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

[Section 14 of 18]

280. Memorandum of Conversation

//Source: Department of State, Central Files, FT 7. Secret. Drafted by Imhof and approved in S on May 16.

Washington, May 9, 1963.

SUBJECT

The Tariff Negotiations

PARTICIPANTS

U.S. The Secretary Mr. William R. Tyler, Assistant Secretary, EUR Mr. Johannes V. Imhof, EUR/WE

French Ambassador Alphand M. Bruno de Leusse, Minister

Ambassador Alphand said that the atmosphere surrounding the forthcoming tariff negotiations/1/ was a matter of concern. He said that there was no desire on the part of France to become protectionist. The French economy had prospered greatly under the liberalization of the past four years. The French welcomed liberalization not only within the Six but also in relations between the Six and others. However, there might be trouble with the formula proposed by the U.S. for these negotiations. The U.S. formula was too rigid. The U.S. had high tariff peaks and the linear reduction would disarm the EEC while certain U.S. commodities would remain protected. French experts believed the EEC formula would be compatible with U.S. legislation and that its employment would not require a new authorization from Congress.

/1/Reference is to the GATT Ministerial meeting held May 16 - 22 in Geneva.

The Secretary asked whether the EEC formula would require commodity by commodity or sector by sector negotiations. Ambassador Alphand said neither would be required. The formula called for a tariff on finished products at 10 to 15 per cent, semi-finished products at 6 to 10 percent and a zero duty on raw materials within a certain period of time.

Ambassador Alphand said that he did not wish to go further into the details of the proposal. If it was necessary to go into details to remove misunderstandings, Messrs. Wormser and Clappier could come here for such discussions. The point he wished to stress was that a disagreement on the formula to be employed should not be allowed to rekindle a political controversy. If the EEC formula did not agree with ours this did not mean that France wishes to destroy the Atlantic Alliance.

Mr. Tyler asked why it was necessary to advance a new formula at this stage. He noted that our formula made allowances for exceptions and for discussions of tariff peaks. He said he feared that the proposal of an alternative formula at this stage would be considered a political maneuver and that there would be a political reaction here, particularly in Congress.

Ambassador Alphand said that the Trade Expansion Act was an important and beneficial piece of legislation. It was, however, a U.S. law, and the other countries had not been consulted. Mr. Tyler pointed out that the formula proposed under the TEA had been known for a long time. Ambassador Alphand said that the EEC proposal was compatible with U.S. legislation. Also, the formula had been advanced originally not by the French but by the Germans. He briefly explained how the EEC proposals would work: As a first step, the difference between the tariff goals in the EEC formula and actual tariffs would be cut in half.

In reply to a question by the Secretary, Ambassador Alphand said that the zero duty applied only to industrial raw materials, not to agricultural products. On agriculture there should be a worldwide agreement. Ambassador Alphand concluded his presentation by reiterating that differences on method should be seen as what they are and should not be allowed to give rise to a political controversy.

The Secretary said that he would wish a briefing on this subject. He noted that Mr. Ball had been closely concerned with these problems. The Secretary said that the balance of payment aspects must also be considered. For example, U.S. tourists abroad contributed heavily to the balance of payments picture. Ambassador Alphand said that from a practical point of view it was clear that U.S. exports could not be increased without a corresponding increase in European exports.

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

//Source: Department of State, Central Files, FT 4 US/TEA. Confidential. Drafted by Barbara C. Fagan (EUR/RPE); cleared by Bernard Norwood (STR), Leonard Weiss, and Robert M. Beaudry (EUR/WE) in substance; and approved by Stanley M. Cleveland (EUR/RPE). Also sent to the EEC capitals and Geneva.

Washington, May 17, 1963, 7:37 p.m.

Busec 504. Brussels also for Embassy, Paris also for USRO. Pelt/1/ of Dutch Embassy just returned from The Hague made following points in discussion of trade negotiations with Department officers. He stressed he was describing situation as he saw it from point of view of one who was essentially in sympathy U.S. objectives in trade negotiations. He also implied his views reflected those of Van Oorschot/2/ and other "liberals" in Dutch administration.

/1/Adrian S. Pelt, Secretary General of the World Federation of U.N. Associations.

/2/Not further identified.

1. "Ecretement" proposal has attracted considerable support from business and general public as well officials. Support is result primarily of belief equal linear cut biased in favor of U.S. and that negotiations on this basis would leave U.S. with more bargaining power for future because it would still have some relatively high tariffs.

2. Compromise EEC position for GATT Ministerial was best obtainable at this time. Essential for U.S. to present convincing case for linear cut and to be sufficiently flexible to take account of high tariff problem if agreement is to be achieved on equal linear cut. If we make good enough case, Germans and Dutch would be able to harden their positions in support of ours. At moment, U.S. has lost initiative and must find means to regain it.

3. One important key to U.S. regaining initiative is for U.S. to be as specific as possible as soon as possible on our intentions re exceptions. We explained inability commit ourselves on specific exceptions prior to completion internal procedures. Pelt said he understood this but said would be big help if U.S. could make official proposal setting percentage ceiling on exceptions.

4. Most Dutch officials convinced French do not want any negotiations and are using "ecretement" proposal to bloc them. If this tactic fails, French will attempt create other obstacles.

5. French have taken position Commission's authority to act for EEC under Article 111/3/ is limited to tariffs and Commission not author- ized to deal with non-tariff barriers. Van Blankenstein,/4/ who accompanied Pelt, stated French are taking position that para-tariff and non-tariff barriers are not matters which fall within common commercial policy and therefore remain subject to unanimity during full transitional period and presumably afterwards. Pointed out this would provide French with permanent veto in non-tariff field and could prevent agreement necessary to final settlement in negotiations. Van Blankenstein also said, however, Dutch hopeful of defeating French on this point.

/3/For text of Article 111 of the Treaty Establishing the European Economic Community, see American Foreign Policy: Current Documents, 1957, pp. 467 - 468.

/4/Not further identified.

6. U.S. should not expect EEC to take any initiative in field of agriculture. U.S., therefore, would have to put forward specific proposals on agriculture.

7. Both Mansholt and Linthorst-Homan/5/ convinced failure of negotiations would precipitate internal crisis resulting in breakup of EEC.

/5/J. Linthorst-Homan was the Ambassador of the Netherlands Mission to the EEC in 1958.

Rusk

282. Editorial Note

At the GATT Ministerial meeting held at Geneva May 16 - 21, 1963, U.S. and EEC representatives compromised on their disagreement on the rules that should govern tariff reductions for the Kennedy Round GATT negotiations scheduled to begin May 4, 1964. The Ministers agreed that the tariff negotiations would be "based upon a plan of substantial linear tariff reductions with a bare minimum of exceptions," reflecting the U.S. view. At the same time, they declared that "in these cases where there are significant disparities in tariff levels, the tariff reductions will be based upon special rules of general and automatic application," reflecting the EEC position. The conference established a Trade Negotiation Committee (TNC) to reach agreement on the details of the negotiating rules by August 1, 1963, effectively postponing a resolution of the two opposing tariff plans. The text of the Ministerial resolution, "Principle and Procedures for Conducting Comprehensive Trade Negotiations Beginning at Geneva, May 4, 1964," is printed in American Foreign Policy: Current Documents, 1963, pages 1126 - 1129. The U.S. - EEC accommodation is discussed and summarized in Current Economic Developments, Issue No. 676, May 28, 1963, pages 1 - 6. (Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments)

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

//Source: Kennedy Library, Feldman Papers, Wool. No classification marking.

Washington, July 30, 1963.

SUBJECT

Wool textile imports

Attached are letters from Burlington Industries which report the results of discussions between leaders of the U.S. wool textile industry and leaders of the British textile industry./1/

/1/Only one letter from Vice President Robert P. Lyon to Feldman, July 25, is attached to the source text. In this letter, Lyon confirmed their telephone conversation of the night before. He informed Feldman that Alan Green, Minister of State in the Board of Trade, was the most sympathetic as well as the most appropriate British official to contact to discuss restrictions on wool products into the United States. Lyon added, "the United Kingdom government would in all probability accept an invitation if extended by the United States to meet and discuss with the United States and others in an international meeting the subject of restriction on imports of wool textile products into the United States. I believe it is fair to say that the United Kingdom government now awaits such an invitation."

Senator Pastore requested the meeting in order to call to your attention the progress made in these discussions. The American industry was unwilling to accept the State Department statement that it was impossible to arrange an international agreement on wool like the international agreement on cotton. From the letters written to you and to Senator Pastore, it would appear that the United Kingdom would be amenable to such an arrangement.

Senator Pastore may also wish to discuss the report of his Subcommittee on Textiles. They held hearings in May, and they filed a report on July 18. The report recommends:

(1) the negotiation of an "effective international agreement to limit imports of wool textiles and apparel products;" and

(2) if such agreement cannot be negotiated, then "the United States must take unilateral action to insure that the defense-essential wool textile and apparel industries are not irreparably damaged by the unrestrained flood of imports."

As a matter of fact, wool textile imports have increased markedly during the past year. In May 1962, they stood at 13.6 percent; in May, 1963, they stand at 19.3 percent. Secretary of State Rusk met with the British and Italian Ambassadors on April 6 to request that they exercise voluntary restraints on their exports of wool textiles to the United States, but received a negative response from them a month or so later.

Recommendation

It seems to me that the only response that can be made to the presentation by Senator Pastore is:

(1) We will seek to exploit the assurances received by the American industry from their counterparts in the United Kingdom. This will mean conferring with Alan Green of the United Kingdom Board of Trade on the mutual interest of the U.S. and the U.K. in an international agreement. If the U.K. reaction is favorable, we will request the Italian and Japanese Governments to join us in a meeting. This will take approximately 2 months, and it must be attended with the greatest possible secrecy.

(2) We cannot take unilateral action at this time. This would be in conflict with our trade expansion program, it would mean compensation in the neighborhood of $200 million, and it would doom negotiations in the Kennedy round.

(3) There are minor steps that we are taking to reduce wool textile imports. For instance, imports from the Virgin Islands will be reduced to a fraction of their present volume for 1964. Reductions in effect already will make the total about 6.5 million linear yards for the last 9 months of 1963. They will be 2.8 million linear yards for 1964.

We will also give consideration to preventing the circumvention of the tariff regulations by putting braid on the wool. The ad valorem tariff on wool fabrics is between 50 percent and 100 percent. However, by put- ting braid on the fabric it is reduced to 42.5 percent. To evade the tariff, importers have the braid attached and then take it off after it has been imported. Senators Saltonstall and Kennedy have introduced legislation to make the fabric dutiable at the higher rate even when it has braid attached to it. I believe we can support the legislation to close this loophole.

Myer Feldman/2/

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

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

//Source: Kennedy Library, Herter Papers, Memoranda to the President. Limited Official Use.

Washington, August 2, 1963.

SUBJECT

Poultry "Retaliation"

The EEC Council of Ministers, meeting on July 30,/1/ once again failed to provide relief for U.S. poultry imports into the Community. As it announced, the Council merely instructed the EEC Commission "to renew contact" with the United States "with a view to exploring the possibilities of agreement" and to report back to the Council in September. In sum: the Council itself took no decision to reduce the present poultry restrictions; it did not give a useful negotiating instruction to the Commission; it again procrastinated.

/1/For a summary of this meeting, see Bulletin of the European Economic Community, No. 9/10 - 1963, pp. 37 - 39.

I believe we must abandon our effort to seek relief through consultation or negotiation and must compensate for the recent EEC restrictions on poultry by our withdrawing from the EEC equivalent tariff concessions.

In the light of interagency deliberations, I recommend the following actions and target dates:

1) August 5--Through our missions abroad, we give notice to the EEC Commission, to the individual EEC member states, to other affected governments, and to the GATT Executive Secretary of our intention to withdraw tariff concessions of benefit to the EEC and indicate the timetable we have in mind for carrying out there withdrawals.

2) August 7--We announce the scheduling of public hearings on items with respect to which we are considering withdrawing concessions.

3) September 5--Public hearings, ending about September 10 (4 working days).

4) September 16--Presidential proclamation, effective in 30 days, withdrawing concessions on articles involving about $46 million of U.S. imports from the EEC. At the time of issuing the proclamation, we would inform the GATT contracting parties in accordance with GATT procedure.

5) October 16--The withdrawals would go into effect.

The list of items which we would consider for withdrawal accounted for slightly more than $100 million of U.S. imports from the EEC in 1962 (list attached--Tab A)./2/ After receiving public views on this list, we would select for ultimate withdrawal items involving trade of approximately $46 million.

/2/Not printed. The list contained 19 items.

The list of eligible items has been formulated by interagency committees to satisfy the following criteria:

1) We proceed in accordance with GATT Article XXVIII. Under this Article we are limited to increasing duties on a most-favored-nation basis on items on which tariff concessions were initially negotiated with the EEC or individual EEC member states. (We cannot impose quotas or discriminate against the EEC in duty increases.)

2) Items eligible for withdrawal should involve U.S. imports supplied principally by the EEC. Where non-EEC trade is affected, compensation will have to be offered.

3) The impact of withdrawals should affect trade of all EEC countries, but with emphasis on France and Germany.

4) The withdrawal list should include both agricultural and industrial items, should not include items likely to cause undue hardship for U.S. producers or consumers, and should not be deliberately protective.

Christian A. Herter/3/

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

285. Memorandum of Telephone Conversation Between the Under Secretary of State for Economic Affairs (Ball) and Marquis Childs

//Source: Kennedy Library, Ball Papers, Telephone Conversations. No classification marking. Childs was chief Washington correspondent for the St. Louis Post-Dispatch.

Washington, August 14, 1963, 4 p.m.

Childs: I have been looking a little bit into the retaliation on the chickens and I was told by one of your admirers on the Hill that you felt this was a very ill-advised course and counseled against it.

Ball: Oh no, not at all. As a matter of fact, I told the President the other day that I was all for it.

Childs: I'm disappointed in you. What's the matter with you?

Ball: Well I think that at some point . . . . I would hope that as a result of our getting into the business of examining the withdrawal of concessions, that we can really pull the Europeans back to a position where they are going to face this thing rationally. They have really been . . . in a very irresponsible fashion here and they have let their own lobbies dominate them. We are not going to start a trade war. I think this thing is blown up out of proportion, partly because there has been too much talk about it on this side, but even more important because it has become a play between the Germans and the French with two agricultural lobbies working at times against one another and at times with one another. But what is going to happen, is that these problems have to be faced at the political level and the Europeans have really refused to face this at the political level; they have left it at the level of secretaries of agriculture who are always going to be . . . in a situation of this kind.

Childs: Don't you think it can become a trade war?

Ball: No. I don't think so. In the first place, we have no intention of letting it become a trade war and the Europeans are not going to in my opinion, because they will have enough responsibility once they get a little sense of shock. But you know I would feel a little more concern about this if we hadn't been through the . . . glass experience where the shoe was on the other foot, and we were excoriated all over Europe for raising these rates even though they went through . . . procedures.

Childs: And they retaliated.

Ball: And they retaliated. And that was all right; that was part of the game. I hate to see this thing go on a retaliation route because it makes no sense from the point of view of commercial policy, but I think it is the only way we have of bringing this matter to a decision at the political level and giving the government a club to beat their agricultural lobbies over the head with and for that reason, I think it is very important that from time to time we take a tough line. And while the chickens are . . . is not a big item in total trade, it is only at the most something like $50,000,000 and it is probably a vanishing market anyway, because the Europeans are going to acquire the same technology of producing chickens on an assembly line basis as we are.

Childs: Well, of course, they are.

Ball: Nevertheless, I think it is useful to have a confrontation at this point on an item which is at least symbolic of what the larger problem is going to be. The European market for the Department of Agriculture is extremely important and if the European governments are going to let their price structure and their regime of protection of agriculture be fixed at the level of the most inefficient producer, which is the situation here that I think . . . for a very bad time and we might as well face that now as later. The net result of all this pulling and hauling is very likely to be that this thing will be raised up to the proper political level and I'm not sure we will save the poultry, but I think we will have saved some other things.

Childs: Yes. They are now in a position, however, to take up a trade war and this is what de Gaulle would like, don't you think?

Ball: I think he might like it, but the Germans would hate it. Their problem is this and I don't think de Gaulle really wants it either. I think that he talks a kind of . . . game, but there is a good deal of-- particularly among the larger European producers--there is a good deal of sense . . . liberal trading world and there is always a latent French protectionism, but it is nothing like as strong as it used to be and the Germans who are the real offenders in many ways on the chicken side. The industrial Germans, of course, are by definition liberal traders, so that the pressures in Germany are going to be for a liberalization and they are going to want to avoid a trade war. We've got to have a crisis here and this is a good point to have it, I think. I would just as soon that it came now and sort it out. I don't think it is going to have great consequences but I do think it is going to act as a kind of restraint on the lobbies and what it is going to mean is that governments are going to look at these things politically at the right political level sooner than they might otherwise and not just leave them to the level of Ministers of Agriculture, Secretaries of Commerce and what not.

Childs: Yes. Well, of course, I know it is . . . these farm lobbies are so powerful everywhere, including here.

Ball: That's all right.

Childs: Now the thing that Freeman has been lobbying around up there on the Hill about this. He got up that telegram . . . 53 Senators./1/

/1/Not further identified.

Ball: Yes. I think, but then again I mean he's just being the counterweight to the Ministers of Agriculture in Europe. Up to this point, this has been a case where the lobby on one side has been against the lobbies--combined lobbies--on the other, and I think the time has got to come when this thing has to be settled by the political leaders-- the governments, because you can't have a commercial policy problem these days in this kind of interdependent world that doesn't become a political problem when big nations are involved. This just has to be looked at as a political problem.

Childs: You know I saw your friend Jean Monnet in June and I have never seen him, George--I have seen him many times--I have never seen him so agitated. I brought up the chickens, chickens, chickens.

Ball: I know.

Childs: He is usually so calm.

Ball: He sees the chickens as creating a source of friction between the government of the United States. Of course, sitting where I sit--much committed as I am to the idea of a United Europe, nevertheless, the point of view of protecting American commercial interest--this is one we really couldn't take lying down. Too much has been talked about it--said about it and I think we have tended, perhaps to make too many speeches. Nevertheless, I think the principle of the thing is absolutely right. I don't see how we can avoid moving on it.

Childs: What I couldn't help but feel was that he doesn't understand the pressures over in this country. I said, Jean, the next thing you will get is the feed grain. He said you can't go on expecting to export all that agricultural produce to Europe. If we can't, Jean, we will be out of Europe.

Ball: Well, the real problem is that down the line, if you look far enough, there is bound to be a certain probable reduction in American agricultural exports to Europe or at least they wont increase at the rate they have been increasing, simply because they have gone up very fast since the war. Since the agricultural technology hit here before it hit Europe and whether or not there had been a common market, we would be facing problems in our agricultural exports because we have now reached a point where over here one farmer can produce ten times what a farmer could produce in pre-war days and it is beginning to happen in Europe.

Childs: It is happening in France right now.

Ball: Now there are two trends and it is really quite interesting that one counteracts the other. On the one hand Europe is going to begin to apply the new technology and greatly increase productivity and that would tend to move Europe to self sufficiency, but at the same time counteracting the fact that as the standard of living in Europe rises, the Europeans are going to shift their diet from direct cereal consumption into protein consumption. In other words, instead of eating pasta as they do in Italy which is simply the cereal grain cooked, they are going to eat meat and the fortunate thing is that quite a bit of American agricultural export is . . . . A cow is extremely interesting in that it takes something like 5 lbs. of grain to produce a pound of meat, so then if you have a big counterpart . . . and since cereals are one of the major exports, the total amount of cereal is going to go up with the rising standard of living.

Childs: I see. This is a possibility. Jean talked about a World Food Conference.

Ball: We may have to have. And so de Gaulle may be trying to use the threat of torpedoing the liberal trade policy or even torpedoing the Common Market, unless the Germans agree to a common agricultural policy. We get caught in this bind--right in the middle of this thing to some extent. This is part of the difficulty.

[Here follows discussion unrelated to the poultry problem.]

286. Memorandum From Acting Secretary of State Ball to President Kennedy

//Source: Department of State, Central Files, INCO - WOOL 4. Limited Official Use. Drafted by Joseph A. Greenwald on August 20 (E/OT) and cleared by G. Griffith Johnson. Sent to President Kennedy under cover of a memorandum from Benjamin H. Read to McGeorge Bundy.

Washington, undated.

SUBJECT

Wool Textiles

In accordance with your memorandum of August 12,/1/ the Embassy in London was instructed to discuss the proposal for an international agreement on wool textiles with Alan Green, Minister of State in the Board of Trade. Mr. Green is on holiday in Rhodes and will not be back in London until September 20. The President of the Board of Trade, Mr. Erroll, is also abroad, until August 26. In the absence of these Ministers, the Embassy discussed the matter with Sir Richard Powell, Permanent Secretary of the Board of Trade, emphasizing the importance the United States attaches to the initiation of steps looking toward an international arrangement on wool textiles.

/1/Not found.

Powell informed the Embassy that Alan Green had met with representatives of the British wool textile industry several weeks ago, had agreed to consider their views and, approximately one week ago, had told them by letter that, after careful consideration of their proposals, Her Majesty's Government maintained its view in opposition to an international wool textile arrangement. Powell pointed out that Green's reply could not be interpreted as encouraging the belief that the British Government would give favorable consideration to an approach by the United States regarding an international wool textile arrangement. In response to a reiteration of U.S. views by the Embassy, Powell stated that the decision communicated by Green was taken at the Ministerial (political) level. We understand that the U.K. position has been passed on to the U.S. trade press by the British Embassy.

In light of the consistent opposition of the United Kingdom and other exporting countries to an international agreement covering wool textiles, I believe consideration should be given to steps by the Administration to initiate a Tariff Commission investigation of the wool textile situation under Section 332 of the Tariff Act of 1930. We continue to be handicapped both internationally and domestically by the lack of an objective analysis of conditions in the wool textile industry. The domestic industry insists that injury from imports is a fact. On the other hand, importers and exporting countries maintain that no injury has been demonstrated; they expect us to follow established procedures to determine whether there is serious injury or the threat of serious injury from increased imports. Any efforts to help the industry through domestic programs are stymied by the absence of an independent and thorough study such as the Tariff Commission makes under various provisions of the U.S. legislation. Only after a factual analysis has been made by the Tariff Commission will we be likely, in my view, to make progress internationally or domestically toward the solution of the wool textile problem.

The proposal for a Tariff Commission study and report has been made in the past and has been opposed by the domestic industry, which adamantly refuses to re-initiate the action itself. Consequently, the domestic industry would probably not consider reference to the Tariff Commission as responsive to their situation. In the circumstances, I suggest that you might wish to have Mr. Feldman talk with the interested Senators, lay before them the information on the U.K. position received through Embassy London, point out the impasse which has again been reached, and suggest a Tariff Commission report as a sound basis for further efforts to help the domestic industry. If some support for this approach were generated, you could then direct the Tariff Commission to undertake the industry study./2/

/2/Printed from an unsigned copy.

287. Letter From Secretary of Commerce Hodges to Secretary of State Rusk

//Source: Department of State, Central Files, FT(EX) US. No classification marking.

Washington, September 20, 1963.

Dear Mr. Secretary: I am pleased to attach for your information the report of the White House Conference on Export Expansion which was held on September 17 - 18, 1963. For your convenience, I am also attaching a summary which reflects the highlights of the reports of the several Committees.

The report is only a beginning. We plan to hold little "White House Conferences" in all parts of the country starting next week so that the export expansion story can be brought home to Americans everywhere.

May I thank you once again for your cooperation and support. The enthusiastic reports we have been receiving from members of the Conference on the way in which it was conducted and the results which have been achieved are indeed gratifying.

We will now move forward promptly to develop appropriate action programs. I am looking forward to your continued cooperation in this most important task.

Sincerely yours,

Luther H. Hodges

Attachment

HIGHLIGHTS OF THE REPORT ON THE WHITE HOUSE CONFERENCE ON EXPORT EXPANSION/1/

/1/Secretary of Commerce Hodges presided over the conference, which involved the participation of many members of the Kennedy administration, including most of the Cabinet. President Kennedy addressed the conference on September 17, followed by remarks by Secretaries Hodges, Rusk, Dillon, Freeman, and Wirtz. Special Trade Representative Herter delivered a luncheon address the same day, after which the conference divided into 10 committees, each examining separate components of a successful export expansion program. The President's address as well as the talks given by Rusk and Herter are printed in Department of State Bulletin, October 14, 1963, pp. 595 - 605.

It is remarkable that so much was accomplished in the two short days devoted to the White House Conference on Export Expansion. The employment of the committee technique enabled the Conference to produce a wide variety of significant recommendations. It is a tribute to the caliber of the conferees that these complex problems were so ably pre- sented for our consideration. Although the Conference participants represented many diverse interests and deliberated in eleven different groups, their conclusions blend and complement one another.

While each Committee recognized and carried forward its individual task, reference was made to policies under consideration by other Committees when it was felt their relationship was significant. I should like to mention the most important of these.

Several Committees strongly urged that an export tax incentive based upon increases in exports is of the highest priority in the Export Expansion Program. The Committee on "Tax Policies and Export Expansion" developed specific recommendations in this regard. Some members of the Labor Committee felt we should concentrate on the elimination of the tax subsidies of other countries instead of recommending a U.S. tax incentive program, but this represented the view of a small minority.

While one Committee had responsibility for studying commercial representation overseas, several Committees addressed themselves to this subject.

It was the general view that since the Department of Commerce has primary responsibility for trade promotion, it should also have responsibility for the selection, training, appointment, and assignment of all Commercial Officers. One Committee bluntly stated that the Export Expansion Program would only be a success if the Department of Commerce had direct control over all commercial programs overseas. Each of these Committees recognized that the Ambassador, as the President's representative for all overseas programs, would be in charge in the field.

Several Committees noted the need for more active participation in commercial work by Ambassadors themselves. They also urged more intimate relationships with the U.S. business community, greater assist-ance and support, and suggested means for bringing this about.

Another topic of general interest concerned U.S. trade with the Soviet bloc. The views of a number of Committees were reflected in the recommendation that the U.S. re-examine the extent to which there might be an expansion of trade with the bloc in the light of the changing world situation.

Several of the Committees urged the strengthening of the Department of Commerce's information services. They noted the importance of attacking non-tariff barriers as well as seeking tariff reductions in the forthcoming Geneva negotiations. A number of Committees also recommended equalization of ocean freight rates and simplification of AID procurement policies. It was felt that present AID regulations distort normal commercial practices and divert business from U.S. exports.

Three Committees also called attention to the beneficial relationship between foreign investment and U.S. exports. A number of the Committees discussed ways and means of achieving an early and rapid increase in U.S. exports. It was the consensus that a strong attack on this problem must be directed on a person-to-person basis to non-exporters. It was recommended that the Department of Commerce and its National and Regional Export Expansion Councils mobilize their resources to maximize this personal effort.

[Here follows a long summary of the most significant findings and recommendations.]

288. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Limited Official Use. Drafted by Vettel on October 2, and approved in U on October 7. The source text is labeled "Part III of IV."

Washington, October 1, 1963, 4 p.m.

SUBJECT

Woolen Textiles

PARTICIPANTS

George W. Ball, Acting Secretary of State Ryuji Takeuchi, Ambassador of Japan Thelma Vettel, Special Assistant to the Director of the Office of East Asian Affairs

The Ambassador said that rumors were circulating in Tokyo to the effect that the United States is approaching Italy and the U.K. on a plan to conclude an international agreement on wool textile imports after the pattern of the cotton textile arrangement. He said that the Japanese would not like such an arrangement and were concerned about the possibility of such a proposal. They fear that one day the U.S. may approach Japan saying it has agreement with Italy and others and asking Japan to join.

The Acting Secretary said that there had been great pressure from the American industry to do something about wool textile imports. This was a matter of considerable discussion within the Administration some time ago.

Mr. Ball said that not very long ago representatives of the American wool textile trade returned from the U.K. reporting that some sectors of the British trade would favor an international agreement. The U.S. Government therefore inquired of the British Government if they would be prepared to consider an international agreement; the British Government's response was negative. He said that we had not discussed this with the Italian Government, although we may have reported to them. Mr. Ball said that developments in wool textile imports continue to be a matter of concern. He said that we have again been advised informally by the American trade that they have been in touch with the British, Italian and French wool textile trade and that there is sentiment in Europe favoring some arrangement.

The Acting Secretary said that the U.S. has no present plans to try to press for any kind of arrangement. If, however, it were to become clear that the British and Italian Governments were inclined to go along with an international arrangement, we would find ourselves in a difficult position to avoid it. Therefore, the Acting Secretary could not say that the U.S. would never come to the Japanese Government with such a proposal.

The Ambassador said he hoped that Japan would not be placed in the position of being the last to know of any such plan.

Mr. Ball said we would keep the Ambassador fully informed. He pointed out that the initiative had been that of the U.S. industry. He wondered if the U.S. industry had been in touch with the Japanese industry--as they had with the British and Italian Governments. The Ambassador believed the Japanese industry had not been approached.

The Acting Secretary wondered why the Italian industry would favor such an arrangement.

The Ambassador said his information was that the Italian industry as a whole opposed such an arrangement but that certain members of the industry are resigned to it. With the "Kennedy Round" in the offing and pressures from the U.S., some of the Italian trade reportedly believe it may be better to acquiesce now and get a better deal. The Ambassador said he did not feel very sure about Italy, but felt more sure about the British. He thought perhaps that it would be best for Japan to speak out. He emphasized again that the Japanese do not want to be the last to be informed and find themselves cornered.

The Acting Secretary assured the Ambassador that if the matter reached the governmental level he would be kept informed.

The Ambassador indicated that, without referring to anything the Acting Secretary had said, he intended to warn his Government that it must not be too optimistic on this matter. He also indicated that he might recommend that his Government tell the outside world that it opposes a wool textile agreement.

The Ambassador commented that the cotton textile agreement, with its detailed and restrictive provisions, was very difficult to handle in Japan, and to add a wool textile agreement would be most difficult. He expressed the view that such a proposal would constitute the worst possible propaganda for the U.S.

289. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Confidential. Drafted by Meade and approved in U on October 15. The meeting was held in Ball's office. The source text is labeled "3 of 3 parts."

Washington, October 10, 1963, 10:30 a.m.

SUBJECT

Kennedy Round

PARTICIPANTS

U.S.

The Under Secretary

J. Robert Schaetzel, Deputy Assistant Secretary for European Affairs

Joseph A. Greenwald, E/OT

Frazier Meade, EUR/BNA

UK

Sir Richard Powell, Permanent Secretary, UK Board of Trade

John E. Chadwick, Commercial Minister, British Embassy

Replying to Sir Richard Powell's query about the prospects for the Kennedy Round, Mr. Ball said he was reasonably optimistic. Sir Richard said the British thought the clouds looked very ominous from France, particularly on the question of disparities. The French would attempt to avoid being seen as wreckers of the Kennedy Round but they would not help it towards a successful conclusion; they would probably be content to see it fail. Mr. Ball said he had found Couve de Murville somewhat-- if vaguely--encouraging on the Kennedy Round prospects when he talked to him a few days ago. However there was always the possibility of a pronouncement from the Elysee. When Sir Richard asked what the French attitude was towards agriculture, Mr. Ball said de Murville had indicated he thought some progress could be made at least on dairy products, with the more difficult problems to be resolved later.

Sir Richard asked how important the U.S. considered the timing of the Kennedy Round. He personally thought the U.S. slowness in submitting its list of exceptions might delay the Kennedy Round until autumn, 1964. Mr. Ball replied that the U.S. did not feel bound to a schedule and Mr. Schaetzel said the U.S. wanted to keep moving but not to press ahead too fast. As Mr. Ball said, the French had asked us not to push too hard.

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

//Source: Kennedy Library, National Security Files, Subjects Series, 11/8/63 - 11/20/63. Confidential. A handwritten notation on the source text reads: "Taken from President's week-end reading 11/16 - 18/63 Tab 6."

Washington, November 12, 1963.

SUBJECT

United Nations Conference on Trade and Development

Mr. Bundy has called my attention to your interest in the United Nations Trade Conference which is scheduled to last for three months in Geneva beginning in March of next year.

We have been concerned about this conference for some time since it may provide a forum in which some well-intentioned people--encouraged by others less benign--can do considerable mischief.

On the other hand--wisely managed--the breakage could be minimized and a degree of useful education achieved.

Background

The conference is the resultant of two forces: the discontent of the less developed countries with the GATT, which they regard as an institution run by and for the benefit of the great trading nations; and the tactical interest of the Soviet Union in undermining the GATT primarily for political purposes.

The dislike of the less developed countries for the GATT has been fermenting over a period of years. There has long been talk of a competing organization based on a rejection of the orthodox ideal of a multi-lateral, non-discriminatory trading world that would focus on the special requirements of the less developed countries. At the same time state trading does not fit comfortably with multi-lateralism, and the Kremlin has seen possible paydirt in an effort that might create discomfort for the West.

These forces first came together in support of a common objective during the 1961 General Assembly of the UN when the idea of a world trade conference began to acquire momentum.

At the July 1962 ECOSOC meeting--following an Afro-Asian Bloc meeting on trade in Cairo--the US delegation decided that such a conference could not be blocked. It, therefore, used its discretionary authority to move from frontal opposition to an acceptance of the inevitable--in the hope of gaining some influence over the content and timing of the conference. In spite of US delaying tactics, it did not prove feasible to postpone the conference beyond 1964.

In its preparatory stage, Dr. Prebisch/1/ has been the most determined and articulate promoter of the conference. During the past year there have been several sessions of a preparatory committee consisting of representatives of 32 nations. The Soviet Union made a diligent effort to assure that the conference agenda would include East-West trade, disarmament and other Bloc propaganda interests. But for the time being it has apparently concluded to accept the indications that the conference would concentrate on the trade problem of the less-developed countries.

/1/Raul Prebisch, Argentine economist; Director General of the Latin American Institute for Economic and Social Planning.

The conference agenda as it now stands puts major emphasis on measures to increase the export earnings of the developing countries. The most serious questions likely to emerge concern proposals to use commodity agreements to improve earnings from the sale of raw materials and a proposal that the economically advanced countries extend preferential treatment to the imports of manufactures from the developing countries. This latter device--which is the newest steed in the LDC stable of hobby horses--could turn out to be a particularly fractious beast.

In addition to these substantive measures we shall also need to cope with efforts to supplant GATT by a new UN trade organization that would include the Bloc and be heavily biased to serve the interests of developing countries. Alternatively the LDCs may seek to create a separate organization to compete with GATT.

All of these proposals will need careful watching.

Commodity Agreements as a Subsidy Mechanism

During recent years the LDCs have clamoured for a widening range of commodity agreements as the panacea for their foreign exchange problems. Early in your Administration, you shifted the traditional U.S. position from doctrinaire opposition to measured support of commodity agreements.

There is, however, an irreconcilable difference between the LDCs view of commodity agreements and our own. We look upon commodity agreements--in the limited number of cases where they are feasible--as a device to avoid cyclical price fluctuations for raw materials and thus as a means to help assure stability for the foreign exchange income of primary producing countries. This is not, however, the favored view of the developing countries, which tend to look on commodity agreements as devices to peg world prices well above existing levels and thus provide the producing countries with a subsidy--which they might use to finance their development requirements. (On the domestic scene we do, of course, accept that philosophy in our own agricultural price support programs.)

This conflict in philosophy holds the seeds of embarrassment for us. At a recent conference in Geneva for the purpose of drafting a commodity agreement on cocoa the United States could have been caught in a serious bind if the producing countries (led by Ghana) had not insisted upon demanding a ridiculously high minimum price. Had the developing countries been less foolish, we would have been under heavy pressure to agree to a minimum price that would have been violently opposed by our industrial cocoa consumers. In that event, we might have been left with an agreement that Congress would have refused to ratify.

I foresee no need to change our established position at the Geneva Conference. We should continue to support commodity agreements at reasonable price levels where appropriate for stabilization purposes.

The Stickiest Issue--The Preference Question

The basic economic argument underlying the preference proposal is, abstractly stated, sound enough. In an almost perfect world, the economically-advanced countries should progressively concentrate on the production of sophisticated and capital-intensive industrial products, leaving an increasingly wide area of simple labor-intensive products to be supplied by countries in the early stages of industrialization. Under a regime in which the principle of comparative advantage could operate freely, the less-developed countries would thus be able to exploit what is in most instances their sole advantage--an abundant supply of low- cost labor--while the economically-advanced countries exploited their advantages in capital, technology, and skilled labor.

The purpose of the Trade Expansion Act is to move toward this kind of regime, but it implicitly recognizes that we do not live in an almost perfect world. Progress in this direction must therefore be kept within the bounds of political reality and it cannot always be in a straight line. Experience has shown that domestic pressures accumulate in direct proportion to the increasing share of our domestic market claimed by the LDCs. I need only recall our experience with cotton textiles, electronic equipment, etc. to make the point.

In their preoccupation with their export problem, spokesmen for the less-developed countries have been deflected from the objective of gaining increasingly liberal access for their goods in the markets of the industrialized countries. They are demanding preferential treatment particularly for their manufactures. How should we deal with this demand?

I believe we have little to gain and much to lose by encouraging them to pursue a manifestly unrealistic objective. Experience should have taught us by now that the way to create bitterness is to permit the burgeoning of aspirations that are ultimately frustrated. The Biblical observation that "hope deferred, maketh the heart sick" applies as much to countries as to individuals. Already we have incurred considerable enmity by our need to administer in a rigid manner a cotton textile agreement that we had originally merchandised to the developing countries as a device for assuring the measured growth of their exports.

I have concluded, therefore, that we should be reasonably candid with our less-developed friends. This is contrary to bureaucratic instincts, for there is a strong prejudice against saying things that may create even temporary unhappiness. But if we were to behave in too bland a manner with this issue, we would diminish our credibility on other issues.

More than that, we would run grave risks of embarrassing the Kennedy Round on the home front. Already the trade associations have gotten wind of the United Nations Trade Conference. They are uttering increasingly loud cries of alarm. I can think of nothing the protectionists would like better than the opportunity next Spring--just before the beginning of the Kennedy Round and at the start of a Presidential campaign--to be able to accuse the Administration of lending a sympathetic ear to proposals that would grant preferences in the American market for "the cheap labor products of Asia"--or that would give Hong Kong a preference over New England in the markets of third countries. What kind of a spectacle would we make, if--at the moment we were trying to dampen down the fires in the United Nations meeting at Geneva--we felt compelled to assure the United States Congress that we abhorred preferences?

All of this does not mean, of course, that we should turn a deaf ear to the concerns of less-developed countries. On the contrary, we should do them the honor of regarding them as adult by raising the discussion to the plane of political reality. The problem after all is basically one of education and persuasion. In this spirit I have arranged with Dr. Prebisch to have conversations in depth with him on my return to Washington. I hope also, between now and the end of the year, to have a series of quiet talks with the principal moving spirits behind the UN conference. Most of these men are likely to be in New York during this period in connection with UN business.

I intend in these discussions to lead away from the preference proposal toward more fruitful approaches to the problem of industrial exports. I am helped in this endeavor by the fact that this problem has not come to me as a fresh idea. I have been beating the drum on the issue for years. During 1961, for example, I made at least five speeches to call attention to this critical problem. Dr. Prebisch told me the other day that my views on this issue were well known and deeply appreciated by the economists in the developing countries.

Suggested Tactics for Dealing with Preference Issue

Meanwhile, we must be prepared to discuss this question during the OECD Ministerial meeting next week. We must also develop a tactic for the conference itself.

1. At the OECD meeting, we shall make clear that the US Government has long taken the lead in searching for means to solve the difficult problem of increasing the exports of the developing countries. We can do this persuasively since I have taken a strong line on this question during the last two ministerial meetings of the OECD.

2. We shall also demonstrate that the US record on this issue is, in comparison with most other NATO countries, quite respectable. We are having figures prepared to show that the US has discriminated far less against industrial exports of the developing countries than have the countries of the European Community. (In spite of the special preferences that France extends to the French Community countries, her record, in statistical terms, is bad.)

3. While urging the NATO countries to improve their acceptance of the LDC imports we shall make it clear that we do not regard industrial preferences as a fruitful approach to the problem. One must distinguish, of course, between two quite distinct kinds of preferences: (a) those accorded by a metropolitan power to a specific group of countries that formed part of an earlier colonial system and (b) preferences that are extended impartially to all developing countries. The former is, of course, a relic of colonialism, and it is not what the developing countries are talking about.

4. This point is fundamental and we shall insist that there be no ambiguity with regard to this distinction.

5. In discussing the general principle of preferences we shall point out that they are both undesirable and unnecessary. If industry is to have a healthy growth in a developing country, it must be of a kind that will make use of that country's natural advantages. For most developing countries the sole natural advantage consists of an ample supply of low- cost labor. In most cases this should be adequate to assure markets for labor-intensive goods--provided only that the advanced countries would eliminate restrictive and discriminatory measures.

6. The prime responsibility of the advanced countries should, therefore, be to hasten the erosion of that framework of discrimination which has been built up against imports from developing countries, and we shall advocate that the NATO nations make an effort to improve their record with regard to discrimination before the Conference next spring.

7. At the same time, we shall suggest that the NATO nations encourage regional arrangements among developing countries. The advantage of such regional arrangements--whether customs unions, free trade areas or even regional preferential systems--is that they permit the building of mass markets for the developing countries. They can thus provide conditions for efficient industrial growth at a minimum cost in economic dislocation. To achieve useful results, however, we shall have to recognize that such regional arrangements require a considerable measure of common planning to avoid redundant production and to achieve an intelligent allocation of industrial tasks.

8. I propose to emphasize regional arrangements because I have considerable mistrust of encouraging another idea put forward by Dr. Prebisch--that each developing country accord preferences to the industrial goods of all others. I do not believe that this would be likely to result in an effective allocation of resources; on the contrary it could seriously distort investment patterns with little benefit to anyone.

9. Obviously, these are only some of the measures that are available to broaden the markets for industries and developing countries and I would not rule out other approaches. I am, however, suspicious of gimmicks-- particularly when the problem should be soluble by a rigorous adherence to the principles of non-discrimination in which we have invested so much time and effort for the last three decades.

The Conference and Its Relations to the GATT

It is too early to put forward a detailed plan of action for the American delegation at the Conference. The line to take will depend, in considerable part, on the attitude not merely of the developing countries but also of our NATO allies. At the moment I can recommend only one controlling principle: that we display patience but do not talk nonsense.

We must, of course, be concerned to preserve the GATT against efforts to transform it into a debating forum for special interests or to supplant it with a more diffuse organization. Fortunately, I think this problem is manageable. Already there are signs that the more stable leaders in the developing countries are having second thoughts on the value of the GATT, and I am confident that with a steady American policy we should have little difficulty in saving it from serious impairment.

George W. Ball/2/

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

291. Memorandum From the Special Representative for Trade Negotiations (Herter) to President Johnson

//Source: Kennedy Library, Herter Papers, Memoranda to the President, USTR. No classification marking. Lyndon B. Johnson became President following the assassination of President Kennedy in Dallas on November 22.

Washington, November 27, 1963.

As you indicated in your conversations in Brussels several weeks ago, preparations for the Kennedy Round are going ahead on schedule. Public hearings on the tariff schedules begin on Monday, December 2. There are in addition, however, a number of problems relating to these negotiations that we would like to bring to your attention. Some of these are of immediate concern and some relate to future conversations you may have with European Heads of State. In order to bring you up to date on these matters, both immediate and longer range, we attach a progress report.

Should you have any question about any of these items, or should you wish to discuss negotiations in a more general way, I am available at your pleasure.

Christian A. Herter/1/

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

Attachment/2/

/2/Confidential.

THE TRADE NEGOTIATIONS

1. National and International Implications

The trade negotiations will be a test of the Atlantic Community's will to cooperate in the economic field. Failure to negotiate a significant reduction in trade barriers could do incalculable harm to the unity and strength of the Free World. It could lead to a return to nationalistic protectionism both here and in Europe, tending to stifle the opportunities for expansion of our foreign trade and our economy.

For the European Economic Community it could be a crisis more serious than the one caused by the rejection of the U.K.'s application for membership. The French have shown considerable reluctance to enter into meaningful negotiations. The West German Government appears genuinely interested in having the negotiations succeed. It has taken the position that further progress on internal Common Market decisions must be synchronized with decisions of the European Economic Community in the Kennedy Round. The Germans thus hope to trade German approval of the remaining agricultural regulations, which the French want, for French cooperation in cutting tariffs in the Kennedy Round, which the Germans want.

There are many who believe that if these issues cannot be resolved in a manner that causes EEC cooperation in the Kennedy Round, centrifugal forces would set in which could in time destroy the Common Market.

2. Resolution of GATT Ministers, May 1963/3/

/3/See Document 282.

The first important step towards the negotiations took place at the Ministerial Meeting of the GATT in May 1963. This meeting brought to a head a disagreement between the U.S. and the EEC on the general plan of the negotiations. The U.S. stood for broad cuts of all tariffs by an equal percentage, with a minimum of exceptions. The EEC, largely at French initiative, argued that the objective should be harmonization of the tariff systems of the industrialized countries, which would require that high tariffs be reduced by a greater percentage than low ones. This approach would result in greater concessions by the U.S. than the EEC, since the U.S. has more high tariffs than the EEC, though our average tariff levels are about the same.

The Ministerial resolution which emerged from this meeting set the following guidelines for the negotiations:

a. The basic tariff cutting plan should be across-the-board, deep and equal cuts, with limited exceptions subject to confrontation and justification. Special rules, however, should be adopted to deal with disparities in tariff levels that are significant in trade terms.

b. Agricultural products were to be included with the object of developing access to world markets and expanding trade.

c. Non-tariff barriers to trade as well as tariffs should be covered in the negotiations.

d. It was recognized that barriers to exports of less-developed countries must be lowered wherever possible, though the LDC's could not be expected to give full reciprocity in their own tariff cuts.

e. May 1964 was set as the date for opening the negotiating conference. A Trade Negotiating Committee was established to make preparations for that conference.

3. Negotiating Progress to date

The Trade Negotiating Committee and its subcommittees have held numerous meetings since the Ministerial meeting, but little progress has been made in agreeing upon negotiating rules. The main issues continue to be disparities, agriculture, and the less-developed countries.

a. Disparities

On disparities, the EEC continues to press for a rule which would encompass so many tariff items as to require the U.S. to make substantially larger cuts overall than the EEC and to result in a considerable erosion of the across-the-board reduction principle. The French have taken the most adamant position on this issue. The U.S. has strongly resisted this and has gained the support of practically all the other GATT Contracting Parties.

b. Agriculture

On agriculture, the EEC has not yet been prepared to work on meaningful preparations, insisting that it must wait until the regulations of its own Common Agricultural Policy (CAP) are established. The six EEC countries have not yet agreed on regulations for meats, rice and dairy products. For cereals (which constitutes the most important U.S. agricultural export to the EEC) no decision has been taken on the critical issue of the common price level. As a practical matter, these internal decisions also establish the level of protection against imports.

Since the EEC's internal difficulties in securing agreement on agricultural policy are so great, there are grave doubts as to whether it can or will be willing to negotiate changes in its agricultural regulations even after they are adopted by the EEC Council. In fact, there have been signs for some time that the EEC would prefer to separate agriculture entirely from the general tariff cutting rules of the negotiations, which in effect is what happened in the previous Dillon Round. Most recently, Vice President Mansholt of the EEC Commission has put forward a proposal for general treatment of agricultural products in this round. Under the Mansholt negotiating plan the EEC would first agree on the remainder of its common agricultural policy. After this is done the EEC would offer to bind the then existing level of protection if all countries would do the same. Negotiation of reductions in levels of protection are specifically ruled out except in special circumstances. Further, under the proposal the EEC apparently would also withdraw without compensation all existing tariff bindings on agricultural products.

In our view this plan would effectively remove the possibility of significant relaxation of agricultural trade restrictions in the course of this negotiation. Our feeling is therefore that this plan is incompatible with the Ministerial decision of last May.

Perhaps the most important recent development relating to agriculture has been Mansholt's proposal for settlement of the very sensitive question of EEC common grain prices. This has long been an issue particularly between France, whose grains prices are relatively low (though considerably higher than U.S. prices), and West Germany, whose prices are high. To date, the EEC has been a heavy importer of grains, many of them from the U.S. If the common EEC price were set much higher than the current French price, there is a very real danger that much extra production would be stimulated within France, and U.S. grain exports would consequently fall. The price level now proposed by the Commission, which is almost midway between the French and German prices, would in our opinion artificially stimulate such extra production.

A great deal of pressure has built up within the EEC to settle at least the rice, meats, and dairy regulations by the end of this year or early next. The Mansholt grains proposal has also won considerable support, though its chances for early implementation are lower. The Germans, to whom agreement on these arrangements would be a significant concession, appear to be willing to seek, as a quid pro quo for their agreement, France's cooperation in the Kennedy Round.

We feel that the U.S. must at the earliest possible opportunity pre-sent to the EEC and its member governments, forcefully and tactfully, its view on both the Mansholt grains price proposal and agricultural negotiating plan. We also wish to encourage the Germans to use their adherence to agricultural regulations as a lever with which to secure France's agreement to a reasonable approach on disparities and the linear cut. We hope that Chancellor Erhard's visit to you later this month will give you an occasion to make these points, especially since the Chancellor apparently wishes to discuss agriculture and the Kennedy Round. A more complete paper on this subject will be ready for you shortly. In the meantime, our embassies have been instructed to impress upon the EEC governments and the Commission our desire for consultations before any decision on these points are taken.

c. Less Developed Countries

The GATT negotiations, as well as the U.N. Conference on Trade and Development which will begin a few months earlier, will also be focal points for the steadily mounting pressure from developing nations for more favorable treatment of their trade in industrialized countries. The GATT Ministers, recognizing the special problems of these nations, agreed in principle to reduce barriers to their exports and to demand less than full reciprocity from them in the negotiations.

While the deliberations since last May have explored a wide variety of measures to implement these principles, the developing nations have concentrated their demands upon new tariff preferences by the industrialized countries for their exports. They contend that such preferences are necessary to stimulate their export trade in manufactures upon which they feel they must rely for foreign earnings and domestic growth of their economies.

Even though the economic benefits of such preferences have yet to be clearly established, virtually every industrial nation except the United States now appears to be looking favorably on this request, primarily on political grounds. Our reluctance to join them has been conditioned largely by the fact that most preference proposals would require revisions in our law, since the Trade Expansion Act requires that U.S. tariff concessions be made on a most-favored-nation basis, and, further, that they would in all likelihood involve the products of certain domestic industries already sensitive to import competition. Thus far we have merely indicated a willingness to consider the many implications of these schemes.

On the more affirmative side, we have held that a broad and deep tariff cut, accompanied by concerted measures to remove other trade barriers by all industrial nations and supplemented by financial and other assistance, will go far toward improving trading prospects of these countries.

4. Domestic Preparations--Public Hearings

Formal domestic preparations for the negotiations began on December 2 with the opening of public hearings by both the Tariff Commission and the interagency Trade Information Committee, as required by the Trade Expansion Act. The Tariff Commission will report to you by April 21, 1964, its advice as to the probable economic effect of U.S. tariff reductions on the various domestic industries. The Trade Information Committee hearings, which are chaired by a member of the Special Representative's Office, will concentrate on the foreign trade restrictions whose reduction would be of greatest benefit to U.S. exporting industries. Its report will be available to you at about the same time as the Tariff Commission's.

5. Exceptions

The opening of the hearings will probably usher in a period of increasing pressure on you, your staff, and various executive departments to make commitments to withhold particular items from the general tariff reduction. As noted above, the GATT Ministers resolved that such exceptions should be kept to a bare minimum, subject to "confrontation and justification." The Trade Expansion Act requires that any item on which special trade restrictions are in force under the "escape clause" or "national security" provisions of our laws must be excepted. Certain others involved in past escape-clause cases must be excepted under certain circumstances. The decision on excepting any items apart from these few mandatory ones rests, by law, in your hands, after taking into account the advice of the various agencies.

The Office of the Special Representative will gather information from sources within and without the Government, will weigh the advice of the Tariff Commission, and will present you with recommendations on this score, probably in the late spring of next year. A preliminary decision on exceptions may be made at that time, but in order to permit a meaningful process of "confrontation and justification," we would recommend that no hard and fast decisions on exceptions be made until after this process is completed. We shall be able to negotiate changes that we want in other countries' exceptions lists only by being prepared to make changes in our own. This course would have the additional benefit of enabling you and other members of your Administration to resist the inevitable pressure for advance commitments on exceptions.

We have drafted a directive (attached)/4/ from yourself to the heads of the agencies involved in the trade program which describes the procedure to be followed on exceptions and deals with the question of advance commitments.

/4/Not printed.

6. Escape Clause Reviews

Another issue that will come before you for decision in the coming weeks is whether to have the Tariff Commission investigate the consequences of reduction or termination of the special "escape-clause" protection now in force. Other countries and our own importers look to us to conduct these investigations as a sign of our good faith in liberal trade. The domestic industries involved oppose such investigations as creating uncertainties which upset their business.

Decisions have now been made on two of the eight current escape-clause cases. President Kennedy last month decided not to alter the tariff on clinical thermometers on the basis of an investigation by the Tariff Commission, and this week you agreed that the Tariff Commission should make a further investigation of watches. Our office will make further recommendations to you on the remaining items over the next several months. Prior consultation with your staff, however, will enable us to be certain that political implications are taken into consideration in our recommendations.

7. Public and Congressional Advisors

The Trade Expansion Act requires the Special Representative to "seek information and advice with respect to each negotiation from representatives of industry, agriculture, and labor." We propose that you should establish a Public Advisory Committee to the Special Representative composed of about 35 distinguished persons in these fields. They would meet with us periodically to express their views on the various issues that arise in the course of preparing for the negotiations. Once the negotiations begin next year, some of them may go to Geneva as public advisors to the delegation.

We have cleared with the various agencies a list of names proposed as members of this committee, and an order establishing the committee will be sent to you for approval very shortly.

The Act also stipulates that two members of the House Committee on Ways and Means and of the Senate Committee on Finance shall act as Congressional delegates to the negotiations and be members of the U.S. delegation.

The members of Congress who have been selected are:

Honorable Cecil King, Democrat of California Honorable Thomas Curtis, Republican of Missouri Honorable Herman Talmadge, Democrat of Georgia Honorable John Williams, Republican of Delaware

We have consulted with these gentlemen on numerous occasions and plan to keep them informed of developments concerning the negotiations.

8. Office of the Special Representative

The position of Special Representative for Trade Negotiations was created by Congress in order to assign responsibility for directing the trade negotiations and their preparation to someone within the President's own Office. By Executive Order, President Kennedy designated the Special Representative to advise and assist him in the administration of trade agreements carried out under the Trade Expansion Act and certain other authorities. He also delegated to the Special Representative the duty of seeking advice and information on proposed trade agreements from various executive departments and other sources. The Special Representative therefore acts as the channel to you of information and advice on the trade agreements program from the agencies within the Executive Branch.

Policy decisions in the field of trade agreements and the recommendations made to you by the Special Representative are, as a rule, based upon decisions taken by the Trade Executive Committee made up of senior representatives of seven agencies. The Special Representative has a small staff of his own, however, which constitutes a separate agency within the Executive Office of the President and which is of course at your call at all times.

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

//Source: Department of State, Central Files, INCO - POULTRY US. Limited Official Use; Immediate. Drafted by Michael W. Moynihan (STR) on December 2 and approved by William M. Roth (STR). Sent to Brussels for the Mission to the EC and the Embassy, Geneva for the delegation to GATT, Athens, Bern, Bonn, Buenos Aires, Canberra, Copenhagen, Dublin, The Hague, Lima, Lisbon, London, Luxembourg, Madrid, Ottawa, Paris for the Embassy and USRO, Rio de Janeiro, Rome, Stockholm, Tel Aviv, Tokyo, and Vienna.

Washington, December 3, 1963, 6:58 p.m.

1006. Pass USIA. Following will be released by Herter Office Noon E.S.T. December 4:

The United States notified the Executive Secretary of the General Agreement on Tariffs and Trade today that it will suspend tariff concessions on brandy, trucks, dextrine, and starches. Higher tariffs on these articles will go into effect on January 7, 1964. This action is being taken to restore the balance of tariff concessions upset by restrictions imposed on poultry imports by the European Economic Community.

The new rates will apply to imports of these articles from any source. The original tariff concessions on them, however, had been negotiated with member states of the European Economic Community. These nations account for 94 per cent of United States imports of the affected articles.

A GATT panel recently determined that the value of United States trade affected by the restrictions on poultry amounted to $26 million./1/ The value of imports from the European Economic Community that will be affected by the higher United States tariff corresponds to this figure.

/1/On October 28, at the request of the United States and the EEC, the GATT Council of Representatives established an expert panel to determine the dollar value of the injury to the United States of the German tariff increase on poultry imports. The figure of $26 million, announced November 21, 1963, after both sides had presented both written and oral arguments, was well below the U.S. calculation of $40 million, but somewhat greater than the EEC estimate of $16 million. As a result of the GATT finding, the United States suspended concessions to the EEC equal to $26 million. (Current Economic Developments, Issue No. 689, November 26, 1963, p. 7; Washington National Records Center, E/CBA/REP Files: FRC 72 A 6248, Current Economic Developments; also, GATT Press Release "Report on the Panel on Poultry," GATT/819, November 21, 1963)

Following the announcement of the suspensions, Christian A. Herter, Special Representative for Trade Negotiations, stressed that "The tariff concessions are suspended, not withdrawn, and they can be reinstated at any time that there is an agreement with the European Economic Community to restore reasonable access for United States poultry."

Rusk

293. Memorandum From the Deputy Special Representative for Trade Negotiations (Roth) to the President's Special Assistant for National Security Affairs (Bundy)

//Source: Kennedy Library, Herter Papers, Subject Files, Disparities (Tariff), Box 8. Confidential.

Washington, December 24, 1963.

SUBJECT

The Disparities Issue

The Ministerial Compromise

At the May Ministerial Conference,/1/ the EEC proposed that tariffs be reduced by 50 percent of the difference between existing rates and certain minimum levels--namely 10 percent for manufactured goods, 5 per cent for semi-manufactures, and zero for raw materials. The U.S., on the other hand, pressed for an across-the-board cut of 50 per cent.

/1/See Document 282.

The Community based its objection to a uniform percentage cut on the existence of many more high duty items in the U.S. tariff schedule than in the EEC schedule. There are, for example, over 900 items in the U.S. schedule with rates at least of 30 per cent compared to only a handful for the EEC, even though the median U.S. duty (between 13 and 14 per cent) is about the same as that for the EEC (between 12 and 13 per cent). According to the EEC, the existence of these high U.S. rates raises three major difficulties for a linear rule.

1. An equal cut in high U.S. and middle level EEC rates will increase U.S. exports to the EEC much more than EEC exports to the U.S. (It is simultaneously maintained that cuts in the larger number of low U.S. rates are not worth much in terms of an increase in EEC exports because those duties are already only a minor obstacle to trade.)

2. A larger share of exports from third countries will be diverted to the EEC.

3. The U.S. will end up with many more high rates and thus more bargaining power for future tariff negotiations than the EEC.

The U.S. maintained that there are neither general analytical nor empirical reasons to support these arguments of the EEC. However, the most effective argument against the EEC harmonization scheme was that it greatly reduced the depth of the average cut. A cut on all items of 50 percent between existing rates and a 5 percent floor results, for example, in an average reduction of only 30 per cent for the EEC and 33 percent for the U.S. U.S. negotiators believed that a major (but inarticulated) reason for the Community's harmonization suggestion was a desire to keep the average tariff cut much less than 50 per cent.

The resolution finally adopted by the Ministers was a vaguely worded compromise between U.S. and EEC views. The negotiations are to "be based upon a plan of substantial linear tariff reductions," but in cases where "there are significant disparities in tariff levels, the tariff reductions will be based upon special rules of general and automatic application." It was further specified that the term "significant" means "meaningful in trade terms" and that the purpose of the special rules is to reduce the disparities.

Report of the Trade Negotiations Committee

Little progress has been made since May in settling the disparities issue with the EEC. Most countries other than the EEC have agreed upon a general approach to the problem but the Community has not negotiated seriously on the matter. The views of the majority of GATT members are outlined in a December report of the Trade Negotiating Committee. The main points in the majority position are as follows:

1. As a first step in identifying significant disparities, attention should be given only to items where the high duty is not less than a certain minimum percentage (e.g., 30 per cent) and exceeds the rate on the same item in other countries at least by a certain number of percentage points, (e.g., 10 percentage points). Under a 30 - 10 rule, the EEC could invoke 850 disparities against the U.S. compared to about 10 that the U.S. could claim against the EEC. The U.S. import value of the items invoked against the U.S. is $484 million ($123 million with the EEC), whereas U.S. exports of these items approximates $800 million ($125 million to the EEC).

2. Only the tariffs of the U.S., the EEC, and the U.K. should be used for the identification of high rate items.

3. Besides cut-off and point spread criteria, most members agreed that additional qualitative criteria were necessary to determine whether a disparity is "meaningful in trade terms." The following were suggested:

(i) For a significant disparity there must be substantial exports from the high duty country to the low tariff country. (Since the adjustment to disparities is to be a cut of less than 50 per cent by the low tariff country, this criterion is necessary to minimize the trade damage to third country exporters into the low tariff country. It is also the only case where the bargaining power argument has force. Interpretation of this rule to mean that the high duty country must be either the first or second supplier to the low duty country reduces the number of EEC disparities against the U.S. under 30 - 10 rule by 50 per cent and the volume of U.S. exports to the Community by about 10 per cent.)

(ii) A disparity is not significant unless the total imports into the low country from all sources are substantial. (A requirement that total imports exceed $250,000 reduces EEC disparities against the U.S. by 40 per cent, but cuts the volume of U.S. exports only a negligible amount.)

(iii) A disparity is not significant in trade terms if there already are substantial imports into the high duty country. (A requirement that total imports on any item be less than $1 million reduces EEC disparities against the U.S. by 13 per cent and the volume of U.S. imports by 73 per cent.)

(iv) Disparities are not significant if the low country does not produce the item. (There are only a few dozen of these items in the EEC disparity list against the U.S.)

(v) Disparities are not significant if the low country maintains quota restrictions.

(vi) Disparities are significant only if the low country is a principal supplier to the high tariff country. (A first or second supplier interpretation of this rule reduces the number of EEC disparities against the U.S. by 34 per cent and the volume of U.S. import trade involved by 45 per cent.)

Comment

The advantage of a high cut-off level (the U.S. has pushed for 60 per cent) coupled with an arrangement whereby the low rather than the high duty country departs from the linear cut is that the trade coverage subject to special treatment is minimized. It is precisely in high duty items that the U.S. does not have a comparative advantage and, therefore, the volume of U.S. exports on which less than the linear cut is made tends to be small. For example, if the EEC cuts only 20 per cent on all the U.S. disparities it can claim under the unqualified 30 - 10 rule and 50 per cent on all other items, its average cut will still be 48 per cent. Securing the accept-ance of such criteria as (i), (iii), and (vi) above not only would reduce the direct trade effects of the disparity issue substantially more but also would minimize the possibility of restrictive actions by third countries who are adversely affected by the Community's smaller cut on disparity items.

EEC Council Decisions on Disparities

At the Council meeting just concluded/2/ the EEC rejected the cut-off criterion. Instead, it adopted an arithmetic criteria whereby for manufactures and raw materials the high rate must be at least twice the low rate and also be separated from the low rate by at least 10 percentage points. For semi-manufactures, only the 2 to 1 ratio would apply. However, the Council did agree to the notion that disparities should be identified only with reference to the U.S., the EEC, and the U.K. On the matter of the six qualitative criteria the results appear to be as follows:

/2/The EEC Council meeting was held in Stockholm September 11 - 12.

(i) Rejected the general application of the "substantial exports from high to low" rule but offered to deal with third countries adversely affected on an item-by-item basis.

(ii) Accepted the rule that disparity not significant if total imports into low country not substantial.

(iii) Rejected the general application of the "substantial imports into the high country" rule. However, the EEC agreed to examine cases where there are substantial imports from the EEC into high country that represent important fraction of domestic consumption in high country.

(iv) Agreed to exclude disparities where low [country] has no current production but added qualification that no production must be planned.

(v) Rejected the rule that low country must not have quantitative restriction in order to claim a disparity.

(vi) Rejected the "low must be a principal supplier to high" rule, but apparently willing to exclude items where there is large intra-EEC trade.

Preliminary analyses of the 2 - 1 plus 10 points rule indicates that, even without the special treatment for semi-manufactures, the EEC could invoke about 1100 disparities against the U.S. The U.S. could, however, claim 550 against the EEC. Trade coverage data on these items is not yet available but it is likely to be considerably greater than that involved in the 30 - 10 rule. Furthermore, the total number of disparities that can be invoked against the U.S. may be much larger than 1100. There may be hardly a U.S. (or EEC and U.K) item on which some GATT member does not have a duty that is less than one-half of it as well as below it by at least 10 percentage points.

By the same token, the value of U.S. exports on which a less than 50 per cent cut will be made is likely to be considerably larger, especially since no longer will just high duty industries be involved. In addition, the qualitative criteria accepted will make much of the identification procedure an item-by-item hassle. It thereby will prolong the negotiations and complicate the "end-of-the day" balancing procedure. Finally, the special treatment for semi-manufactures (merely 2 to 1 without a 10-point spread) seems tailor-made to provide an additional element of protection for such sensitive EEC industries as aluminum, paper, and steel.

William M. Roth/3/

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

294. Memorandum of Conversation

//Source: Department of State, Conference Files: Lot 66 D 110, CF 2354. Confidential. Drafted by Finn and approved in S and U on January 1, 1964, and in the White House on January 8, 1964. The full text of this memorandum is printed in vol. XIII, pp. 242 - 248.

LBJ Ranch, Texas, December 28, 1963, 3:15 p.m.

SUBJECT

Brussels Negotiations--Kennedy Round (Part 1 of 5)

PARTICIPANTS

[Here follows an extensive list of participants. President Johnson, Secretary Rusk, Under Secretary Ball, and Christian Herter were accompanied by 8 U.S. officials; Chancellor Erhard and Foreign Minister Schroeder were accompanied by 12 German officials.]

The meeting opened at 3:15 p.m. At the President's request, Secretary Rusk started the discussion by asking the Chancellor and Foreign Minister Schroeder for their evaluation of the recent EEC talks at Brussels.

Foreign Minister Schroeder described the situation that existed at the time of the Brussels meeting. It had been agreed on May 9 that there would be a synchronized program of negotiations. For the Federal Republic that meant that there would be not only internal development within the Common Market, especially agriculture, but also outward development looking toward the Kennedy Round. This situation culminated in the Brussels negotiations.

Mr. Schroeder went on to say that difficulties existed at Brussels because the interest of France and some other participants related more to agriculture than to the Kennedy Round, and also because it was obviously impossible to lay down specific positions regarding the Kennedy Round at this early point. There was therefore a danger that the negotiations could fall apart before any decisions were reached.

The French had come to recognize, however, that the Federal Republic was serious about the importance of the Kennedy Round. As a result, the French position has become somewhat better. Reasonable compromises were achieved, Mr. Schroeder felt, both in agriculture and in the Kennedy Round position.

The change in the French viewpoint, the Foreign Minister continued, was illustrated by the latest meeting between General de Gaulle and the German Ambassador in Paris. De Gaulle said to the Ambassador that the Kennedy Round was an Anglo-Saxon matter but because of the German attitude France would take a different view than before.

Secretary Rusk asked when that conversation had taken place. The Foreign Minister said that it had occurred a few days before the recent Brussels talks.

The Foreign Minister continued that the Rome treaty and its implementing regulations provide not only for internal development within the Common Market but also for consideration of its external aspects. World trade and external conditions must also be considered by the Common Market nations.

Disparities had been the most difficult question to resolve at Brussels, Mr. Schroeder said. The Germans were able to bring about agreement on a new two-to-one formula. This would mean, according to German experts, a reduction in the number of disparities: previously the number would have been twelve hundred US items and a few for the Europeans, whereas now the ratio would be about four to one--eight hundred US to two hundred European. This is the conclusion of German experts.

The Foreign Minister emphasized that there are a number of details which are not yet clear. The EEC Commission directive is not yet available. When this is available more detailed discussion can be useful. Nevertheless, German experts believe that sufficient agreement was reached at Brussels to enable the Commission to formulate a position for the Kennedy Round. The French position is definitely more favorable than before.

The Foreign Minister repeated that Chancellor Erhard had succeeded in convincing de Gaulle in November that the Kennedy Round was as important or more important to Germany than the agricultural regulations. The French now clearly recognize this, as illustrated by recent statements by Pompidou and Giscard.

In summary the Foreign Minister expressed the belief that the Brussels compromise had been fairly good in balancing Community and Kennedy Round interests.

Foreign Minister Schroeder said he would like to add one thought. No decision was taken on cereal prices. This is to be done in April 1964. The Mansholt Plan/1/ will be the basis of consideration but it will not be accepted without change in the establishment of Common Market cereal prices. Mr. Schroeder noted that the French and other Community members object to some portions of the Mansholt Plan. Mr. Schroeder also said that the Germans had got a clause inserted in the agreement on this subject which would make agricultural policy more negotiable; this had not been easy to do in view of the Common Market agricultural regulations on the one hand and the preparations for the Kennedy Round on the other.

/1/See Document 291.

Governor Herter said that the US had followed the Brussels negotiations closely, had realized the difficulties faced by the Federal Republic both in its own agricultural problems and in the French position, and was most appreciative of the efforts made by the Federal Republic at Brussels to insure consideration of the position of third parties. Governor Herter noted that the US is handicapped by not having the text of the arrangements agreed to at Brussels.

Governor Herter went on to say that what was most satisfying in Foreign Minister Schroeder's comments was the point that agricultural matters would be subject to negotiation. It would have been most difficult for the US had it been presented with a fait accompli.

As regards disparities the initial analysis by the US indicates that the new formula presents many complications. The new formula would by this analysis add 250 items to the US list of disparities and nearly 500 to the European list; this complicates rather than simplifies the problem. Governor Herter expressed the view that US experts should meet with Common Market experts and attempt to reach agreement on the facts. The problem of disparities could then be worked out. Governor Herter stressed the difficulty of this problem for the United States and said that it would be difficult to say that the US is pleased by the new formula.

Under Secretary Ball agreed that it is highly desirable for experts on both sides to get together and agree on the facts. A common understanding could thereafter be developed. Mr. Ball added that if the German analysis is correct, the Brussels agreements represent a step forward.

Foreign Minister Schroeder said it is unfortunate Mr. Lahr,/2/ one of the senior experts of the Foreign Office, was not present for these discussions. The Foreign Minister said he could only sum up the results as he understood them but he could not of course prove his points.

/2/Not further identified.

Governor Herter noted that the EFTA countries consider the Brussels formula unacceptable. Their reasons are not clear but they obviously feel that there are very many complexities to be worked out.

Chancellor Erhard said that he has a great interest in this problem. Governor Herter and he in a sense had baptized the child at the GATT conference earlier this year. The Chancellor added that he wants the Kennedy Round to be a success. The Chancellor went on to say that the Federal Republic had relatively little interest in the Common Market regulations but was highly interested in expanding trade as much as possible. Nevertheless it must take its partners into consideration. The Federal Republic feels that it has succeeded in getting adequate agreement in preparation for the Kennedy Round. It had also succeeded in getting the interests of EFTA, Commonwealth nations and other third parties taken into account in the agricultural regulations. The Chancello`r noted that less developed countries are also concerned by the EEC agricultural regulations. The Chancellor commented that the GATT negotiations will bring forth some solid opposition to the EEC regulations. The Chancellor said that he is not afraid of this opposition and that he believes positive results can be achieved.

Chancellor Erhard went on to say that it is possible to get lost in details. Foodstuffs which affect the entire world raise larger and more general problems; worldwide agreements are called for. This however is contrary to the thinking of the EEC. Nevertheless this is a worldwide problem and the EEC is not the only factor.

Regarding disparities the Chancellor said that the point is not their number. Again there is a danger of being lost in detail, especially at the GATT conference. The Federal Republic will pursue this problem in Brussels and with the United States, on the basis of factual criteria. Then there will be a sound basis for proceeding.

The Chancellor commented that there is not only the matter of the number of items involved but also a difference of trade value. Dr. Westrick noted that economic criteria had also been discussed at Brussels; complete information on the criteria adopted at Brussels is not available and this information may explain the difference in the number of disparities mentioned earlier in the conversations.

[Here follows discussion of the Common Market and European integration.]

295. Letter From the Special Representative for Trade Negotiations (Herter) to the Deputy Special Representative for Trade Negotiations (Blumenthal)

//Source: Kennedy Library, Herter Papers, Subject File, Michael Blumenthal, Box 7. Personal and Confidential

Washington, December 30, 1963.

Dear Mike: First of all, let me thank you for your extremely kind Christmas letter, which I appreciated deeply. Certainly insofar as you and your family are concerned, I want to reciprocate every good wish for the New Year and to express the hope that working together we can make real progress in the field to which we are now devoting ourselves.

I have just returned from the meetings with Erhard at the LBJ Ranch in Texas. My own participation in those meetings was limited to a short morning session with Schroeder, Westrick and Carstens,/1/ and then the full afternoon meeting with Erhard, et al., at which there was considerable discussion with regard to the progress of the Kennedy Round as well as the importance of what had taken place in Brussels in relation to further political reunification in Europe.

/1/A memorandum of this conversation is in Department of State, Conference Files: Lot 66 D 110, CF 2354.

In the morning session, I had made it clear that the principal question which we had to ask related to the German interpretation as to what had taken place in Brussels, and whether or not the agricultural agreements, as well as the disparity agreement which had been reached, were subject to negotiation. In regard to the former, Westrick said he wished he could give us a firm answer, but that this could not be done until the Germans had themselves studied what had actually been decided upon in Brussels. This they were unable to do because even Lahr (who was not with the delegation) did not himself possess the text of their agreements. For instance, Westrick cited the fact that during the last hour of the conference, the Germans had offered some twelve amendments to the mandate for the Commission, all of which he believed had been accepted, but none of which were yet incorporated in any document. In other words, it was very difficult for us even to approach any detail since neither side was confident enough of the validity of what had been reported to them to be able to discuss from texts. One very astounding thing did develop, however. It was obvious (and this was confirmed in the afternoon session) that the Germans were really very pleased at the outcome of the Brussels meeting. They thought that the agreement on disparities was a great step forward, with which we ought to be delighted. It turned out, however, that they had been led to believe that the new disparity formula would apply to only some 800 items for the U.S. and 200 items for the EEC, whereas the 30 - 10 formula applied to over 1100 U.S. items and only a handful of EEC items. They did not know how these figures had been arrived at, nor whether the calculation was made after the four trade criteria to be applied to the disparity formula had been agreed to. Here we quickly found that there was no use discussing the matter, since from our initial information these figures made no sense whatever, and it would be impossible to discuss disparities until agreement had been reached as to what we were talking about. Furthermore, the Germans had no idea whatever that Switzerland and other EFTA countries were unhappy about the new formula. In fact, our bringing out what seemed to be some obvious objections caused a real dent in the euphoria which seemed to pervade the Germans as to the over- all success at Brussels.

The afternoon session began with a long summary by Schroeder as to what, in his opinion, had been accomplished. This, I am sure, will be going forward to you as soon as it has been written up by the State Department note takers. I commented quite briefly on Schroeder's summary, saying that we had been rather shaken in the accuracy of the reports we had received as to what had been agreed upon when we found ourselves differing so widely with the German delegation on the matter of disparities. I also commented on how greatly we appreciated the position which the Germans had taken on almost every issue, even though they had not always been successful in carrying their point. I then referred to my real gratification at Shroeder's remark that the agricultural decisions reached with regard to rice, dairy products and meat were most certainly subject to negotiating at Geneva, although as a practical matter I was sure that the Commission would feel that it had no mandate to go any distance beyond the preliminary agreement reached and the recommendations which would later be adopted to implement those agreements. Schroeder then pointed out the importance which the Germans attached to the so-called escape clause whereby a review of the regulations became practically mandatory should third nation import interests be seriously affected. None of us were too clear as to just what that escape clause meant or how it would be interpreted by the Commission, and it is obvious we will have to get some real clarification on this point before too long.

After George Ball had commented at some length on the political implications of the Brussels agreements, and expressed our satisfaction that they seemed to constitute a real step forward toward unification, he then expressed our reservations on detailed matters which could not be clearly expressed at this time because of our inability to work from accurate knowledge as to what had taken place. Then Erhard expressed himself at considerable length, not alone on the political implications, but on the general principals which had been adopted. He expressed some doubt as to how far agreement will have been reached on grain prices by April 15th. However, with regard to some of the matters on which we obviously had serious reservations, he stated he was sure that other nations would have similar reservations, mentioning in fact Great Britain and the other Commonwealth countries and the EFTA nations, and said that it would not hurt his feelings if in Geneva there appeared concerted opposition to some of those matters which the Germans themselves did not like which would force a reconsideration by the Ministers of these agreements. This was practically an open invitation to try to organize opposition to some of the decisions of the EEC, and my own interpretation of what he said, confirmed by George Ball, was that this would also apply to possible agreement on grain prices which might be fixed in April. This was, in my opinion, an extremely important statement of his. I might add that when I was saying goodbye to Erhard, he said that if, as he thought probable, we would have some very difficult problems to resolve at a political level later on in Geneva, he would himself be perfectly willing to come to Geneva again, and while not taking part in official negotiations, sit in a back room and try once again to play the role he played at the May Ministerial meeting in Geneva./2/

/2/See Document 282.

In most of the above, there is not too much substance, except an indication of a degree of flexibility with regard to the negotiations which is, I think, really encouraging. However, throughout the whole discussion de Gaulle's attitude was referred to several times and I am certain that the Germans do not feel that the agreements reached in Brussels have necessarily off-set the possibility of a disruptive attitude by de Gaulle at a later date.

With regard to the knotty problem of agriculture, one thing emerged which I hope you will give some thought to. Erhard himself referred to his own conviction that in grains the outside world would continue to ship from 10 to 13 million tons to the EEC in the future regardless of any increase of any grain production in France. He based this on the continuing need for feed grains as the demand for meat continued to increase. It occurred to me, although I have not mentioned this to anyone except Roth and Hedges here, who both concur, that we might be able to solve the access problem by linking the escape clause adopted to a specific figure such as 10 - 13 million tons, so that action would become mandatory by the Commission and the Council if the import of grains fell below that figure. This, to my mind, would be infinitely preferable to any effort to secure specific access quota, which as we know would meet serious opposition on the part of the Commission, as well as the French.

Before too long you will be hearing more from us on the subject of agriculture, but we are having real difficulty in reconciling the positions of Agriculture, State, and ourselves in order that we may have a clear-cut Government line to follow.

There are two random thoughts which deserve some consideration on our part. If, as now seems probable, the whole disparities issue becomes more and more involved and unmanageable, we should be giving consideration to the original Swedish proposal which, as I understand it, would mean cuts of 50% in all tariffs of 30% or above, and would then move down one percentage point with each point below 30, at which tariffs now stand, ending up with a 25% cut at 5% or a 21% cut at 1%. According to our computations, this would end up with a 39% over-all cut by the United States and 35% by the EEC. It would, of course, mean a smaller cut for the low tariff countries, but as between ourselves and the EEC would, I think, be soluble politically in this country. Whether or not any of the trade criterias could be applied to such a formula, I do not know, but its very simplicity has a great appeal.

The second thought follows on top of the first. If we had a bottom cut off of 5% a la ecretement and this were agreed to as a general rule, except where perhaps a principal supplier wished to receive further reductions below this level, we could then solve our oil problem. The bright ideas which we advanced from the point of view of listing oil and so getting it out of the exceptions category is not taking too well with the Interior Department or the OEP. Insofar as the principal supplier is concerned, this is clearly Venezuela, which is not apt to join the GATT negotiations. Canada supplies only 1/8th of our imports.

Both of the above may be disturbing thoughts, but I think we ought to give them a good going over.

You will undoubtedly have received a good deal more information than this letter contains by cable before you receive it. However, it carries with it all sorts of good wishes for your Japan trip as well as good luck in the very important negotiations which will be taking place in Geneva very soon thereafter. I doubt whether anything of profit could come out of meetings in Geneva until after the Ministerial meeting in Brussels, which I think is on January 15th, at which point there may be a good deal of hassling as to what was really agreed to under the pressures of last week.

If there is to be anything like a Ministerial meeting, please be sure to set it after the last two weeks in February, since I have made a solemn promise to take those two weeks off with my wife and this, as you know, constitutes a much stronger obligation than any that might appertain to the success of the Kennedy Round. I am sure you understand.

With my warmest regards,

As ever,

Christian A. Herter/3/

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

(###)

[End of Section 14]

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