The Under Secretary of State (Smith) to the Director of the Bureau of the Budget (Dodge) 1
My Dear Mr. Dodge: The Tariff Commission, on December 22, 1952, reported to the President its findings and recommendation based upon the result of an investigation made under Section 7 of the Trade Agreements Extension Act of 1951 with respect to imported brier pipes and bowls.2 The investigation resulted from an application filed with the Commission on behalf of the American Smoking Pipe Manufacturers Association on December 29, 1951.
The Commission found that, partly as a result of tariff reductions, low-priced brier pipes and bowls are being imported into the United States in such increasing quantities as to cause serious injury to the domestic industry.[Page 136]
The Commission’s recommendation, which was unanimous, would increase the present tariff rates from a range of 46 to 76 percent, where they now stand, to a range of about 46 to 113 percent ad valorem.
The Department recommends that the President reject the Tariff Commission’s proposal, for the reasons described below.
The country which would be most affected if the United States took this action is Italy, and the part of Italy where pipes are made is the distressed south, an area of chronic poverty already infiltrated with strong domestic Communist influences and an area where active Russian propaganda forces are at work. By a curious coincidence this part of Italy has already suffered from nearly every one of our recently imposed import restrictions—almonds, cheese and figs. This area is also the one which has suffered from United States subsidization or dumping of exports of almonds, oranges and raisins, thus underselling Italy’s exports in third-country markets. Other parts of Italy were also hit by our import restrictions on fur-felt hat bodies which have been in effect for about two years. In short, certain aspects of our economic foreign policy have already created a situation of weakness in our mutual security system in this area. Communist agents are certain to use this example of the unwillingness of the United States to make economic self-help a reality in Southern Italy to undermine confidence in United States leadership.
Elections are to be held in Italy later this spring. The moderate coalition government now in power was elected in 1948 by a majority of about 62 percent of the votes cast. Now, on the basis of the 1951–52 provincial elections, the bloc of center parties is expected to receive an extremely slim (51 percent) popular majority in the parliamentary elections. If this group fails to win more than 50 percent of the popular vote, the results will be extremely serious for the United States and a period of governmental paralysis and governmental instability may be anticipated.
Whether the action proposed by the Tariff Commission is important enough to warrant any additional risks in this extremely sensitive situation is therefore a major consideration and one which I strongly submit should weigh heavily against the proposal.
The issue is, however, broader than our relations with Italy and is even broader than the direct tie-in between the proposal and the success of Communist propaganda. Because this is the first case of its kind which will be decided by this Administration, there has been very widespread interest in its disposition; in fact, the action will inevitably be taken as indicative of the meaning of the President’s statements on foreign trade in the Inaugural Address and in the State of the Union message. The French (who have a smaller [Page 137] direct interest in pipes), the British, the Germans, the Japanese and all others who are on the lookout for signs of coming policy will be heartened or discouraged out of all proportion to the real significance of the action because of its possible future implications. Within the country, it would be very difficult to convince anyone that expansion of trade lies ahead if a marginal industry already enjoying protection far above average is able to obtain still further protection in the fact of the known international political importance of not taking the action.
The weaknesses of the economic case on which the proposal is based would make the action even more unfortunate. The pipe industry has undoubtedly suffered difficulties, but the Tariff Commission report leaves the way open to the conclusion that these difficulties were mainly associated with the post-war retrenchment of an industry which enjoyed a temporary boom during the war as a combined result of a cigarette shortage, increased pipe-smoking by men in the services, vast purchases of pipes in anticipation of Army post-exchange demand, and the shutting off of normal imports. The end of the war, resumption of an earlier trend away from pipe-smoking in favor of cigarette-smoking, the unloading of a government surplus of pipes and resulting chaotic price conditions in early postwar years did undoubtedly drive a number of weaker firms and war babies out of business. The Tariff Commission in its report does not seem to have considered the Government surplus as significant in the retrenchment period, although the quantity unloaded is estimated at upward of four million pipes, a figure equal to total imports in the years 1947–50 inclusive.
Although the return of imports may have contributed to the distress of the industry, it is significant that according to the Commission’s report the industry seems to have been recovering from its worst troubles during the last two or three years, when imports have been largest. The Commission’s report states that 1949 was the worst year, but imports in that year were less than in 1950, when better profits results were shown. In 1951 profits were larger and were more widely experienced, though imports again were larger.
In short, ample explanation for early post-war problems is to be found in factors unrelated to imports, which had in fact not yet regained their old importance. In the more recent period, imports have increased but the industry seems to be doing better rather than worse. Quite apart, therefore, from the political effects of the proposed action on our Foreign Relations, this action does not appear justifiable as a necessary measure to prevent serious injury [Page 138] from imports within the meaning of the escape clause3 of the reciprocal trade-agreements program.
The Department of State has weighed these considerations carefully, bearing in mind both domestic and international aspects. On balance, we are persuaded that the difficulties of the industry are not attributable to imports to the extent contemplated by the escape-clause proviso, that in addition there are strong foreign-policy considerations against taking the action.4
- Drafted by Margaret Potter, Chief of the Trade Agreements Branch, Commercial Policy Staff.↩
- U.S. Tariff Commission, Tobacco Pipes of Wood: Report to the President on the Escape Clause Investigation, 1952. For a brief summary of this tariff issue, see U.S. Tariff Commission, Operation of the Trade Agreements Program, Sixth Report, July 1952–June 1953, pp. 94–96.↩
- The origins of the “escape clause” are briefly explained in the memorandum dated Feb. 25, 1953, under “No-injury Test,” p. 151.↩
- On Feb. 18, 1953, President Truman notified the Chairmen of the Senate Finance Committee and the House Ways and Means Committee of his decision not to carry out the Commission’s recommendation.↩