Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

450. Summary Minutes of Interdepartmental Committee of Under Secretaries on Foreign Economic Policy, October 18¹

October 18, 1961

PRESENT

• *Mr. George W. Ball, Under Secretary of State for Economic Affairs (Chairman)
• Mr. Jack N. Behrman, Deputy Assistant Secretary for International Affairs, Department of Commerce
• Mr. Richard Caves, Assistant to the Special Assistant to the President
• Mr. Joseph D. Coppock, Director, Foreign Economic Advisory Staff (Executive Secretary)
• Mr. A.R. DeFelice, Deputy Assistant Administrator, Agricultural Trade Policy and Analysis, Department of Agriculture
• *Mr. Henry H. Fowler, Under Secretary, Department of the Treasury
• *Mr. Kermit Gordon, Council of Economic Advisers
• *Mr. Edward Gudeman, Under Secretary, Department of Commerce
• Mr. Kenneth R. Hansen, Assistant Director, Bureau of the Budget
• Mr. Ralph Hirschtritt, Chief, British Commonwealth and African Division, Department of the Treasury
• Mr. John M. Kelly, Assistant Secretary, Department of the Interior
• Mr. John M. Leddy, Assistant Secretary, Department of the Treasury
• *Mr. Charles S. Murphy, Under Secretary, Department of Agriculture
• Mr. Howard C. Petersen, Special Assistant to the President
• Mr. Morton Pomerans, International Activities Assistant, Technical Review Staff, Department of the Interior
• Mr. Myer Rashish, Assistant to the Special Assistant to the President
• Mr. Philip H. Trezise, Deputy Assistant Secretary for Economic Affairs, Department of State
• Mr. Leonard Weiss, Director, Office of International Trade, Department of State
• Mr. Leo R. Werts, Deputy Assistant Secretary for International Labor Affairs, Department of Labor
• Mrs. Ruth S. Donahue, Chief, Policy Reporting Staff, Office of Assistant Secretary for Economic Affairs, Department of State (Recording Secretary)

* Member

DISCUSSION

Trade Program. Mr. Ball asked Mr. Petersen to speak about his trade proposal and the representatives of the various Departments to express their views.

1. Petersen Proposal. Mr. Petersen assumed that those present were familiar with the proposals set forth in his memorandum of October 4. The memorandum was sent to the Departments most concerned and Mr. Petersen has since had discussions with them. There was a large degree of agreement to many of his proposed features—the quantum of authority, the term of five years, retention of the escape clause, the proposed change in criteria in definition of serious injury and the proposal for some form of trade adjustment assistance. There was disagreement, however, on retention of a modified form of peril point procedure, which several Departments thought would make impossible meaningful negotiations in the future. There was also a great difference of opinion on the tactics to be employed in getting legislation.

Mr. Petersen described the measure of modification he proposed. First, the new definition of serious injury (based on the idling of US labor and productive resources) would be applicable to peril point findings as well as to escape clause proceedings. Second, by putting peril point findings in a different context in the negotiations (against an internationally agreed goal), it is hoped there would be a change in the peril point findings. While it is impossible to predict the effect the new criteria and different context would have on Tariff Commission findings, at least a new reason would have been given to forsake the path of the past. Also, with adjustment assistance and the escape clause, lack of peril pointing is not necessarily fatal to an affected industry. Third, if the Commission did do excessive peril pointing, the President would still be able to free his hands for international negotiations by doing a massive breaching of the peril points on broad political grounds. Adjustment assistance and escape clause procedure could be brought into the act for the seriously injured.

Mr. Petersen felt it would be best to keep the formal hearing as an essential ingredient of our procedure as it has been since 1934; informal consultation with industry is no substitute for the more formal proceeding. He also favored the Tariff Commission as the agent for selection, believing that it would be almost impossible politically to attempt to have this done by the President, the Trade Policy Committee, or some other such forum.

As to tactics—whether the Administration should ask for more than it hopes to get and thereby get more than it would have otherwise or whether to go up on a modest basis—opinions differ sharply.

2. Objections to the Proposal. Mr. Leddy said the major objective is to get the sort of tariff negotiating authority we need to accomplish an effective negotiation with Europe (the Common Market as enlarged) which will adequately provide access for American products. Our experience indicates almost conclusively that the only way we can make an arrangement with the Six that will provide for American exports is the linear approach, which is the way the Europeans are cutting their tariffs externally and internally.

The problem Mr. Leddy has with Mr. Petersen’s proposal is that it implies a selective process of tariff cutting. It would be a contradiction for the President to recommend to Congress a peril-point procedure and then to have to make a major overruling of the peril point judgment in order to carry out the linear approach. If Congress thought the President had in mind a massive overruling, it would probably write in a provision preventing him from doing so.

Also, Mr. Leddy felt it would be nearly impossible to negotiate a tentative agreement multilaterally and then have the peril point procedure. Other countries would not put a reliable proposition on the table unless we could put forward a proposal on which they could rely. Mr. Ball agreed that we would be unable to get concessions in a negotiation if what we negotiate on our side is subject to subsequent peril point findings.

Mr. Leddy thought it would be a mistake to put the tremendous push that will be necessary to get trade legislation into something we are not convinced will do the job after we get it. Mr. Hansen of the Budget Bureau and Mr. Gudeman of Commerce endorsed Mr. Leddy’s approach.

3. Adjustment Assistance. Mr. Fowler said the thing to do is to make application of peril point procedure the trigger for adjustment assistance. Instead of going back and modifying our offers, we could take adjustment action at home. The question is when and under what circumstances trade adjustment would begin to apply. What is the area of tolerance? What are the changes that everyone should take as a part of the general burden and the price for the general opportunity of getting our products into the Common Market? Adjustment aid, as he saw it, would just take care of the peaks of displacement.

Mr. Hansen asked how we would put a budgetary price on adjustment assistance. He thought it would be most difficult to estimate and that we would be asked by Congress just how much assistance we mean.

Mr. Ball said the discussion pointed up the need to get recognition that there is a degree of adjustment which must be borne before aid is given. People must think of adjustment as a normal thing, but know there is a point at which the Government will come to their assistance.

Mr. Werts commented that when unit costs abroad are very substantially below US unit costs, that is where injury occurs. Ruttenberg (AFL-CIO), however, sensibly does not want differences in wage rates and costs associated with the tariff mechanism. He considers it more desirable to have GATT and ILO exhort countries to improve the income of workers.

4. Need for New Terminology. In his original presentation Mr. Petersen criticized the present terminology—the impreciseness of “peril,” the strong implication of “breaching” peril points. This discontent with terminology was reflected throughout the discussion.

Mr. Ball said he felt we would do ourselves a great disservice by accepting the present terminology and he thought serious consideration should be given to changing it. This view was pretty generally endorsed. A suggestion was made that an industry incurring “serious injury” might instead be considered “eligible for adjustment assistance.” In reply to the suggestion that the new terminology might be related to export expansion, Mr. Petersen said export expansion did not encompass the whole objective, including the problem of expanding the trade of LDC’s; that actually economic growth is the idea. He doubted whether, in the short time we have available, we could educate people to new ideas and concepts.

Mr. Ball said if the terminology is simplified, the educational process might be made easier. Mr. Gudeman felt it essential to use new terminology. Mr. Hansen said that export expansion has a one-sided sound; what we are talking about is adjustment to changes in trade patterns.

5. Need for New Concept. Mr. Hansen pointed out that there is a significant difference between our objectives in the past legislation and our objectives now. Whereas before our objectives have been liberalizing and expanding trade, we are now faced with a particular thing happening in the world (the Common Market) which calls for very consequential changes and we are asking for authority to accomplish something that isn’t really spelled out yet. Our past trade relationships were in the context of our being the greatest market in the world; now we are confronted with a market potential much larger than ours and in an area which has a higher growth rate. There are opportunities for American products and in many ways these are greater than we can offer foreign producers. If we are forced to use the tools of the past with only minor changes, we will not have equipped ourselves with the implements necessary to enable American producers to take advantage of the opportunities. Therefore, they will export capital rather than goods, and that could be fairly disturbing for our economy.

Mr. Ball said we have to get recognition that the trade legislation is an effort to enable American industry to meet the challenge of the new market or else face the dangers it poses for us. This merits a departure from old concepts. We have to argue that the European integration movement presents a challenge not only to our industry but also to our political leadership. We must make clear to labor that it must accept the need for local adjustments which are necessary counterparts of the opportunities to establish markets for our products.

Mr. Gudeman agreed that we must mount a whole new program. It is essential to have new ideas, new terminology and a publicity campaign as soon as possible aimed at businessmen as well as at Congress. If there is enough time to put it across at the next session, fine. If there isn’t, we should not go up with a program at this time, as it is so important. We must have a new concept; there is very little understanding of the Common Market problem.

Mr. Kelly said Interior did not think we could put forward a “rehash”—we must have something new and different to offer.

6. Form of Agreement. There followed some remarks on the possible form of agreement—treaty, executive agreement, enabling legislation, etc.

Mr. Gordon said he was under the impression the President needed no further authority to negotiate an agreement ad referendum and submit it to Congress for action by both Houses. That would make it possible to dramatize the issue in simple form and convey the meaning of the action to the public in a way in which renewal of authority, with its technical issues, never would. If the public begins to see that Europe is moving ahead and we are drifting away and that this has disturbing economic and political implications, this kind of a negotiated agreement could appeal to the country and to Congress. It is this kind of a political and psychological climate that has to be created to get what we want.

Mr. Ball said it would be folly to talk about merging two major trading areas (the expanded Common Market and the US) as that would do violence to our relations with the rest of the world. He thought it would be possible to draft a piece of legislation which would have a new look but which would not be so far from the basic idea of reciprocity.

7. Political Considerations. Mr. Gordon recalled that the history of the Trade Agreements Act has been one of progressive limitation. Protectionism in Congress is stronger today than ever. There is even a semi-respectable argument for protectionism—the balance-of-payments deficit. How do we propose to reverse this historical trend? We should address ourselves much more directly to what we can do to this proposed agreement with the Europeans to give it an appeal it does not now possess.

Mr. Murphy said that agriculture’s interest in export markets is very great and that this interest might be sufficient to mobilize support.

Mr. Ball asked whether it isn’t possible that, with the expansion and rate of development of the Common Market and so much energy and capital being employed, the American market is not likely to be injured seriously by the Common Market procedures in the next few years. This might be worth looking into to see if we could relieve some anxieties. Also, Mr. Ball thought Treasury should look into the possibility, from a balance-of-payments standpoint, of stimulating the import of capital into the US. We must make the point to labor, he continued, that one way it can protect itself from American industry sending its capital abroad for production there rather than in the US would be to make possible exports at advantageous prices and that this can be done only by tariff negotiations. If we can make them understand this, we have a fairly appealing argument.

8. Conclusion. Mr. Ball said the main purpose of the meeting had been to have a discussion and that was accomplished. He would find it most difficult to give the consensus of the meeting.

Joseph D. Coppock

Executive Secretary

1. Discussion of Petersen proposals. Official Use Only. 6 pp. Department of State, E Files: Lot 65 D 68, ICFEP, Trade Proposal.