248. Information Memorandum From C. Fred Bergsten of the National Security
Council Staff to the President’s Assistant for National Security Affairs
(Kissinger)1
Washington, December 29, 1970.
SUBJECT
- Need for Position on Trade Legislation for 1971
We must develop a position on trade legislation for 1971 by the time the
Congress reconvenes, and earlier if possible because of the textile
negotiations.
I have therefore prepared an options paper (Tab A) and circulated it to
interested parties in the White House (Shultz, Flanigan
and McCracken) with a
recommendation that it be the first order of business of the new
International Economic Policy Council,2 or be
discussed at an ad hoc meeting called by one of them.
Procedurally, foreign economic policy is now a total mess—and this very
important issue may suffer as a result. Our original trade legislation
decisions were made via the NSC,3 and it remains the only mechanism now in
place through which such decisions can be made in an orderly way. For
all its shortcomings, our mechanism was reasonably effective in
obtaining and implementing decisions during the first 18 months of the
Administration.
Now, however, everybody is sitting around waiting for the new Council to
start operating—while the months drag by and nothing happens. As a
result, everybody is in the act to some extent, but nobody at a senior
level is in charge. And I fear that, without an Executive Director or
its own staff, the new Council is not going to solve the problem—it may
even make things worse, by simply getting in the way.
As noted above, I continue to hope that the new Council will start in
time to handle this issue. If not, I hope that Shultz or Flanigan will seize leadership on it. If they do not, I
will have to recommend that you call a meeting in early January to get a
decision.
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Tab A
TRADE LEGISLATION OPTIONS FOR 1971
We must make a decision on our trade legislation strategy for 1971 by
the time that the Congress reconvenes, and earlier if possible in
view of the continuing textile negotiations. That decision would be
made in the context of our decision on where we want U.S. trade
policy to go over the next several years, the options for which were
outlined in my paper of December 8, but time may not permit us to do
so. The immediate decisions should finally be made only after close
consultations with the Congressional leadership, however, though we
should of course decide first on what approach we prefer. This paper
outlines the options for 1971 which appear feasible at this time,
assuming:
- —No negotiated solution to the textile problem;
- —An effort to fulfill our international commitment to
implement generalized tariff preferences “as early as
possible in 1971”;
- —Receipt of the Williams Commission report on June 1, with
legislative proposals based on it impossible before
September 1 due to the time needed for internal
staffing;
- —No major trade liberalizing initiative is possible now,
due both to domestic reasons (the unresolved textile
problem; the need to first establish a tough Administration
policy toward foreign restrictions; the need to establish an
authoritative Administration spokesman on trade policy; the
need to develop new constituencies to support a U.S. free
trade policy) and international reasons (the preoccupation
of the EC with its expansion
negotiations; the continuing adverse impact of the textile
problem on our economic relations with Japan).
Option 1: Submit a bill including only a
textile quotas and tariff compensation authority early in the year,
leaving all other trade proposals until we have the recommendations
of the Williams Commission.
Pros:
- —The President’s commitment stands and will have to be met; a
textiles-only bill might have the best chance to do so.
- —A textile solution is necessary to clear the way for any
major trade legislation; a textiles-only bill could logically be
presented as the first step in a two-step package, the second of
which will be general trade legislation based on the Williams
Commission proposals.
- —Provides the best international justification for deferring
submission of generalized preferences legislation.
- —Inclusion of compensation authority would enhance the
respectability of the legislation in some domestic and foreign
eyes, since it would enable us to pay for the textile quotas; it
would avoid retaliation in this case, and also increase our
flexibility in taking escape clause actions.
Cons:
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- —Such a bill would not have a high probability of success. The
textile and shoe alliance is unlikely to be broken (though we
might defuse the shoe pressure by taking restrictive action
ourselves in response to the Tariff Commission finding, which
will be in shortly). Byrnes is likely to insist upon his basket
clause for “equity” reasons. Introduction of textile quotas
alone may thus simply bring back the same battle we faced in
1970.
- —An Administration quota bill with no free trade features,
such as ASP repeal, will be seen
at home and abroad as a major protectionist move. Characterizing
it as the first of a two-step series, as mentioned above, would
mitigate this effect to some extent; so would a strong statement
that we would veto any protectionist additions to the
bill.
- —Holding off all other trade proposals until late this year
would probably mean their consideration in the President’s
election year, which we may wish to avoid. But this would mean
no new trade legislation at least until 1973, and (a) the longer
we remain without adequate escape clause and adjustment
assistance authority, the worse the legislative situation will
become; and (b) the ASP deal will certainly expire if we do not
even propose its repeal in 1971.
Option 2: Resubmit early in the session our
modest November 1969 proposals (20% tariff-cutting authority;
liberalization of the escape clause and adjustment assistance
requirements; ASP repeal and
possibly DISC plus textile quotas).
Omit preferences at this time, holding it for the broader package
which will result from the Williams Commission recommendations.
Pros:
- —All of the proposals would still be helpful in improving our
trade policy and making it more flexible.
- —Would provide a free-trade fig leaf for our textile
quotas.
- —It would be illogical to propose anything grander while we
are still waiting for the Williams Commission report.
Cons:
- —As a resubmission of our current proposal, it would have no
dramatic appeal and is likely to draw us into precisely the same
committee legislation as in 1970—except that time would not kill
it in 1971.
- —Submission of modest legislation now could undermine the more
substantial proposals which we might wish to base on the
Williams Commission recommendations, since Congress is unlikely
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to act on two
trade bills in one session and since it might not even act on
the first proposals by the time we would be ready to submit the
second set.
- —Failure to include preferences would violate our
international commitment on that issue, undermining both our
credibility with the other industrialized countries (which will
all implement their generalized preferences by mid-1971) and the
major foreign policy initiative of this Administration toward
the lower income countries.
Option 3: Add preferences to the Option 2
package, perhaps submitting the package in parallel with the
President’s legislative proposals for aid reform of which
preferences are a key component.
Pros (in addition to those of Option 2):
- —We are committed to submit preference legislation in 1971,
and Mills has said in the past that he
wished to consider all trade measures together.
- —If Congress turns the general trade legislation in a
protectionist direction, it may give us closer to what we want
on preferences.
Cons:
- —Inclusion of preferences would give extra leverage to the
Congress in avoiding a Presidential veto of the bill if it
emerged as essentially protectionist. (However, a veto of such a
bill would probably be justifiable to the countries which would
benefit from preferences, and might even be the only way to
avoid preferences without a serious foreign policy cost.)
- —Tying preferences to general trade legislation will heighten
awareness of their non-reciprocal nature, flying in the face of
Congressional attitudes and thereby reducing our likelihood of
getting preferences (or, perhaps worse, badly distorting their
form) or of getting the overall trade legislation which we
want.
Option 4: Submit no trade legislation now,
announcing that we will await the report of the Williams Commission
before doing so.
Pros:
- —This would give us time to launch a tough program of
defending U.S. trade interests abroad and start developing some
new constituencies to support free trade, thereby improving our
chances of getting desirable legislation later.
- —Unemployment should begin to decline by mid-year and the
trade balance is likely to be better, reducing protectionist
pressures to some extent.
- —Gives us maximum flexibility. If the Williams report is too
grandiose to submit immediately, we could still submit modest
and/or preferences proposals in the early summer.
- —If the Williams Commission recommendations are dramatic, they
will lose some of their force if we had first submitted modest
trade legislation and gone through a fight on it—especially if
they were still pending before the Congress. (Against this lies
the probability that, because of the 1972 elections, we may not
wish to submit dramatic Williams recommendations to Congress
immediately under any circumstances.)
Cons:
- —Might reduce the likelihood of reaching a negotiated
settlement on textiles, thus further delaying fulfillment of the
President’s commitment—or letting someone else get the credit
for doing so.
- —The overhang of protectionist pressures in textile and other
products is so heavy that someone else might seize the
legislative initiative, and the Administration would have
nothing on the table with which to counter.
- —Even if the outlook for preferences legislation is not too
good, it would look better abroad if the Administration submits
them early and fails than if it submits them late and
fails.
Recommendations:
- 1.
- That an authoritative Administration spokesman shortly propose
the following to Mills and the other
leaders, and that we then pursue the following course if they
agree with it.
- 2.
- That we submit a bill including only textile quotas and tariff
compensation authority early in the session, provided that the
leaders believe the legislative chances of passing such a bill
are strong.
- 3.
- That we characterize this step as the first of a two-part
program, indicating that we plan to submit major trade
legislation (including preferences) after we get the Williams
Commission report.
- 4.
- That we make it clear that the President will veto
protectionist legislation affecting any products other than
textiles in the interim.
