textiles. On various occasions the Japanese Embassy has discussed this question with the Department and has always been assured that the U.S. was not thinking of the extension of restrictions to wool textiles.

/1/The Long-Term Arrangement Regarding International Trade in Cotton Textiles (LTA) was signed in Geneva under GATT auspices by 19 countries in 1962. Its purpose was to ensure orderly development of the cotton textile trade to allow for growth of exports while not damaging markets of importing countries.

Recently, however, the Ambassador said, the Japanese Government had received reports from Geneva that the U.S. was thinking of a formula for curtailing imports of woolen goods. This had caused embarrassment to the Japanese Embassy, which was under the impression that the U.S. assurances still stood. The Ambassador had received instructions to obtain the Under Secretary's thinking on this matter.

The Under Secretary confirmed the Ambassador's recollection that the U.S. had been very explicit regarding this matter. He pointed out, however, that the U.S. had a practical problem with respect to increased imports of wool textiles. He said that Mr. Blumenthal had been discuss- ing with Mr. Wyndham White (the Executive Secretary of the GATT) the possibility that something might be worked out which would provide some relief of the pressure from increased imports but which would also result in a reduction in U.S. duties on raw wool and the compensating duties on wool textiles. A meeting in Geneva is planned for early February for the purpose of working out the matter, but not necessarily to apply the LTA to wool textiles.

The Ambassador asked if the U.S. was thinking of a quota system. The Under Secretary replied that we are disturbed by the problem but are open minded. He pointed out that woolen tariffs are already high.

Mr. Blumenthal recalled that at the London meeting we had said we did not come to propose restrictions or to propose an extension of the LTA. Various countries, including Japan, had suggested that one of the problems was the cost of the fiber, which was related to the tariff on raw wool. We had laid out the problem to Mr. Wyndham White but made no suggestion as to how it might be handled. The consultation meeting of exporters in Geneva on February 4 is designed to explore various solutions, and if at a certain point in the discussions the U.S. should, upon invitation, send a representative, it would be with an open mind.

The Ambassador expressed some surprise. He said his Embassy had repeatedly told Tokyo that the U.S. did not have restrictions in mind; he said the Japanese did not want to see the U.S. enter into discussions of a formula similar to the LTA.

Mr. Blumenthal said that Mr. Wyndham White thought this problem sufficiently important in relation to the forthcoming tariff negotiations that it should be explored with the exporters. Such a meeting has been set at Geneva. What will happen after that meeting is not known. Perhaps the discussions will be expanded to include the U.S.

The Ambassador said the Japanese do not want questions of import restrictions to pile up, one by one. He asked that Japan be told as soon as possible the line of U.S. thinking.

The Under Secretary explained that we have a problem, but no solution at the moment. The problem is that imports have increased since 1955 from 10 to 20 percent of domestic production. We would be glad to keep the Ambassador advised after the Geneva meeting as to what our actions will be. There is a possibility for considerable reductions in raw wool tariffs and in compensatory duties on wool textiles.

The Ambassador said the Japanese were surprised to hear of these developments regarding possible U.S. wool textile import restrictions.

Mr. Blumenthal explained that from the U.S. point of view, the problem at the London meeting was to point out that we had a serious problem. A possibility mentioned there was a "standstill" on imports for a period of time plus a lowering of our raw wool duties. The U.S. has made no proposal but was desirous of exploring with the exporters some mutually agreeable formula and that the "standstill" idea was one possibility which, while we had not officially proposed it, we were interested to explore.

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

//Source: Department of State, Central Files, 411.006/1 - 2962. Confidential; Priority; Limit Distribution; No Distribution Outside Department. Drafted by Stanley Nehmer (E/OR), cleared by W. Michael Blumenthal (E), and approved by Ball. Sent to Bonn, Brussels, Canberra, Geneva, The Hague, London, Paris, Rome, and Tokyo.

Washington, January 29, 1963, 7:37 p.m.

1336. For Ambassadors. Re: Wool textile import problem.

1. Nature of Problem

a. Wool textile imports (defined as wool tops, yarn, woven and knit fabrics, apparel, and miscellaneous items) into US have risen to point where they represented estimated 20 per cent of domestic consumption in 1962 as compared to 10 per cent in 1955. (Similar figures for cotton textiles estimated 6 - 7 per cent in 1962 and 2 per cent in 1955.)

b. Imports in 1962 estimated at $225 million as compared with previous peak of $182 million in 1960.

c. About three-fourths of wool textile imports from Italy, Japan, and UK in descending order of importance. Hong Kong fourth. Other EEC members rank next in importance.

d. Increase in imports in 1962 over previous peak of 1960 occurred in items constituting 93 per cent of total wool textile imports. Major increase in apparel, with Italy as major supplier of increased apparel import items.

2. Administration's Commitment

a. US wool textile industry claims imports causing serious disruption and entitled to relief under President's 7-point program of May 1961.

b. Administration committed itself to industry in August 1962 to hold wool textile imports to level which would prevent disruption to domestic industry.

3. Alternative Courses of Action

President's Cabinet Textile Advisory Committee has considered various alternatives in effort implement commitment, as follows:

a. Impose import quotas. Inconsistency this course action with basic foreign economic policy, probable retaliation, effect on Kennedy round, precedent for other industries, have ruled this course out of consideration at this time.

b. Raise tariffs. Such action would have to be comprehensive, increases for some items would have to go beyond Smoot - Hawley levels, and would involve granting substantial compensation. Wool textile industry has opposed this course as not being able to do job effectively or fast enough.

c. Negotiate bilateral agreements with three major suppliers. This would not prevent others from increasing their share of US market, as indeed is happening with some LDC's--e.g. Hong Kong, which already in fourth place in US market.

d. Negotiate international agreement such as cotton textile arrangement. Major exporting countries made it clear when agreeing to Long-Term Cotton Textile Arrangement (LTA) that this not precedent for similar agreements in other fields.

Pending Action by GATT

At direction of President's Cabinet Textile Advisory Committee, Dept has discussed with Wyndham White, Exec Secy GATT, problem and above alternative courses. Recent meeting of International Wool Study Group in London had indicated that GATT was proper forum for discussion problem faced by US re wool textiles. Although Wyndham White believed there would be great difficulty in securing agreement from other governments, he felt it was necessary, in view commitment which has been made by Administration and fact some action will be taken by US in any event, to sound out UK, Japan, and EEC re possibility multilateral approach to this problem involving limited number of countries. He felt that an indispensable part of such approach would be action by US to reduce raw wool duties accompanied by corresponding reductions in specific duties on wool textiles. This sounding out now in proc-ess on highly confidential and informal basis. Meeting of these countries will be held in Geneva February 4. On basis this meeting, it is possible that US will be invited to participate at similar meeting ten days to two weeks later. (Canberra note Australia not involved in February 4 meeting but Wyndham White now in process of advising Australians of current discussions.)

Action by Addressee Posts

At this stage, Ambassadors are not being requested to approach host government. In view delicacy problem, it is essential to keep matter as quiet as possible at this time. Foregoing has been transmitted for background and to permit Ambassadors to clarify situation if matter is raised. Points to be stressed by Ambassadors in any comments should include:

a. US has serious problem re wool textile imports, and Administration is committed to provide some relief.

b. No decision on specific program has been made, but in view reactions at London Wool Study Group that GATT is relevant forum for discussion such problem, we have raised matter with Wyndham White.

c. Latter strongly argued for multilateral action generally along lines alternative (d) above and offered to sound out key countries.

d. US believes opportunity to discuss question with exporting countries subsequent February 4 meeting highly desirable.

e. Completely negative attitude by others might have effect of forcing US into position which would be adverse to implementation of objectives of Trade Expansion Act.

f. USG has no fixed ideas at this stage re best means of multilateral action but willing to develop approach with exporting countries cooperatively.

Foregoing message is being sent to Bonn, Brussels, Canberra, Geneva, The Hague, London, Paris, Rome, and Tokyo.

Rusk

260. Letter From Senators Warren G. Magnuson, Henry M. Jackson, and Clair Engle to President Kennedy

//Source: Department of State, Central Files, INCO - POULTRY US. No classification marking.

Washington, February 20, 1963.

MY DEAR MR. SECRETARY: We are writing to you, and to Secretary of Agriculture Freeman, regarding present restrictions on the entry of American poultry into the markets of the European Economic Community. These result, we are advised, from Regulation No. 22 of the E.E.C. adopted at Brussels on April 4, 1962./1/ The poultry producers of our states have made it clear that the effect of the present E.E.C. policy is to price U.S. poultry out of Community countries.

/1/For a summary of Regulation 22, adopted by the Council of the EEC, January 14, 1962, and enacted April 4, 1962, see American Foreign Policy: Current Documents, 1962, p. 589.

The background of this, according to the Department of Agriculture, is that poultry meat consumption in Community countries has been increasing much more rapidly than production in recent years. There was an increase of net imports into the area from 29 million pounds in 1955 to 181 million in 1960. In the same period, U.S. exports of frozen poultry to the E.E.C. rose to 93 million pounds from 0.1 million pounds. In 1961, the 128 million pounds of fresh and frozen poultry the United States shipped to the Federal Republic of Germany accounted for 85 per cent of the 150 million pounds shipped to the entire Community area.

Now, however, according to our poultry producers, exports to the Federal Republic of Germany have been reduced to nearly nothing since August 1, 1962, the effective date of the E.E.C.'s increased tariff restrictions.

We are sure you appreciate the fact that the American poultry industry operates without any price support or production control program, and seeks only an opportunity to compete fairly within the Community's markets.

It would be most helpful to have a report on your schedule for pursuing this problem with the E.E.C. and its member governments, with particular reference to whatever provisions of the Trade Expansion Act of 1962/2/ and the General Agreement on Tariffs and Trade you may contemplate invoking.

/2/See footnote 2, Document 251.

With high regards.

Sincerely,

Warren G. MagnusonHenry M. JacksonClair Engle

261. Editorial Note

On February 25, 1963, Under Secretary Ball, feeling misunderstood over his involvement in the administration's commitment to limit wool textile imports, spoke with Carl Kaysen on the telephone explaining his role:

"On this wool thing, I am a little annoyed and disturbed because the President now is sending me various messages through Feldman, through the Secretary, and so on, to the effect that after all this was my commitment as much as his; that I was present when it was made and so on. I was not present when it was made, and if there is anything I have done over the last two years it's to fight it alone, a rear-guard action against the wool and the whole textile business. Now, this is one of Mike's operations--you know, to say to the President: `Well, after all, George told you to do it, and so on.' What happened was that after the commitment was made I simply said `I don't know how in the hell we'll do it, but we'll do our best.' This is the only thing one could say. But now I find myself in a position where I am getting blamed for getting him into misguided commitment, which couldn't just be further from the truth. I don't know quite how to handle that; I'll have to give some thought to it." (Memorandum of telephone conversation, February 25; Kennedy Library, Ball Papers, Balance of Payments, 1963)

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

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, 1962. No classification marking.

Washington, February 25, 1963.

I was concerned when you told me of the President's comment to you on Thursday morning that I had been present when the commitment was made to the woolen textile Congressmen. This is a misunderstanding. To the best of my recollection--and I am confident of my memory on this point--I have never been present at any meeting with the President when he talked about woolen textiles with any member of Congress or the textile industry, and I have consistently advised against any commitment on woolen textiles.

Obviously, I regard a promise of the President as a solemn undertaking and will do whatever he feels is justified to carry it out. At the same time, it would trouble me deeply if I thought the President felt I had misled him into a promise that can be carried out only at great cost.

Once the Administration had given its commitment in Mr. Feldman's letter to the industry dated August 7, 1962,/1/ I did tell the President that we would try our best to find ways and means to keep it. But I also made it clear that this was going to be very difficult and costly.

/1/Not found.

How the Commitment was Made

The facts are as follows:

When the Cabinet Textile Committee was first established early in 1961, I was the one member who insisted that the textile problem not be approached as a whole since the cotton situation was clearly different from that of wool. In all of the dealings that I had with the representatives of the industry and with the Congress, I carefully avoided any promise that we would do more than study the problem of woolen textile imports. As you will recall, this was one of the points on which Congress complained; over 150 Congressmen and 40 Senators joined in letters to the President protesting my handling of the question.

In July, 1961, in order to avoid the need to impose mandatory quotas on cotton textiles--which all of the other members of the Cabinet Committee were pressing to do--I offered instead to negotiate a multilateral textile agreement. Such an agreement was unprecedented and not easy to achieve--particularly since it had the effect of waiving any compensation claims by the exporting nations. At that time, I made it clear to the members of the Industry Committee present at Geneva--as well as to the President's Cabinet Committee on Textiles--that the type of agreement worked out for cotton could not be utilized for textiles from any other fiber.

A cotton textile agreement was possible for one reason only. The markets of the old industrialized countries of Europe and America were being disrupted by low-wage textile products from less-developed countries. The economically advanced countries therefore had a common interest in developing a protective device against these imports which they could, by common action, impose on the less-developed countries.

I was able to negotiate the cotton textile agreement only because the special situation of cotton textiles permitted me to organize the Atlantic nations into a common front to bring the low-wage producers into line.

The situation with respect to woolen textiles is wholly different. Here the increase in our imports comes almost entirely from three countries-- the United Kingdom, Italy, and Japan.

The situation of wool, unlike that of cotton, does not permit us to make common cause with the industrialized countries. Instead, we would have to restrain imports from countries that are our principal allies and customers. In view of our heavily favorable trade balance with the UK and EEC our bargaining position would be very poor.

I made these points emphatically clear to the Cabinet Textile Committee on every occasion when the matter of woolen textile imports arose.

I may add that during this whole time I was under great pressure from other members of the Committee to expand the scope of the Administration's commitments to all sectors of the textile industry. Those other members did not have to face the responsibilities of negotiation or the realities of maintaining an overall commercial policy favorable to the United States national interest.

On July 16, 1962, the National Association of Woolen Textile Manufacturers wrote the White House indicating that the Board of Directors of the Association had recently adopted a resolution calling, among other things, for quantitative limitations, by categories and by countries of origin, on imports of wool textile and apparel products.

Mr. Feldman prepared a draft reply to the Association's letter that would have committed the Administration to holding woolen textile imports to the fiscal year 1961 level. He discussed this matter over the telephone with an officer of the Department who was then in New York. That officer strongly advised Mr. Feldman against such a commitment and warned against the inclusion of such language in a letter to the Association.

There is a discrepancy in the recollection of this conversation. Mr. Feldman advises me that, after considerable discussion, the State Department officer agreed to the compromise language which was finally incorporated in the reply that was sent on August 7. The State Department officer has a different recollection. He recalls that he recommended against that language, suggesting an alternative formulation that did not include an express commitment.

In any event I was not personally consulted on this matter and knew nothing about any letter to the woolen textile industry until after it had already been sent.

Mr. Feldman's letter to the wool textile industry contained the following commitment:

"Limitation of textile imports to prevent market disruption is an essential element of Administration policy. We intend to implement this policy with regard to all textiles, and particularly to prevent market disruption such as would result from an increase over current levels of import."

As I recall, I requested a meeting with the President, which was held on August 20, 1962./2/ In the course of that meeting I reviewed both the cotton and wool problems, pointing out the difficulties posed by the commitment which the Administration had made in the August 7 letter. A larger meeting was held with the President on the following day./3/ At that time I pointed out that, if we tried to impose restraints on woolen textiles we would jeopardize the Long-Term Cotton Textile Agreement. My notes--and my recollection--indicate that I made three additional points: (1) that the situation of wool textiles was unlike that of cotton and that, in my opinion, a multilateral agreement was non- negotiable; (2) that any quantitative restrictions on wool textiles would require massive compensation; and (3) that the nations participating in the Cotton Textile Agreement had expressly stipulated that they would not enter into a wool textile agreement. However, since it was felt that some action was necessary, I agreed that when the accessions to the Long-Term Agreement were completed we would try some exploratory probing. Meanwhile, the President would advise interested members of Congress that we would try to hold imports at or below "current levels" but without specifying the exact percentage or how it would be done.

/2/See footnote 1, Document 249.

/3/On August 21, the President met with Ball and others from 6 to 7:05 p.m. (Kennedy Library, President's Appointment Books) No further record of this meeting has been found.

On August 24, the President met with certain Congressmen interested in the textile problem,/4/ and an even larger meeting was held about a week later./5/ I was not present at either meeting, but, prior to the second one, the President telephoned me in New York to say that he was meeting with a group of textile Senators and Congressmen in about five minutes. We discussed various points that he should make with regard to cotton textiles. When the question of woolen textiles was raised, I replied that since a commitment had already been made there was little the President could do other than to try to make it clear that "current levels" did not mean 15% but something over 17%. I said that I did not know how we would be able to carry out the Administration's promise, but we would do our best.

/4/No record of this meeting has been found.

/5/No record of this meeting has been found. On August 31, however, President Kennedy met off-the-record with 17 Senators, including Senator Pastore and Representative Vinson who had earlier, in a letter of June 22, 1961, to President Kennedy, expressed their concern about problems in the U.S. textile industry and the President's plans to address them. The congressional letter is printed as Document 219; for President Kennedy's response, see Document 220.

That is the story so far as the making of the commitment is concerned. To the best of my recollection, I was never present with the President when woolen textiles were discussed with any Congressmen or Senators. The President, however, remembers otherwise and I have more respect for his memory than for mine. Until the time that the commitment was made to the industry, I did my best to argue against it. Thereafter, I always tried to make it clear that its fulfillment would be difficult and costly.

If, however--as I fear is the case--the President feels that I did not adequately warn him about the difficulties of keeping the commitment, then the fault is mine in not being sufficiently clear and explicit.

Efforts to Fulfill Commitment

I think the record shows that the Department has tried, in good faith, to keep the Administration's promise with respect to woolen textiles-- while at the same time seeking to keep the cost within reasonable limits.

Early in May, 1962, the Cabinet Textile Committee appointed a subcommittee comprised of representatives of the Departments of State, Commerce and Labor to examine what we might do with regard to the woolen textile import problem. At an early meeting of that subcommittee, the State Department representative proposed that we utilize the International Wool Study Group as a forum for exploring this problem on an international basis. Mr. Feldman opposed this course of action on the ground that it would merely provide a forum for discussion and not a means of negotiation. Upon becoming further acquainted with the difficulties, he later agreed to a meeting of the Wool Study Group. In October the Management Committee of the Wool Study Group finally agreed- -reluctantly and over loud objections from the EEC and UK, who suspected our intentions--to call a meeting for December. This accorded with our desire to do nothing precipitous regarding wool until the necessary nations had finally signed the Long-Term Cotton Textile Agreement.

Meanwhile, the Trade Expansion legislation had, at Congressional insistence, been revised so as to transfer responsibility for trade negotiations from the State Department to the Chief Negotiator. As soon as Governor Herter was appointed, I reviewed the woolen textile problem with him. I suggested means for providing further protection to the woolen textile industry through tariff increases. However, we recognized that this would be unpopular with the industry.

During the Wool Study Group meeting in December, Mr. Blumenthal of the State Department, tried to lay the basis for a possible future international agreement on wool textiles. He found it very heavy going. Nevertheless, following the meeting, I proposed to Governor Herter, Secretary Hodges, Secretary Wirtz, and Mr. Feldman that we undertake an exploratory probe--offering as bait a possible reduction in the United States tariff on raw wool. Since Mr. Feldman did not feel that we were in position to promise such a reduction, it was agreed that the United States Government would not itself approach foreign governments but that Mr. Eric Wyndham White, Executive Secretary of the GATT, would be asked to undertake some soundings on our behalf.

These explorations, conducted as discreetly as possible, still produced a violent reaction from Europe, the United Kingdom, and Japan. The reaction was compounded by the fact that the proposal leaked to the European press. Since then the gratuitous comment at the final press conference of the outgoing Assistant Secretary of Commerce, Mr. Hickman Price, that the Administration was definitely planning to take action to restrict wool textile imports, has exacerbated an already bad situation.

Recently, the atmosphere of strain in the Western Alliance since President de Gaulle's press conference/6/ has introduced a new element. The French are threatening to drag their feet regarding the undertaking of any trade negotiations. The British are concerned at any action on our part that might further jeopardize their export earnings. The Japanese are threatening to withdraw from the Cotton Textile Agreement.

/6/On January 14, French President Charles de Gaulle, in response to a question posed to him at a news conference, rejected the United Kingdom's application for full membership in the EEC. For an excerpt of his response, see American Foreign Policy: Current Documents, 1963, pp. 441 - 443.

In our talk with the President this week we should make clear the costs and dangers involved in going forward with a program of restraining woolen textile imports at this time.

Among those costs and dangers are the following:

1. Action to restrain woolen textiles would produce an explosion of anger and resentment that would play into the hands of those opposing our policies. The French are already using the fact that the United States may try to restrain woolen textile imports to cast doubt on the sincerity of our efforts to liberalize trade. This is part of a general campaign to discredit American intentions with regard to Europe.

2. The British would likely regard such an American move as justification for their making a discriminatory deal with the Continent- -if such a deal can be negotiated.

3. Intelligence information suggests that, if we attempt to restrain woolen textiles the Japanese would be likely to torpedo the Long-Term Cotton Agreement. That agreement is a house of cards; the withdrawal of one major producing country would bring down the entire structure.

4. The effect of an action to restrain woolen textile imports would create major domestic political problems. The United States would be faced with compensation claims on over $200 million worth of trade. This compensation takes the form of concessions in tariffs on other industrial and agricultural products. The industrial and farm interests affected by these concessions are not likely to take this lying down. The Administration would, therefore, be in position of robbing one industrial or agricultural sector for the benefit of another.

5. The effect on negotiations under the Trade Expansion Act would be calamitous, but hard to appraise with precision.

At the best, it would greatly complicate Governor Herter's efforts. Not only would the United States have to use up substantial authority to pay compensation, but the atmosphere of the negotiations would be seriously prejudiced.

At the worst, it might make it impossible to use the Trade Expansion Act powers with any major effect. The French would seize our wool textile action as an excuse to justify the maintenance of high restrictions against American agricultural products. They would almost certainly be joined by the Italians who stand to lose the most by woolen textile restraints. Our exports not merely of poultry but of wheat, feed grains and all other agricultural products would be jeopardized.

I am not overstating the dimensions of the problem.

If our dilemma is fairly presented to the Congressmen and Senators involved, they should be willing to forego pressure for restraint action--at least for the time being. They will not like it--but they should, at least, recognize the problem.

Certainly the changed climate in Europe has added a new factor not present when the original commitment was made. Nor is this a case where grave injustice is being done. The woolen textile industry is showing record earnings. The most important companies in the industry make both cotton and woolen textiles; thus they have already greatly benefited from the Long-Term Cotton Agreement. They cannot say that the Administration has done nothing for them./7/

/7/None of the major incidents that Ball cites in this memorandum has been documented. However, documents alluding to the Feldman letter to the wool industry of August 7, 1962, and the August 20, 21, 24, and 30, 1962, meetings are included in the Supplement. For further information about these meetings, see Ball's March 9 memorandum to the President, Document 272.

263. Memorandum From President Kennedy to Secretary of State Rusk and the Under Secretary of State (Ball)

//Source: Department of State, Central Files, FTU 4 US/TEA. Confidential.

Washington, February 28, 1963.

The preparations for our negotiations with Europe under the Trade Expansion Act are already under way and will be increasing in tempo and scope. I am very much concerned that we do everything we can to bring these important negotiations to a fruitful conclusion. In order to do this, we must make sure that all the energies and skills available in the government for this task are coordinated and focused on it. The Secretary of State has the responsibility of providing Governor Herter, the Trade Negotiator, with broad foreign policy guidance and I want to be sure that the Department is organized to enable him to perform this task adequately. Further, the Department must be continuously aware of the need for putting these negotiations in their proper relation to our other ongoing negotiations in Europe in the military, monetary and political spheres. In this connection, I urge that all our European embassies be made aware of the great importance that the government attaches to these negotiations and their own heavy responsibility for them. I suggest you re-examine the staffing of our major European embassies with these responsibilities in mind and strengthen them wherever necessary to enable them to perform these tasks effectively.

I consider it equally important to bring all trade negotiations with the European countries into connection with the over-all negotiation we are entering into, so that no uncoordinated individual arrangements on particular products or with particular countries are made.

I would like the Under Secretary of State to assume personal responsibility for the State Department's activities in this sphere and to keep me closely in touch with the progress of activities and any problems that may arise through the Deputy Special Assistant for National Security Affairs.

John Kennedy

264. National Security Action Memorandum No. 224

//Source: Kennedy Library, National Security Files, Subjects Series, Trade Policy, Trade Expansion Act, March 16, 1963 - April 30, 1963. Confidential.

Washington, March 4, 1963.

MEMORANDUM FOR

The Secretary of Defense The Secretary of the Treasury The Secretary of Agriculture The Secretary of the Interior The Secretary of Commerce The Secretary of Labor Governor Herter (for information) The Secretary of State (for information)

SUBJECT

Coordination of U.S. Efforts Under the Trade Relations Act

1. We are engaged in major activities of a military, financial, trade and diplomatic nature centering on the European countries, in addition to carrying on a large volume of more routine discussions and negotiations with them. In particular, and of high importance, we are already preparing for our first round of negotiations under the Trade Expansion Act.

While the Secretary of State has the primary responsibility for the conduct of foreign policy, all of you are involved in one way or another in aspects of our relations with Europe. I think it is necessary that all our relations with Europe be conducted in a unified way and related to a central strategy aimed at the advancement of U.S. interests.

Governor Herter is charged with conducting the trade negotiations and related trade matters. The success of these negotiations, given their scope and implications for the future, is of the highest importance. Since many aspects of policy for which each of you has some responsibility bear on our trade relations and hence the trade negotiations, it is particularly important that these activities be coordinated with those for which Governor Herter has responsibility.

2. In accordance with the responsibilities of the Secretary of State, he should be the point of coordination for all important statements and actions bearing on relations with Europe. I have asked the Under Secretary to assume responsibility for this function in behalf of the Secretary of State, and I should like you to make suitable arrangements to keep him informed of your activities in this area, and for getting his views as to how they fit into our total foreign policy efforts. I have asked Carl Kaysen of my staff to be in touch with the Under Secretary to keep me informed on these matters. In this way I hope to assure that the many issues of policy involved in the totality of our relations with Europe will be properly coordinated in order to insure that the trade negotiations will proceed, with the best prospect for their success.

John F. Kennedy/1/

/1/Printed from a copy that indicates Kennedy signed the original.

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

//Source: Department of State, Central Files, INCO - WOOL US. Confidential. Drafted by Ball.

Washington, March 4, 1963.

SUBJECT

Some Points in Connection with the Wool Textile Problem

I understand we are going to have a chance to review the problem of wool textile imports tomorrow. In connection with that discussion, several points have special relevance:

1. The major companies leading the fight to restrict wool textile imports have already been the principal beneficiaries of the Cotton Textile Agreement./1/

/1/Reference is to the Long-Term Arrangement Regarding International Trade in Cotton Textiles; see footnote 1, Document 258.

There is no longer a separate wool textile industry. Most US textile companies manufacture all fibers including cotton, wool and synthetics. The ten largest textile companies, which are the moving force in pressing for wool textile protection, are primarily cotton textile manufacturers. Half of their activities consists in manufacturing cotton textiles. Another third consists of the production of textiles from man- made fibers. Wool textile manufacture is only a small part of their total activities.

These are the companies that have been the major beneficiaries of the Cotton Textile Agreement that we negotiated at Geneva.

2. An attempt to impose wool textile restrictions could well mean the collapse of the Cotton Textile Agreement--and the companies know it.

The Japanese have already threatened that if we try to restrict wool textile imports, they may withdraw from the Cotton Textile Agreement. Hong Kong would not be far behind. That would bring down the whole house of cards. Yet it is far more important to the major textile companies to have the Cotton Textile Agreement than to have restrictions on wool textile imports.

3. From the point of view of the United States economy, wool textile production is far less important than either cotton or synthetic fiber textile output.

The figures for 1962 indicate that, of the labor force employed in producing textiles, 60 percent worked on cotton textiles. Man-made fibers occupied 25 percent. Woolen textiles constituted only 15 percent of the total.

4. Wool textile imports are presently running at a rate of only 17 percent of domestic consumption--rather than 20 percent as has been stated.

An inter-agency committee has just reviewed the statistics we have been using. Their report, which is (Tab A)/2/ attached, shows that, while no ratio is completely accurate, the most reasonable method of computation indicates that imports are now running at a rate of 17 percent of domestic consumption. Under this same method of computation, imports were running at the rate of 15.7% in 1960, the year which registered the previous high, at the time Mr. Feldman's letter was sent to the woolen industry on August 7, 1962./3/

/2/Not printed.

/3/Not found, but see Document 262.

5. The textile industry is making lots of money and is not in any trouble.

Recent financial statements of textile companies are in stark contrast to the persistent complaints of textile industry executives that the industry is being seriously injured by imports. The year 1962 was at least as good as 1960, and there was a full recovery from the textile recession of 1961. Virtually all companies showed increases in sales in 1962 over previous years. Burlington, the largest company in the industry, became the industry's first billion-dollar company in 1962. Net earnings after taxes increased substantially in 1962 and dividends were increased or extra dividends declared.

The attached table showing comparative company results illustrates this point clearly. (Tab B)2

6. The world political scene has substantially changed since the wool commitment was made.

I do not need to expand on this. General de Gaulle's press conference of January 14/4/ has materially altered prospects for the liberal trading world which we envisaged. The very countries that would play the key role in any restriction of wool textile imports are the countries most affected by General de Gaulle's action. In view of these developments, we have more riding on the success of the Trade Expansion Act negotiations than ever and cannot afford to jeopardize our general position with a limited restrictive move in wool.

/4/See footnote 6, Document 262.

George W. Ball/5/

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

266. Record of Meeting

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act. Confidential. Drafted by Kaysen on March 6. The meeting was held in the Cabinet Room in the White House. The time of the meeting is from the President's Appointment Book. (Ibid.)

Washington, March 5, 1963, 4 - 5:20 p.m.

The President held a meeting on wool textiles for an hour and a half on March 5. Present were: Secretary Rusk, Under Secretary Ball, Mr. Blumenthal, Secretary Hodges, Governor Herter, Mr. Gossett, and Messrs. O'Brien (3/4 hour), Feldman, Donahue and Kaysen.

Secretary Ball began by outlining the problem in accordance with his memorandum./1/ We have a commitment to the industry, but we could carry it out only at enormous cost to other U.S. interests, especially the general trade negotiations. He sketched the history of our effort since August. The wool study group met to explore the possibility of an international agreement. The major exporters concerned are the UK, Japan and Italy. However, the situation is quite different from that in cotton textiles, in which the major industrialized countries shared our interests, and in which we were able to compensate the underdeveloped countries by opening up European markets to them somewhat. Therefore, the need for some "sweetener" was recognized and it was suggested that we combine a quota arrangement with a cut in raw wool tariff. There were discussions between Mr. Blumenthal and Eric Wyndham White, after which Wyndham White conducted exploratory talks in Europe. He received a loud and uniformly unfavorable response. It was the Department's conclusions that (1) no agreement was feasible; (2) unilateral quotas would lead to large demands for compensation and great interference with the trade negotiations; and (3) a probable Japanese withdrawal from the cotton textile agreement,/2/ which would kill that agreement. Secretary Ball noted that the cotton textile agreement was achieved without any compensation. Further, the same firms were involved to a substantial extent in cotton and wool, and the cotton textile agreement was worth much more to them than any wool textile agreement would be, if in fact it were achieved.

/1/Document 262.

/2/See Document 242.

Secretary Rusk asked whether we could settle on the present or slightly higher level of imports and the President thought this might be a good idea. Secretary Ball said that the exporters chiefly concerned, viewed this as an important item and they would not be satisfied. Mr. Feldman quoted Senator Pastore to the effect that any quota arrangement, even if it increased the permissible level of imports to 25 percent, was worthwhile. There remained the possibility of combining this with reduced tariffs on both wool and cotton textiles. The counter argument to this was purely emotional.

Governor Herter disagreed. There was a very strong negative reaction in Europe to the threat of quotas. He has had many discussions with the Community and with Heath, Errol and Maudling in England, and indirectly with the Japanese. Every country he has approached showed strong negative reactions, and expressed the view that any quota proposals were inconsistent with our desire to make progress on the Kennedy round. Further, such proposals would raise large demands for compensation.

The President, however, thought that a limitation on future growth was much easier for other countries to accept than a rollback. He contrasted Feldman's proposal/3/ with what we did on carpets and glass. Governor Herter responded that the wool industry just has not been hurt, and that in this respect the situation differed sharply.

/3/Not further identified, but see Document 262.

The President raised some question about the method of computing the level of imports, and Mr. Feldman indicated that this was not an issue. Secretary Hodges showed a list of woolen manufacturers that had failed, and Secretary Ball pointed out that a private study of failing woolen manufacturers showed that imports were irrelevant to failure in 16 out of 18 cases examined.

The President observed that, if he had made no commitment, there would be absolutely no doubt in his mind as to what he would do, but since he had made the commitment, we should try our best to meet it. The question was: Should we try to sell Feldman's proposal?

In response to Secretary Rusk's question, Mr. Feldman said that the proposal would satisfy both Senator Pastore and the New England wool industry. The President again asked whether we could sell the proposal. Governor Herter pointed out that as far as the tariff part of it was concerned, the regular procedure involved hearings by the Tariff Commission, etc., and would take about six months. The quota problem would have to be treated separately, and he doubted that there was a legal basis for imposing a quota. The only one available was a Tariff Commission finding of injury to the industry, which he was confident would not be made.

After some discussion of the significance of the legal problem, it was agreed that, while there was a technical barrier, it was not substantively important. Either new legislation could be passed, which could be done readily, or the cotton textile agreement could be amended to include woolens. Here, however, the problem arose as to whether or not such an attempt would blow up the cotton textile agreement.

The President again repeated that it was unfortunate that he had made the commitment and asked again how we could make it effective. Secretary Rusk observed that if we rule out the finding of a threat to national security, he was doubtful that we could meet any agreement on anything worthwhile. Secretary Ball went over the history of the cotton textile agreement, and the market disruption theory on which it was based, and pointed out again there was no comparable situation in wool, no comparable line-up of interests, in which we and the other industrialized countries face a common problem. Further, there were now no quota restrictions on trade in industrial products among the major industrialized countries. This was the result of a long and consistent effort on our part, and an attempt to introduce quotas on woolen goods would undo this effort. Secretary Rusk remarked that the inability of the industry to show injury made our bargaining position very weak. In response to a renewed question by the President, Governor Herter said that he thought any effort to do more than we had done would have undesirable results. First of all, the cotton textile agreement would break up. Then we would be faced with a breakdown of our whole trade negotiation position and no possibility of maintaining our agricultural exports to Europe. Governor Herter suggested that it might be possible in the context of the general Kennedy round negotiations next year to treat wool as a special case and get some protection for it. This would have the advantage of merging the compensation problem with the general compensation problem in the broader framework. To isolate wool textiles in advance would simply not be useful. Secretary Ball endorsed that suggestion as being hopeful. In response to the President's question of why we could not do wool first, Governor Herter repeated his doubts that we could achieve an agreement even with a great effort, as well as pointing out the probable adverse effects on our whole negotiating position, by undermining the philosophy of our trade policy.

The President then asked what he should say to Senator Pastore, and Mr. Feldman asked what Governor Herter should say to the industry committee tomorrow. Secretary Ball suggested that our response should contain two elements. First, we should show that we have made an enormous effort to meet the commitment, and explain in detail what it has been. Second, we should point out that next year, in the context of the over-all trade negotiations, there is some prospect for success in achieving something for woolens. Mr. Feldman suggested that it might also be useful to ask Wyndham White to come here to give the industry his assessment of the situation directly. Mr. Donahue urged that some feasible interim action be taken, if only another effort to negotiate through Wyndham White. Mr. Feldman agreed that a further effort to show good faith was useful. Secretary Ball pointed out that we had already done as much as possible through White, and that another round of failures would do us no good; we must not be in the position of mendicants. Mr. Feldman suggested that it might be useful to have White come in any event, and give the industry the notion that we are waiting for a final judgment on his discussion with them. He suggested Governor Herter say this to the textile group tomorrow. Secretary Rusk pointed out the great change in the international atmosphere since the commitment was made: failure of the UK to get into the Common Market, and our present difficulties with the French. Mr. Blumenthal, in response to a question from Secretary Ball, explained to the President that two separate efforts had been made in the past. First, he personally had led a delegation of twenty industry and fifteen government people to London, and achieved total failure.

In response to the President's question as to what industry wanted, Secretary Ball said an OEP determination that quotas were justified on national security grounds. If this were done, the combination of compensation and retaliation that would ensue would leave us helpless to do anything on the Kennedy round. Secretary Rusk added that since no one would believe that national security was involved, it would undercut the whole basis of our position with respect to trade negotiations. The President agreed that the national security argument was weak. He thought, however, it might be useful to hold out some form of hope to the industry tomorrow; to point out what we have done and what perhaps can be done next year; and to indicate that we are watching the situation now.

There was some discussion of the techniques of breaking the bad news, and it was agreed that Mr. Feldman would produce a memorandum for the use of all involved which would summarize both the efforts we have made and what we might do. Secretary Ball suggested that we warn the governments concerned quietly that a further sharp increase in wool imports next year might prove troublesome to us in the Kennedy round negotiations. It was agreed that such a warning might be useful.

The President summarized the main points to be covered by Mr. Feldman as follows: A detailed account of our efforts to meet the commitment, an explanation of the new situation that has arisen in the UK and EEC since the commitment was made, and its effect on our ability to negotiate, the difficulties in negotiating a woolen agreement now in relation to the risk of failure of the cotton agreement, the fact that we are watching and have warned the governments concerned, and, finally, the possibility of achieving some relief in the Kennedy round negotiations.

C.K./4/

/4/Printed from a copy that bears these typed initials.

267. Letter From the Under Secretary of State (Ball) to Senator Clair Engle

//Source: Department of State, Central Files, INCO - POULTRY US. No classification marking. Drafted by Under Secretary Ball on March 6. The source text bears Ball's initials as drafter, but it was drafted in E and forwarded to Ball under cover of a February memorandum from Assistant Secretary for Economic Affairs Johnson who recommended that Ball sign the proposed reply. Also attached to the source text is a February 25 memorandum from P. W. Kriebel (S/S - S) to Marilyn H. Moninger (E), which requested that a response to the three Senators' letter of February 20 (Document 260) be ready for Ball's signature by 5 p.m. on February 26, specifically refuting the statement in the letter that U.S. poultry exports to Germany have been reduced to "nearly nothing."

Washington, March 6, 1963.

DEAR SENATOR ENGLE: Your letter of February 20,/1/ which was signed also by Senator Magnuson and by Senator Jackson, expresses your concern that the European Economic Community's import regulations for poultry will "price US poultry out of Community markets".

/1/Document 260.

I share your concern. We have been carefully watching this development for at least a year and no problem has received more high-level attention. The President has sent letters to Chiefs of State. Secretary Rusk and I have each strongly pressed the case for poultry exports with Chiefs of State, Foreign and Economic Ministers, and other high-level officials of the European governments concerned. Our Missions abroad, acting under strong instructions from Washington, have sought every opportunity to try to promote a satisfactory solution, from the point of view of American poultry interests.

These efforts have been closely coordinated with parallel efforts by Secretary Freeman and the Department of Agriculture.

In spite of all this, I am sorry to report that we can so far report only very limited success. The EEC has now undertaken to re-examine the application and scale of certain of the charges applied to poultry imports. To prepare for the review, the United States Government and the EEC officials recently met in Brussels for a detailed examination of the technical issues. It is likely that the EEC Commission will recommend certain changes favorable to imports. We expect the EEC Council of Ministers to consider these questions early this month. Action in the EEC Council will, however, require unanimity, and there is reason to fear that at least one member state of the EEC may object to modifications of the import system for poultry.

United States exports of poultry to the Federal Republic of Germany (our major market in the EEC) have seriously declined since last August, but they have not yet been reduced "to nearly nothing", as your letter suggests. Our total exports of poultry to the Federal Republic increased from 137.7 million pounds in 1961 to 152.3 million in 1962. Of the 1962 figure, 38.5 million pounds were shipped to Germany during the last five months of 1962 when the common agricultural policy for poultry was in effect. Also, as of August 1, 1962, (the effective date of the common agricultural policy), stocks of poultry in Germany amounted to some 88.2 million pounds. The existence of these stocks undoubtedly contributed to the decline in US exports in the past several months.

I am under no illusions, however, as to the disastrous effect of these greatly increased import charges if they are not promptly revised. They will make it difficult or impossible for US poultry exporters to compete with EEC poultry producers. We are, therefore, planning to make use of every practicable measure to secure their reduction. If the present line of effort does not succeed, we shall try to find a solution through the forthcoming negotiations under the Trade Expansion Act.

I am sending a similar letter to Senators Magnuson and Jackson.

Sincerely yours,

George W. Ball/2/

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

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

//Source: Department of State, Central Files, INCO - WOOL US. Confidential. Drafted by Ball.

Washington, March 7, 1963.

SUBJECT

Your Discussion on Wool Textiles with Senator Pastore and Other Members of Congress

In their meeting with Governor Herter I understand that the wool textile industry representatives kept repeating two assertions that are not accurate. You may wish to set this record straight.

FIRST ASSERTION:

The Administration has failed to carry out the President's Seven Point Program of Assistance to the United States Textile Industry of May 2, 1961./1/

/1/See Document 213.

The points of that program and the performance are as follows:

Point 1. Department of Commerce to launch an expanded program of research.

Performance. Commerce asked Congress for funds for this purpose last year but the bill died. Commerce has reapplied for the funds this year.

Point 2. Revision of existing depreciation allowances on textile machinery.

Performance. New and much more favorable depreciation schedules were promulgated in October, 1961.

Point 3. Small Business Administration to assist cotton industry to obtain modernization financing.

Performance. Measures to this end were taken in Spring and Fall of 1962.

Point 4. Correction of differential due to two-price cotton system.

Performance. Administration is supporting legislation to this effect. Such legislation is currently pending before House Committee on Agriculture.

Point 5. Adjustment Assistance for industry injured by imports.

Performance. Such arrangements have been provided under the Trade Expansion Act.

Point 6. Calling of conference of textile exporting and importing countries to seek an international understanding "which will provide a basis for trade that will avoid undue disruption of established industries."

Performance. The State Department was able to negotiate, first, a Short- Term and, then, a Long-Term World Cotton Textile Agreement that has checked the flow of cotton textile imports and effectively prevented market disruption. With the exception of the Japanese voluntary arrangements, no previous administration had ever provided quantitative limitations on textile imports before. The World Cotton Textile Agreement is, in fact, without precedent for any industrial product, and it was achieved without having to penalize other US industries through the payment of any compensation. Many wool textile companies have greatly benefitted by this agreement since they are also producers of cotton textiles.

SECOND ASSERTION:

The Administration has not seriously tried to negotiate a wool textile agreement.

This is just not true.

By the use of great pressure we convened a meeting in London last December of all countries interested in the wool textile trade.

During that meeting we urged a solution to the United States textile problem. Our efforts met a completely negative reception.

Thereafter we undertook--utilizing the good offices of the Executive Secretary of the GATT, Mr. Wyndham White--to work out a voluntary arrangement with the exporting countries. Again, the reaction was uniformly adverse.

We have gone far enough to recognize the impossibility of obtaining a negotiated agreement. To restrict wool textile imports by unilateral action would result in prohibitive costs in compensation; would, quite likely, bring down the entire structure of cotton textile production; and would poison the international atmosphere for the forthcoming trade negotiations under the Trade Expansion Act.

George W. Ball/2/

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

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

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion. Confidential.

Washington, March 7, 1963.

SUBJECT

Your Conversation with Senator Pastore Regarding Wool Textile Imports

Mr. Feldman called me tonight to discuss the possible steps that the Administration might take in order to show some further effort toward meeting the import problem of the woolen textile industry. I told Mr. Feldman I thought that the Administration had already developed a very creditable record of action on behalf of the textile industry. I have pointed out the extent and character of this action in another memorandum I have just sent you./1/

/1/Document 268.

Mr. Feldman and I agreed, however, that we would take one further step. This would consist of Secretary Rusk calling in the ambassadors of the principal woolen textile importing countries--principally the United Kingdom and Italy. On careful reflection I strongly advise against calling in the Japanese Ambassador in view of the fact that the Japanese Government has told us that it is planning to challenge our method of administering the Cotton Textile Agreement in the GATT. We have too much riding on that agreement to put it in jeopardy by a Japanese withdrawal.

Secretary Rusk would say to the ambassadors that the Administration is under great pressure from the woolen textile industry who are feeling the effects of a sharp rise in wool textile imports. This pressure could become so severe as to compel restrictive action.

In view of the fact that the principal exporting nations have already made emphatically clear that they reject a multilateral agreement for wool textiles, the Secretary would suggest that they help to ease the domestic pressure in the United States by advising their industries to show restraint in the buildup of the volume of their exports.

I have discussed this course of action with Secretary Rusk, and he concurs.

I am under no illusion that this will satisfy the wool textile industry or that it will have a serious effect on imports. But it is the most we dare do under all the circumstances.

George W. Ball

270. Memorandum From the President's Deputy Special Counsel (Feldman) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act. No classification marking.

Washington, March 8, 1963.

SUBJECT

Meeting with Senator Pastore

I met with Senators Pastore, Muskie, McGee, Talmadge, Kennedy, and Church at 5 o'clock yesterday. They expressed their disappointment with the meeting held between Governor Herter and representatives of the wool industry, and we discussed in general terms the problems of the industry.

At the conclusion of the meeting, Senator Pastore asked that Secretary Rusk call in the Ambassadors from the United Kingdom, Italy, and Japan and seek an agreement with them for quantitative limitations upon the imports of wool textiles.

I have asked Under Secretary Ball for his reaction to this suggestion. He strongly recommends against any attempt to negotiate with these nations. He does, however, believe it feasible to have Secretary Rusk call in the various Ambassadors, explain to them the pressures from the wool textile industry, and suggest to them that they do whatever is possible to obtain the consent of their wool textile industries to a limitation upon exports to the United States. He is confident that it is not possible to reach any firm agreement on any terms, and an effort to do so will result in a loss of prestige to the United States.

You might also tell Senator Pastore that we are instructing our Ambassadors abroad to make similar representations to the governments to which they are accredited.

Myer Feldman/1/

/1/Printed from a copy that bears this typed signature.

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

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act. Confidential.

Washington, March 8, 1963.

SUBJECT

Objectives and Strategy for the Trade Expansion Act Negotiations

Mr. Blumenthal is leaving for Europe at the end of the week as head of the American component in a Working Group being set up in the GATT to plan for the forthcoming trade negotiations. The recommendations of this Working Group will be considered by a Ministerial Meeting of GATT beginning May 16,/1/ at which time the American side will be led by Governor Herter.

/1/The GATT Ministerial meeting was held in Geneva May 16 - 22.

Immediate Objectives

We hope by the end of May to reach an agreement in the GATT covering the following points:

(a) The commencement of tariff negotiations as early as possible in 1964;

(b) The main elements of a negotiating plan and the framework of the negotiations;

(c) An undertaking that separate negotiations would begin this summer looking toward special arrangements to cover certain key agricultural commodities, including grains.

Longer-Run Objectives

We should seek to improve access terms for American exports and assure greater certainty of access over the long run, by negotiations that include the following major elements:

(a) Full participation in the negotiations by the United States, the U.K., the EEC, Japan, Canada, Australia, New Zealand and the principal less-developed countries;

(b) Deep across-the-board tariff reductions, using to the maximum the fifty percent authority provided by the Trade Expansion Act;

(c) The restriction to a minimum of items and categories to be excepted from the full fifty percent across-the-board reduction;

(d) Effective arrangements for safeguarding access for United States agricultural products to the markets of Europe. The achievement of this last objective will depend in particular on the avoidance of substantial increases in Common Market price support levels for grains.

Decisions Necessary to a Successful Negotiation

1. If we are to have reasonable hope of achieving our objectives--taking into account protectionist pressures in other countries and the opposition of General de Gaulle's policies--we must make a firm decision to use the Trade Expansion Act authority to the maximum. Moreover, we must make it clear to our trading partners that that is, in fact, our resolute intention. This involves on the domestic side a willingness to withstand the pressures and complaints of industries that will oppose thorough-going tariff reductions.

2. We must recognize that, particularly with respect to agriculture, our negotiators will face a very tough job. The United States can succeed in protecting access for our agricultural products only if we are prepared to put our own agricultural support and import policies on the international bargaining table. This means that our internal price support policies for such key commodities as grains may become the subject of international agreement along with the internal price support policies of other major countries.

Basic Strategy

1. We shall not achieve our objectives easily. We can already foresee difficulty with several major countries, even with regard to our short- term objectives. Canada and Japan have expressed doubt about their ability to face the competition resulting from deep linear tariff reductions--and other countries no doubt share the same fear. We believe, however, that these countries can probably be brought along if there is the promise of full and effective participation by the EEC.

2. As in other matters, France is the problem within the EEC. It must be the principal object of our diplomatic effort in the next few weeks.

3. French agreement is an essential condition to successful trade negotiations. Under the terms of the Rome Treaty, the member nations of the EEC are required to work towards a common commercial policy in their relations with the rest of the world. That means that the EEC must negotiate with a single voice on the basis of a position agreed by all six members. After January 1, 1966, the other Common Market countries will be able to override a French veto because majority voting will then apply to EEC commercial policy decisions. But until that time, the French can effectively block EEC participation in the negotiations by refusing to participate themselves.

4. The essence of our tactical problem is how to exert pressure on France to acquiesce in a Community decision to participate in far- reaching trade negotiations--and to participate on a basis that meets our essential requirements. We have little bilateral leverage on France, but leverage does exist within the EEC framework. The principal element working in our favor is that--either for economic or political reasons, or both--the UK, Italy, Germany, and the Benelux countries all desire successful negotiations.

5. The leverage of the Five over France is that the French need certain actions that can only be taken by the agreement of the whole EEC. These include the signature and ratification of the Convention associating most of ex-French Africa with the EEC, the establishment of a special relationship for Algeria, continued progress on the common agricultural policy, and further movement this summer toward completion of the customs union of the Six.

6. At present, the French are saying to the Five: "If you don't give us what we want with respect to these matters, we shall see to it that there is no Kennedy Round." Our problem in the next few weeks is to work with the Five to use these French demands to extract a French agreement. We must persuade the Five to say to the French: "Unless you agree to full participation in the Kennedy Round, you will not receive any satisfaction in the EEC."

7. The leverage of the Five is, however, a wasting asset. We must encourage the Five--especially Italy and The Netherlands--to use their bargaining power with France now. They will be less able to hold out against de Gaulle in the EEC as time passes, since each country desires to make progress on EEC matters in its own self-interest.

8. It is unrealistic to expect that France can be pinned down now on all the details of the Kennedy Round. At the same time, a simple agreement "in principle" will not be enough. We must try to extract commitments that are as specific as possible, on such crucial points as the undertaking of substantial linear tariff reductions and the inclusion of agriculture in the negotiations.

9. Our strategy for the next few months must, therefore, be directed at bringing pressure on France by pressing the European Community as a whole to come to an early decision about its participation. We should try to accomplish the greater part of the strategic plan by the end of the Ministerial Meeting in May.

George W. Ball

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

//Source: Department of State, Ball Files: Lot 74 D 272, Wool. Confidential. A handwritten notation on the source text reads: "All other copies burned."

Washington, March 9, 1963.

SUBJECT

Lessons from the Wool Textile Experience

I have been giving hard thought to the question of how we got into the wool textile predicament. Leaving aside questions of substance, I think there may be lessons in procedure to be learned by all of us who had a part in putting you in an awkward situation.

This requires a brief analysis of the manner in which the relevant decisions were made.

First Commitment--Letter of August 7, 1962/1/

/1/Not found, but see Document 262.

Until August 7, 1962, the Administration had given no firm promise to either the wool textile industry or to the Congressmen and Senators interested in that industry. The Seven-Point Textile Program of May 2, 1961,/2/ provided merely that the Department of State would call a conference to "seek an international understanding which will provide a basis for trade that will avoid undue disruption of established industries." Thereafter--over the strenuous objections of the industry, which wished to present a massive united front to the Administration--I insisted upon treating separately with the cotton textile producers and the producers of wool and man-made fiber textiles. All that we ever promised the wool textile producers was that we would keep their situation under careful study and observation.

/2/See Document 213.

Early in May, 1962, the Cabinet Textile Committee/3/ appointed a subcommittee to examine what should be done with regard to wool textile imports. (At that time, imports were not sharply rising although the industry was putting on incessant pressure.) This Committee recommended that we utilize the International Wool Study Group as a forum for exploring this problem on an international basis and as a means for relieving industry pressure.

/3/At the urging of Secretary of Commerce Hodges, President Kennedy set up a Cabinet committee to study the textile problem. Established February 16, 1961, the committee consisted of Hodges as chairman, Secretary of the Treasury Douglas Dillon, Secretary of Agriculture Orville L. Freeman, Secretary of Labor Arthur J. Goldberg, and Under Secretary of State Ball.

I had hoped that the problem could be left to rest on this basis. Nevertheless, I took great pains on several occasions to advise the Cabinet Textile Committee that the international situation of wool textiles was totally different from that of cotton and that I did not see how a wool textile commitment could ever be fulfilled if one were made.

On July 16, 1962, the National Association of Woolen Textile Manufacturers called attention to a resolution of the Board of Directors of the Association demanding mandatory quotas.

Mr. Feldman prepared a draft reply to the Association's letter that would have committed the Administration to hold woolen textile imports to the fiscal year 1961 level. He discussed this matter over the telephone with Mr. Blumenthal of the State Department, who was then in New York in the midst of the Coffee Agreement negotiation. There is a discrepancy in the recollection of this conversation. Mr. Feldman believes that after considerable discussion, Mr. Blumenthal acquiesced in the language that was finally incorporated in the reply that was sent on August 7. Mr. Blumenthal is equally clear that he recommended innocuous language, warned about the implications of a specific commitment and--although told by Mr. Feldman that the White House had decided a stronger commitment was needed--ended the conversation under the impression that he had made his point with Mr. Feldman and that no specific commitment would be given.

Obviously, this was a case of honest misunderstanding on both sides. Mr. Blumenthal did not call me immediately because he believed the matter was in hand. He felt he had prevented the making of a specific commitment and so reported to me on his return to Washington the following week. I was, of course, aware that during this period Mr. Feldman was under strong pressure from the industry and from Congress and that his position was not an easy one.

As sent, the letter of August 7 contained the following commitment:

"Limitation of textile imports to prevent market disruption is an essential element of Administration policy. We intend to implement this policy with regard to all textiles, and particularly to prevent market disruption such as would result from an increase over current levels of import."

When this language came to our attention several days later, I requested a meeting with you which was held on August 20, 1962. In the course of that meeting, we reviewed both the cotton and wool problems, and some of the difficulties involved in a wool commitment were pointed out.

A larger meeting was held with you on the following day (August 21). Just prior to that meeting, I sent you two memoranda which were discussed during the course of the August 21 meeting. One was a memorandum entitled "Present State of the Textile Import Problem."/4/ The third section of this memorandum headed "Woolen Textiles" is attached as Tab A. The second was a memorandum entitled "Woolen Textile Problem"/5/ which is attached as Tab B.

/4/Document 249.

/5/Dated August 21, 1962; see the Supplement.

The meeting on August 21 was attended by Mr. Sorensen (since Mr. Feldman was at that time abroad), as well as by the Secretary of Commerce and (I believe) Larry O'Brien. In the course of that meeting--held in the Cabinet Room--we discussed the arguments contained in the memorandum at Tab A regarding the non-negotiability of a multilateral woolen textile agreement. It was also pointed out that any non-negotiated quota arrangements would involve heavy compensation.

The meeting was dominated, however, by the strong feeling that we had to do something substantial for the wool textile interests in order to keep their support for the Trade Expansion Act. There was considerable discussion as to the meaning of the expression "current levels" in the August 7 letter, and Mr. Sorensen suggested that we need not adopt the 15 percent figure which the industry was pressing. It was generally agreed that a figure something over 17 percent was defensible under the August 7 language.

In the course of the meeting, the State Department was pressed very hard to undertake negotiations. I explained again that a multilateral agreement was not possible. However, in view of the need for some action, it was agreed that--after all accessions to the Cotton Textile Agreement had been obtained--we would undertake some exploratory discussions.

Second Commitment--Meetings with Congressmen and Senators

My records indicate that you met with Senator Pastore and perhaps one or two other Senators on August 24 and that you met with a larger group on August 30. As you know, I do not recall being present at either meeting.

Just prior to the August 30 meeting, you telephoned me in New York to say that you were meeting in five minutes with a group of Senators on the textile problem. We quickly reviewed the pending cotton textile questions. When we reached wool textiles, I remember telling you that since it was agreed that we must go forward with the August 7 commitment, I would do my best to see what solution could be found-- although I could not say what might be feasible.

You know, of course, of the measures that have been taken in the search for a solution.

Lessons from Experience

From this experience, the following lessons seem to me to emerge:

1. The August 7 commitment was made in too much of a hurry. A matter of this importance should have been cleared with the full Cabinet Committee and language explicitly agreed upon. This would have permitted the question to be appealed to you before irreparable action was taken.

2. The August 21 meeting should have been carefully prepared with a full advance written presentation of the arguments on both sides. This was, in part, my own fault since the memoranda which I sent you (Tabs A and B) were only a partial statement of the problem.

3. I feel I was myself at fault for not having come to you directly at an earlier point and expressed my concern at the implications of the gradual broadening of our textile commitments. This extends beyond the narrow scope of wool textiles. During the course of the last two years, we have progressively yielded our freedom of action:

(a) We have moved from a generalized commitment in the Seven-Point Program to call an international conference to consider measures against "undue disruption", to a multilateral agreement against market disruption.

(b) We have then translated "market disruption" in the case of cotton textiles into an agreement to hold imports at six percent no matter how healthy the domestic market might be. (This is the source of our current serious problems with the Japanese which offer a threat to the whole structure of the Cotton Textile Agreements.)

In the case of wool, we have suffered the same creeping erosion:

(a) We have turned an agreement to prevent "market disruption" into an agreement to prevent "an increase over current levels of imports", and

(b) We have turned this commitment into a commitment to a specific 17- 1/2 percent figure.

This gradual extension and erosion of our commitments could have been prevented by tighter procedures. In the future, any alteration of an existing commitment should be brought before the full Cabinet Textile Committee--with the right of appeal. Moreover, it should be presented to that Committee in writing with a full opportunity for the presentation of written comments.

4. Finally, since it is difficult for anyone not in intimate and continuous touch with our dealings with other countries to assess the feasibility of arrangements involving them, I think you would be better protected if trade matters--as other foreign policy matters--were jointly screened through your own National Security Advisers as well as your advisers on domestic political problems.

George W. Ball/6/

/6/Printed from a copy that bears this typed signature.

273. Telegram From the Department of State to the Embassy in Italy

//Source: Department of State, Central Files, INCO - WOOL IT. Confidential. Drafted by A. Eugene Frank (EUR/WE); cleared by Stanley Nehmer (OR), Emory C. Swank (S) and Warren E. Slater (S/S - S); and approved by Galen L. Stone (EUR/WE). Also sent to London.

Washington, April 6, 1963, 3:56 p.m.

1980. Secretary spoke briefly and in low key to Italian Charge today informing him that despite serious problems confronting US wool textile industry and domestic political pressures, President had decided not take action re wool textile imports at this time. This reflects President's determination that we proceed toward trade liberalization pursuant to Trade Expansion Act. In order wool textile import problem not interfere with preparations for trade negotiations, Secretary pointed out it would be helpful if GOI might use its influence with its industry to prevent any substantial increases in exports during this period. Emphasized this approach did not represent a change in US economic philosophy but was designed deal with an immediate domestic problem. Also made clear he not suggesting GOI had any obligations curtail exports but its cooperation would be helpful.

Secretary commented in similar vein to British Ambassador.

Rusk

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

//Source: Department of State, Central Files, INCO - COTTON. Official Use Only. Drafted by Ball on April 17. Copies were sent to U, S/S - S, Governor Herter, and the White House for Kaysen.

Washington, April 17, 1963.

SUBJECT

Cotton Textiles

You mentioned the other day that Robert Stevens had been complaining again about cotton textile imports. You asked for a memorandum covering these two questions:

I. What would have happened to cotton textile imports if the Geneva Cotton Textile Arrangements had not been negotiated?

II. What is the relevance of the current level of imports in relation to domestic consumption (7.2% in 1962) in view of our efforts to hold imports to 6%?

I

What Would Have Happened If We Had Not Negotiated the Cotton Textile Arrangements

Since the Long-Term Arrangement became effective last October first, we have taken almost 160 actions to restrain cotton textile imports from seventeen countries. This means that some two-thirds to three-quarters of our cotton textile imports are under control not only with regard to overall levels but also as to the spacing of shipments throughout the year. This has involved, where necessary, import embargoes which have tied up substantial quantities of goods from such countries as Hong Kong, Portugal, and Taiwan, resulting in losses to American importers, to say nothing of the strains on our international relations.

No other Administration has ever come close to doing so much for the domestic textile industry. Although the industry has been complaining for a decade, the Geneva Cotton Textile Arrangements were without precedent. By blood, sweat, and arm-twisting we achieved an agreement to which twenty-one countries have acceded. (Two others may accede soon.) Had we resorted to mandatory unilateral quotas--for which the industry was clamoring--the United States would have incurred compensation claims on a quarter billion dollars of trade--and have been the net loser in the economic war that would almost certainly have followed.

I have no doubt that the intelligent leaders of the textile industry know they have gotten a good deal--but gratitude does not come easily and their teeth grow longer with each success. Before he died, Spencer Love of Burlington Mills wrote me a letter of thanks for the Geneva negotiations, but the gesture was not characteristic of the industry.

You will recall that when we first undertook the Geneva negotiations, industry spokesmen were prophesying imminent doom unless imports were checked. Mr. Stevens himself told me that the cotton textile industry would "be destroyed" if we could not find a means to stop the growth of imports. Last September Mr. Seabury Stanton, Chairman of the Northern Textile Association, estimated that, without the Geneva arrangements, imports would by then have reached double the present levels. A current article in Fortune/1/ suggests that the figure might well have been three times current levels.

/1/Richard J. Whalen, "The Durable Threads of J.P. Stevens," Fortune, April 1963, pp. 110 - 176.

Interestingly enough the Fortune article implies that the industry engaged in a certain deliberate overstatement of its predicament. It quotes Kenneth Fraser, the Financial Vice President of J. P. Stevens, as saying: "The stress so many of us put on imports has had a depressing effect on textiles and hasn't helped us with the financial community. But it was a calculated risk; we finally got Washington to do something."

The Geneva arrangements put an effective brake on imports. The textile industry knows that it will not again be faced by a sudden and disruptive tide of imported cotton goods, such as occurred during the four years preceding 1961 when imports rose from 2 to 6% of consumption.

We imported $700,000 worth of cotton textiles from Hong Kong in 1956. In 1960--the year preceding the Geneva negotiations--our imports from Hong Kong totalled $64 million. The United States will not tolerate another Hong Kong situation in cotton textiles. This has been said clearly and firmly to foreign governments. They understand this and have reluctantly accepted it.

But by the same token we cannot afford to disregard the spirit in which we were able to secure agreement to the Geneva arrangements. To date, twenty-one Governments have been persuaded to participate on the understanding that importing nations would request restraints on imports only when those imports threatened disruption of the market for specific categories of textile products.

The arrangement is not a license for us to act arbitrarily and we shall be in trouble if we do. Under the terms of the agreement any government may withdraw on 60 days' notice. If any major producing country were to pull out, the whole structure would come tumbling down. In that event, our domestic industry would be left without protection, even from disruptive imports--unless the Administration were prepared to assume the fantastic costs of imposing unilateral import quotas.

It is, therefore, essential that we administer the agreement with sensitivity to the reactions of the other members--which means that we can't press any harder than we are already doing.

II

Relation of Current Level of Imports to Domestic Consumption

But, in spite of this, I see no reason why our cotton textile industry should not live happily and prosperously under these arrangements. A little slippage from the 6% should not be cause for alarm. After all, many textile companies (including J. P. Stevens) had their highest sales in history in 1962.

The passage of legislation to eliminate discrimination resulting from the two-price system for cotton would be another major benefit provided by your Administration to the textile industry. Half of our imports of cotton textiles are presently affected by the two-price system. Elimination of this discriminatory system should greatly relieve the pressure of imports--and make the 6% level much more realistic.

Meanwhile, I hope that the industry will stop watching the monthly figures and look at the longer-term trends. The 6% figure makes sense only if regarded as an average over the five-year term of the Geneva arrangements. While domestic sales were slightly off during the early months of this year because purchasers were hoping--no doubt mistakenly- -that the elimination of the two-price system would be reflected in some decrease in textile prices, imports fluctuated widely. In January, they were at the lowest point in over a year because of the dock strike; in February, they were double the previous months.

Whether at the level of 6% or 7% or 7.2%, cotton textile imports are not building appreciably. In fact, in dollar value they are not much higher than exports. A little more concentration on developing exports would not only be good for the industry, but help our balance of payments.

After all, if the domestic industry feels put upon, it should compare its fate with that of the British textile mills. U.K. imports have risen to over 40% of domestic production as the result of a systematic rationalization of the industry coupled with a deliberate government policy to assist the less-developed areas in the Commonwealth. And the total British economy has benefitted by the release of skilled labor into the electronics industry.

In connection with our conversations with the textile industry you may get some comfort from Sherman Adams' report of a colloquy between President Eisenhower and George Humphrey. Adams writes:

"George Humphrey had pointed to what he called critical unemployment in the Pittsburgh area because of Japanese competition in the electrical instrument industry. Eisenhower asked him if it were not possible for American businessmen to make some sacrifices in such a situation in the interests of world peace.

"`No,' Humphrey said candidly. `The American businessman believes in getting as much as he can while the getting is good.'

"`Maybe that's the trouble with businessman, George,' Eisenhower said seriously."/2/

/2/Firsthand Report, by Sherman Adams. [Footnote in the source text.]

George W. Ball/3/

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

275. Memorandum From the Special Representative for Trade Negotiations (Herter) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act, 5/1/63 - 5/15/63. No classification marking. In preparation for the President's May 2 meeting with EEC Commissioners Jean Rey and Robert Margolin, Carl Kaysen forwarded this memorandum to President Kennedy under cover of a memorandum, May 1, that reads in part: "There may be some virtue in your not pressing our balance of payments problems as hard with them as you did with Mansholt. We are getting into the kind of bargaining atmosphere in which if we indicate too much eagerness on our part it may redound to our disadvantage."

Washington, May 1, 1963.

SUBJECT

Your meeting with EEC Commissioners Rey and Marjolin

You will be meeting the two Commissioners tomorrow morning at 10:30. George Ball and I will accompany them.

1. Who are they?

Jean Rey is the E.E.C. Commissioner responsible for the Community's External Relations--a sort of Foreign Minister for the Community. He shares responsibility for the Trade Negotiations with Marjolin. A Belgian Liberal (i.e. moderate conservative) and former Minister, Rey is a middle-of-the-roader, pro-European and anti-De Gaulle; but like Hallstein he is strongly committed to making the Community work. He favors a liberal, outward-looking Community and is basically pro- American, but he bitterly resented our carpets and glass decision, on which he felt betrayed, and is making this trip partly to restore good relations.

Robert Marjolin, Vice President of the E.E.C. Commission, is responsible for economic and financial policy in the Commission. He is an old friend and associate of Jean Monnet. He made the mistake of running for office in the last French elections on an anti-Gaullist (Socialist) ticket, and losing.

2. Why are they coming?

The visit is primarily a probing operation. Rey and Marjolin will try to determine how firm is the United States position on the forthcoming trade negotiations. They will be reporting next Tuesday to the Council of Ministers of the Six. The Council will then determine the position of the Community at the GATT Ministerial Meeting later this month.

3. Our position on the trade negotiations

We have received substantial support both from outside the Community and within it for the basic principles of our position:

a. A 50% across-the-board tariff cut with strictly limited exceptions;

b. Substantially equivalent cuts in agricultural protection--whether tariff or non-tariff;

c. The negotiations to cover reduction of non-tariff barriers.

d. Less-developed countries would be expected to participate on a basis consistent with their economic development and would not be required to give full reciprocity.

Our objective for the GATT Ministerial May 16 is a firm decision to begin tariff negotiations in the Spring of 1964 on the basis of these principles.

The French are the principal problem. They have not yet shown their hand and apparently want to avoid being isolated as they were in January. But they are doing everything they can to throw road-blocks in the way of a rapid decision on the kind of negotiations we want. However, the other Five are apparently ready to use their considerable bargaining power on internal Common Market issues to bring the French along.

Our strategy is to keep the pressure on the Community for a basic E.E.C. commitment at the GATT Ministerial this Spring; and to work with the E.E.C. Commission (which negotiates for the Common Market in GATT) and with the Five to keep the pressure on the French. This strategy has been successful to date despite a French effort to divert attention from the central issue by emphasizing the fact that the United States tariff has more high rates than the Community tariff. But any sign we were wavering on the eve of the GATT Ministerial could weaken the common front of the Commission and the Five and help the French forestall a clear-cut decision by the Council of Ministers.

4. What you should tell them on the trade negotiations

a. The United States is firmly committed to the success of the forthcoming negotiations. A substantial reduction of trade barriers and a higher level of international trade is in the interest not only of the United States but of the Community, which is more dependent on international trade than we are.

b. The attitude the Common Market takes in the forthcoming negotiations is regarded here as a crucial test of the long-term intentions of the Community. The position of the Six at the GATT Ministerial will be viewed in that light.

c. A substantial cut in industrial tariffs is only possible on the basis of a linear cut staged over a five-year period, with strictly limited exceptions. A decision on this point at Geneva is essential if we are to get on with the job of preparing real negotiations.

d. Special problems (like high and low tariffs and non-tariff barriers) will have to be dealt with on their merits in the course of the negotiations but should not hold up agreement on the basic linear cut.

e. Agriculture must be fully included in the negotiations if they are to provide a balance of concessions for all concerned. The techniques can be flexible, but the objective must be clear.

5. Poultry

You should tell them that a decision by the Common Market Council of Ministers to reduce the gate price for poultry (as the Commission has proposed) is most important to prevent this problem from continuing to poison our relations with the Community.

Christian A. Herter

276. Memorandum for the Record

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act, 5/1/63 - 5/15/63. No classification marking. The source text, labeled "Draft," bears no drafting information.

Washington, undated.

The President met in his office on May 2 at 10:30 with Messrs. Robert Marjolin and Jean Rey of the EEC Commission. They were accompanied by Governor Herter and Secretary Ball. After an exchange of greetings the President opened the discussion by observing that the Trade Expansion Act had represented a fairly radical step. It was a departure from our past method of doing things and it had taken a great deal of effort to persuade Congress that this was a worthwhile thing to do. The President realized we all would have particular problems with applying this method but he hoped for sufficient give and take on both sides so we could have a successful and beneficial negotiation. Mr. Marjolin agreed that the principles of the Act were good and that we would make something out of it. There were important problems of detail that remained to be dealt with but he was confident that they could be dealt with successfully. The President remarked on the importance of unanimity among the Six in their approach to the problem and hoped that there could be unanimity. He thought on both sides we should commit ourselves to as large-scale reductions as possible and be prepared to face the domestic complaints as they arose. He observed that it was a curious fact that harm to business that arose from domestic competition was more or less accepted while harm from import competition was viewed as something that had to be defended against. This, of course, was contrary to the economic logic of competition. On our own part, we are prepared to go as far as our legal authority allows in the trade negotiations. We have made that position clear; the President said he knew that Chris Herter would not have accepted the appointment if he was not convinced that we were prepared to go to the limit of our power in this negotiation. Commissioner Rey observed that there had been very good cooperation between the U.S. and the Commission. This was true at the level of relations between the Commissioner and Governor Herter and it was true at the working level. The Commission staff had lively discussions with Blumenthal and technical discussions were going ahead well.

The President turned to the question of the international monetary mechanism and whether it was equal to the needs of world trade. He observed that he had just received the other day a minister from Guinea. Like most of the less-developed countries Guinea was practically bankrupt. In fact Latin America, Africa, and Asia were essentially in this position and the U.S. balance of payments position was poor as well. This raised the question of whether too many countries were striving after surplus and whether this was not dangerous. Was not the West as a whole in danger of letting money master national purposes instead of letting broader purposes determine the monetary mechanism?

Commissioner Marjolin responded that the surplus of the Six was declining. Their trade balance was moving toward a better equilibrium than that of the U.S. Wages in these countries were rising some ten per cent per year and this rate of rise was still continuing in France, Germany and Italy and perhaps to only a slightly less extent in Holland. M. Marjolin expressed his confidence that in two years or so more the dollar will be in a sound position.

The President agreed that so far as trade went, Marjolin's observations were sound. On the other hand, one had to look not only to trade but other items. We expected our net loss on tourist account alone to be $1.5 billion next year. When the military burdens were considered, in addition, it was clear that we had to earn a bigger trade surplus to account for them. He did not mention investment because this was something he thought we ourselves had to deal with. In these balance of payments matters our loss was Europe's gain. Everybody can't have a surplus, yet if the U.S. responded by taking restrictive measures this could bring in Europe and the rest of the world the kind of desperate situation we had in the 20's and 30's, which would be disastrous.

Marjolin responded that Europe was not fighting to keep its surplus. It did not want a deficit indeed, but that is as far as it went. The U.S. basic deficit including short-term capital movements was not so big. In the face of rate of expansion, of demand in the EEC, the increasingly good economic conditions in the U.S., and the effect they would have on capital movements, Marjolin was confident the problem would be met. However, he agreed with the President that the international monetary system needed reform. The gold exchange standard was a fragile mechanism and it could not withstand any serious shock. While he was not an outright advocate of Triffin, he thought there was a good deal of merit in Triffin's ideas. He admired the accomplishments of Messrs. Dillon and Roosa in defending the dollar, but he thought we must go beyond what they have done. It is clear that we must have a situation in which the monetary system is the servant of the economy and not vice versa.

The President returned to the question of trade as a means toward other goals. For us it clearly had to earn enough for tourists and defense. It cost us about $3.5 billion annually on balance of payments account. M. Rey asked whether U.S. investment in Europe should be stopped. The President responded that he would be glad to see the Europeans do it. D'Estaing has threatened several times to do this and the President rather wondered when he would. Marjolin warned the President not to count on d'Estaing doing it and Rey added that the Commission would not do it.

The President asked what the present state of the poultry problem was and Marjolin referred to the Commission proposal of the Council of Ministers and described it as a good proposal for which the Commission would have to fight hard. The President responded that he would describe it as at best a moderately good proposal. He thought that the Europeans would by now be willing to do what we asked in respect to poultry in order that they would not have to listen to us talk about it any more.

There was a certain amount of further discussion of poultry and the conversation turned to the Italian elections. The President indicated that he thought that they might have no effect on the Community but feared they might have some effect on NATO.

277. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Kaysen) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act, 5/1/63 - 5/15/63. Confidential.

Washington, May 4, 1963.

SUBJECT

Reprise

With your permission, and at your pleasure, may I return to the subject of the relation between our balance of payments position and what we seek in the trade negotiations? If you have already had enough, stop here.

Your discussion with Messrs. Marjolin and Rey of why we need to increase our already large trade surplus further in order to meet our military and tourist outlays (among others) was clear, and from our point of view, convincing. We are providing Europe both with income that does not register in the trade account, e.g., tourists and investments, and with military services which we pay for and they do not, and the benefits of aid expenditures for which we still pay a disproportionate share. It is the fact that we must either finance these outlays by our trade surplus or reduce them. The Europeans should understand this, and it should affect their attitude toward the trade negotiations.

However, despite all this, it may not be helpful to our negotiating position to emphasize these truths. The negotiations under the Trade Expansion Act are carried on by a Commission which must act under instructions from six governments. The competence of the Commission is essentially economic. In our dealings with it, our arguments and theirs are couched in economic terms. The best argument we can make in these terms in that successful trade negotiations, resulting in the greatest possible reduction of barriers, are in the economic interests of both the U.S. and Europe. It is easier to make this argument because the negotiations involve not only the U.S. and the Six, but the rest of the world as well.

An argument that goes further and speaks to the U.S. need for the trade negotiations to result in a better balance of payments position for us, and rests on broader political and military security grounds, may prove too much. First, it would suggest that we are in a weak position and it is so important for us to try to succeed that the Europeans can toughen their bargaining terms. An analogy that may be helpful is the position of a man selling a house. If he tells the prospective buyer that he is in a tough financial shape and must get a very good price for the house, it is as likely to weaken as to strengthen his bargaining position.

Further, such arguments by us may be used, especially by the French, to support the view that we are seeking more from Europe in the trade negotiations than we are willing to give. While we can put the negotiations in their broader context, the Europeans in their discussions with each other need not. The French are already making this kind of argument in Europe, with some effect. Since the relations between the French and the other five within the Commission are crucial to the decisions that the Commission makes on the trade negotiations, we do not want to provide them with what may look like evidence that the French position is correct.

The same problem would arise in any discussion you might have with the Finance or Economic Ministers of individual countries, since they, too, would see the problem from their own viewpoint. The broader argument may be appropriate with Foreign Ministers, or even more so with heads of governments, who can instruct Finance Ministers and Economic Ministers on the political values to Europe of a successful negotiation. Even with them it is risky. In the narrower context of arguments about economic benefits, it is decidedly two-edged, and seems to me as likely to work against as for us in the bargaining process.

C.K./1/

/1/Printed from a copy that bears these typed initials.

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

//Source: Department of State, Central Files, FT7 GaTT. Limited Official Use. Drafted by Selma G. Kallis (E/OT) on May 3; cleared by James H. Lewis (TA), W. Michael Blumenthal (E), Richard D. Vine (EUR/RPE) in substance, and Herter; and approved by Leonard Weiss (OT). Repeated to all NATO capitals except Reykjavik, Athens, and Ankara, and to Bern, Canberra, Stockholm, Tokyo, Vienna, Wellington, Cairo, Helsinki, Karachi, Lima, Montevideo, New Delhi, Pretoria, and Rio de Janeiro.

Washington, May 4, 1963, 5:32 p.m.

1891. As Missions aware, Administration's position is that negotiating plan for proposed GATT trade negotiations should provide for substantial and equal linear tariff reductions by advanced countries on industrial products and on those agricultural products subject to fixed tariffs, with limited exceptions. Reductions would be made in no less than five annual stages.

At April 22 - 27 meeting of GATT Working Party on Tariff Reductions (WP), EEC pressed for alternative formula (termed "ecretement" plan) which they claim more suitable because of differing structures of U.S. and EEC tariffs (see below). This plan unacceptable to U.S. and meeting ended without decision on negotiating plan. Issue remains to be resolved at GATT Ministerial (May 16 - 22)/1/ or later.

/1/The GATT Ministerial meeting was held in Geneva.

In WP discussion, we took position we cannot accept ecretement as basic plan though prepared consider on their merits special cases in which wide disparities in tariff may create special problems. We do not believe, however, problem of high and low tariffs is of great consequence.

Our opposition to ecretement is based on conviction it not in interest of industrial countries generally as well as not in U.S. interest. To ensure this fully understood by governments concerned, missions addressed requested explain U.S. position to responsible officials, drawing on following, which summarizes U.S. statement at WP meeting:

1. Apparent for some years to all participating countries that old item- by-item tariff bargaining no longer adequate. Limited results reached in lengthy 1961 tariff negotiations provided confirmation that new technique of across-the-board, linear reduction required. This not practicable for U.S. under previous legislation. GATT Ministerial meeting November 1961 endorsed linear principle. TEA legislation 1962 designed provide President with powers necessary to enable him to negotiate on broad basis necessary for substantial trade liberalization. U.S. intention to use new authority for linear reductions was widely known through 1962 and was widely endorsed by other countries. At March 1963 WP meeting U.S. proposal for equal linear reductions received wide support.

2. Although no precise details proposed by EEC, under ecretement proposal aim would be to reach arbitrarily set targets, e.g. zero duties for raw materials, 5 percent for semi-manufactures, and 10 percent for finished products. Rates in excess these levels would be reduced by half the difference between present and target levels. Result overall would be considerably less tariff reduction than under U.S. proposal since there would be no reduction of any industrial rate which is 10 percent or less and even a 100 percent ad valorem rate would be reduced by only 45 percent. On 25 percent ad valorem rate, reduction would be only 30 percent. Since almost all EEC tariffs and large majority of U.S. tariffs are at or below 25 percent, the benefits to other countries would range from 0 to 30 percent for the largest part of their manufactured exports compared to 50 percent proposed by U.S.

3. Rationale for ecretement is apparently that while average levels of CXT and U.S. tariff roughly equivalent, most CXT rates are in 15 to 25 percent range (because most highs and lows eliminated in averaging process which established CXT) whereas U.S. tariff has greater spread of rates. Following summary shows frequency distribution of U.S. and EEC rates on dutiable goods:

Tariff Range Percentage Distribution by Percentage Distribution by (Percent) Count of Tariff Rates Volume of Trade

US EEC US EEC

.1 to 10.0 22 21 54 38 10.1 to 20.0 37 65 29 57 20.1 to 30.0 19 14 10 5 Above 30.0 22 1 7 -

Since this count covers raw materials and semi-manufactures as well as finished goods, above table does not permit any definite conclusion as to amount of U.S. or EEC trade in industrial products that would be excluded from negotiations under ecretement proposal requiring no reduction of rates now 10 percent or less on such products. However, we believe reasonable conclude substantial amount of trade would be unaffected under ecretement plan whereas linear formula would result in reductions throughout. Also note that in 10.1 to 20.0 percent range, negotiations under ecretement plan would result in rates of 10 to 15 percent for industrial goods whereas U.S. linear formula would reduce rates to 5 to 10 percent. In higher rate brackets as well, rates under ecretement plan would be higher than under linear formula.

4. Ecretement plan is unacceptable to U.S. for following reasons:

(a) Since basic objective of negotiations is to increase trade, formula chosen should be designed accomplish this end. As generally confirmed by examination results earlier negotiations, greater tariff reductions result in greater trade increases than do smaller tariff decreases. Therefore greater trade stimulation can be expected from U.S. linear formula than from ecretement plan.

(b) If establishment of uniform competitive conditions, which ecretement plan presumes, were basic objective of negotiations, harmonization of all factors, including wages, social charges, etc., would be necessary.

(c) In past, some high U.S. rates were peril-pointed, and therefore not reduced, precisely because imports were large despite high rates or were affecting sensitive industries. The larger the reduction of these rates, the greater should be the interest from viewpoint countries desiring expand their exports.

(d) Under ecretement plan bulk of reductions by both U.S. and EEC would be substantially less than 50 percent linear reductions proposed by U.S. (see paras 2 and 3 above).

(e) "Low" rates which would not be reduced under ecretement plan can be highly trade restrictive, e.g. U.S. exporters consider EEC 9 percent rate on precious metal jewelry highly protective.

(f) Country cutting high tariff may well be at greater disadvantage, i.e. making greater concessions, under linear approach, than low tariff country.

(g) Ecretement plan would lead to pressures to increase to target levels rates already below those levels, e.g. U.S. 6-1/2 percent rate on automobiles.

(h) Ecretement plan negates basic philosophy of linear approach to reciprocity.

(i) Arbitrary levels for various categories of products have no logical basis. Why limit plan to industrial products? Why not include agricultural products in zero group with other primary products?

(j) Provisions of TEA and Congressional intent as defined in legislative history of Act preclude negotiations on basis ecretement plan. Act requires us obtain mutual trade benefits. Ecretement plan would not yield mutual benefits to U.S. On industrial products, U.S. (and many other countries) would do more tariff cutting than EEC.

(k) Our basic authority is limited to 50 percent reductions for rates above 5 percent. We could not seem to commit ourselves to greater reductions which would be required to meet ultimate ecretement "targets". Also we cannot commit ourselves as to what authority we might have under future legislation.

5. Conclusion: For practical and substantive reasons cited, U.S. sees no possibility negotiating on ecretement basis or other generalized plan based on unequal tariff reductions. Thus we consider basic plan should provide for substantial equilinear reductions with minimum exceptions. In course of negotiations on this basis, U.S. prepared consider on merits case where it is asserted reciprocity can only be achieved by uneven reductions. Any country disadvantaged in exchange of reductions should be entitled to appropriate credit. Depending on facts this might be U.S. or another country.

Ball

279. Telegram From the Department of State to the Mission to the European Communities

//Source: Department of State, Central Files, FT 7 GATT. Confidential; Emergency. Drafted by Kaysen, cleared by Herter by telephone and Benjamin H. Read (S/S), and approved by Ball. Repeated to Bonn, London, Luxembourg, Paris, Rome, and The Hague.

Washington, May 7, 1963, 5:41 p.m.

Busec 484. Deliver Ambassador Tuthill 9 A.M. You should obtain appointment first thing Wednesday/1/ morning with Rey and deliver following letter from Governor Herter. You should also see to it that Marjolin receives a copy prior to opening of Council meeting Wednesday, and make such other use of letter as you deem appropriate:

/1/May 8.

Begin text:

Dear Mr. Rey:

Subsequent to our discussion regarding the prospects and timetable for the trade negotiations,/2/ I again reviewed these questions with the President.

/2/For a position paper summarizing the principal trade issues, which was prepared for the May 2 - 3 Rey/Marjolin talks, see the Supplement. See also Document 275.

I told the President of the suggestion that the basis of tariff cuts might be left open to be worked out over a period of months. His view is that it is difficult for the United States Government to commit itself to broad-scale negotiations and set the machinery of the Trade Expansion Act in motion without having agreement with the EEC regarding the general basis upon which the reduction of tariffs is to take place. I myself feel that we should seek to reach an agreement during the May Ministerial meeting regarding the nature of the linear cut and the disposition of the tariff disparity problem. I am confident that this can be worked out.

As I have emphasized to you in our several discussions of this subject, we are conscious of the fact that in your view the problem of highs and lows/3/ is one that requires some attention. We agree that this is a matter which must be examined. We are convinced that once we establish the principle of an equilinear cut as the basis for negotiations we can then deal with the question of highs and lows.

/3/Reference is to the ecretement proposal; see Document 278.

The nature of the rules for exceptions is, of course, an important related problem that will require further discussions between us. I think, nevertheless, that it would be possible to reach agreement at the Ministerial meeting on the basic negotiating rule while leaving for further discussion the precise rules that are to govern exceptions. I say this assuming that we are agreed that the exception list in any case must be very limited and subject to individual confrontation and justification.

I found our discussions very useful and I greatly appreciate your coming to Washington. I shall look forward to the opportunity for further exchange of ideas with you in Geneva.

Sincerely yours,

(s) Christian A. Herter

End text

FYI: Department will send you no later than tomorrow indications, for your background information, regarding possible formula for reaching agreement high-low problem with EEC. End FYI.

Rusk

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[End of Section 13]

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