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

452. Memorandum from Petersen to President Kennedy, October 26¹

October 26, 1961

My associate Mr. Myer Rashish has made an analysis of the fundamental differences between the two approaches suggested by me and Under Secretary Ball on tariff policy. Although it tends to over-draw the sharpness of these differences I think it helpful in delineating the fundamental problems.

Under Secretary Ball suggested that I forward it to you for your consideration. I hate to burden you further with reading material but the importance of the question would seem to warrant it.

Howard C. Petersen

Attachment

THE CONTENT AND TIMING OF US FOREIGN TRADE LEGISLATION

The following views are set down in an effort to make a contribution to the resolution of the issue of the kind of trade policy legislation the Administration should recommend and when it should recommend it. I confess that I do not feel any great degree of confidence that I know which course to take. There are too many aspects of the issue which I know too little about to offer a judgment that is persuasive.

I do fear, however, that whatever decision is made, there is danger that it will be made for the wrong reasons and without a clear appreciation of the implications of the alternative courses of action. The following discussion is, therefore, animated by the hope that it will contribute to a more reasoned and informed decision, whatever that decision may be.

The Two Approaches

There is, it seems to me, a basic difference in concept behind the approaches identified with Howard Petersen on the one hand and George Ball on the other. I suggest that the following characterizations of these two approaches will reveal the underlying differences between them:

1. The Petersen approach starts from the basic premise that the fundamental purpose of the next step in the US trade policy should be negotiation with the Common Market for the purpose of moderating the margin of discrimination inherent in its external common tariff so that American exports can maintain their access to this vast and growing market. The approach is essentially an “economic” one. It finds its basic logic as well as its argument in the need to expand American exports. It draws for support on the fairly conventional range of arguments in support of liberal trade—expanding trade, efficiency, lower prices, free world cohesion, etc.—plus the new one of the US balance of payments problem whose resolution requires the discipline of the international market place. Given these objectives of trade policy, it concludes that (a) the United States should husband its negotiating power in order to gain the maximum leverage on the common external tariff for the benefit of American exports (in contrast to the exports of other countries), and (b) since American export interests are only one among a host of economic interests involved in trade, of which the interests of import-competing industries are the most important countervailing ones, due regard must be paid to the interests of import-competing industries in the construction of our trade policy. The implications of these two conclusions are that our negotiations for tariff reduction must necessarily be selective in character because (a) we necessarily will be selective in the bargain that we want to strike since we wish to maximize the opportunities for American exports, and (b) selectivity is necessary to take account of the differing circumstances and interests of domestic import-competing industries.

The recommendations for legislation therefore necessarily take on what appears to be a more or less conventional cast. The peril point concept is, in general, preserved as is the escape clause provision, although the content of each is substantially modified. There is a minimum of tinkering with the accepted forms and rubrics of the trade agreements legislation. The next extension is designed to have an organic continuity with the 27-year history of the trade agreements act. Its ethos is to a substantial degree the same as that which has animated the policy over this period. It is bolder in negotiating authority and less protectionist in its “safeguarding” provisions because our present needs and those of the foreseeable future call for a bolder and more aggressive approach if we are to succeed in achieving the objectives which have been basic to the program since its inception.

2. The Ball approach starts from a different premise. It views trade policy as an essential instrument of foreign economic policy and one which must be adapted to the new set of circumstances confronting the United States position in the world. It emphasizes the newness of these circumstances and, even more, the newness of the objectives which we must have.

In his exposition, Ball is less explicit than one may wish but it is fair to say that the objectives which he emphasizes are basically of a political character. They involve the organization of the Western community. In brief, he visualizes a much more intimate and cohesive institutional and political relationship between the United States and Europe (and including as well Canada and Japan). The evolution of European economic integration from the early OEEC through the Coal and Steel Community, the Common Market of the Six and now the broader Common Market of Western Europe will inexorably extend to a broader arrangement embracing the North Atlantic countries as well. The OECD is the beginning of the institutional apparatus that will serve the broader Atlantic community. As it has within Europe, commercial policy will be the first bridge to the larger regional economic undertaking.

To serve these objectives, he would contend, commercial policy must make a clear break with the past. Although it must necessarily have conventional, commercial undertones comparable to those discussed in the Petersen approach (and indeed it must rely on the economic advantages to the United States economy in support of the innovations in American policy that are indicated), it must be much broader, bolder and ambitious in scope and conception. It conceives our objectives in trade policy as involving an approach to free trade within the Western world on an MFN basis. It addresses itself to areas of problems in trade relations that are not part of the traditional configuration of trade agreements policy, e.g. the treatment of temporate agricultural products, the treatment of exports of manufactures by the developing countries, etc. In fact, this approach comes close to saying that we can afford to dismantle all tariffs because they are an imprecise and irritating way of trying to manage international trade; that international trade on the whole should not be managed; but that where special problems arise that require management, they should not be managed on a unilateral basis (e.g. the escape clause), but through the development of internationally agreed upon arrangements that will force the concerting of policies (including domestic policies) among the participants in the particular areas under consideration.

This approach concludes that we must make a clean break with the past because what we propose to do in the future will be different from what we have done in the past. It suggests further that such a departure and innovation can only be supported if it is rationalized in terms of overriding political needs and considerations and that, in fact, such needs and considerations do exist.

The Question of Timing

The above does not represent an exhaustive treatment of the different approaches, nor does it do justice to either. Each approach has displayed more of the characteristics of the other than has been suggested. I have emphasized the differences because it is the differences between the two approaches which have to be clearly understood in order to appreciate the difference in attitudes with regard to the question of timing. It is my contention that the differences on the question of timing relate directly to the differences in concept as to what the needs and requirements of US foreign trade policy are.

1. The Ball approach leads to the conclusion that we had better defer action beyond 1962. He has adduced a variety of reasons in support of his recommendation. The essential reasons seem to be to be the following:

We have not begun to appreciate and to understand the needs and requirements of US foreign trade policy. It will not be long, however, before these become apparent to us and with the negotiation for United Kingdom membership in the Common Market, and the broadening of the Common Market to virtually the whole of Western Europe, the important issues will soon become apparent. Moreover, in the field of international politics, crises in the West will soon make plain the need for measures to coordinate and fix a common Western policy in the military-political area. Because these needs are not yet felt or understood, it would be folly to make a move on trade policy in 1962. To do so would commit the US Government (and the Congress and public opinion) to a course of action that may within a year or two become patently inadequate. The result will be that we will not be in a position to come back to Congress for the right kind of authority before the 1962 extension of the trade agreements legislation expires and this may be too late.

The other arguments advanced by Ball are ancillary in character. The most important of these is the question of prejudicing the next stage (extension of the Common Market to the whole of Western Europe) in the evolution of an integrated Atlantic community. The launching of a great public debate on trade policy could have the adverse consequence of creating hostile attitudes toward European integration in the United States as a result of the fact that such integration would have discriminatory consequences for US foreign trade. This result would be insured because the Administration would have to support its 1962 recommendation precisely on the grounds that, without negotiating authority, we will be foreclosed from access to the Common Market and this will have profoundly adverse consequences for our economic position. The ingredient of fear which must always be present cannot be controlled and may be transformed into hostility. If this should happen, the prospect for the evolution of a truly Atlantic community will have been seriously impaired. The European negotiations will go forward on the basis that there is no prospect for constructive accommodation with America in the future and native isolationist instincts in the United States will have been reinforced. The achievement of our long-term objectives will then have been frustrated with the consequence that the total Western position vis-à-vis the Soviet bloc and vis-à-vis the less developed areas of the world will have been seriously compromised.

2. The Petersen view is not unmindful of the longer term political-institutional objectives of US policy with regard to the West. It regards these, however, as possible of achievement sometime in the more distant future. It views the approach by the US to these objectives as being necessarily more gradual and evolutionary. The UK-EEC negotiations are currently in progress and will not be concluded until late in 1962. A number of important trade policy issues will arise from these negotiations which will be of direct interest to the US and to Latin America, Japan and other countries for whose economic welfare we have a concern. These issues must be resolved in a satisfactory fashion and this can only be accomplished if the President is equipped with authority so that he may, during the course of these negotiations, be able to exercise an influence from a position of strength. If the Congress does not act, our position will be uncertain and the European negotiations may lead to results which will be very difficult, if not impossible, to undo. Moreover, with regard to the general issue of negotiating reductions in tariff levels, a major step such as broadening of the EEC to include the UK and other OEEC countries cannot be expected to be followed immediately by radically new departure in trade policy which would embrace the Atlantic community. A gestation period will follow and it is during this period that we can undertake negotiations for the significant reduction of tariffs, particularly on industrial products.

It concludes that American approaches even toward the long-run goals (which, in its view, should probably not be articulated at this time) must, at best, proceed along the traditional path of gradual, though substantial, negotiated reductions in tariffs. The Petersen view might even agree that the 1962 extension of the trade agreements legislation would be the last extension of the legislation and that the broad scope of the issues in the field of trade policy that will have to be treated in the future will not permit the use of conventional techniques, but might involve, for example, the use of the treaty device. Under the present circumstances, however, it regards discontinuity in the trade agreements legislation as a disadvantage, as a loss of forward momentum, and a mark of indecision. In short, it views the trade issues that confront us today as being more difficult and requiring more activity and forth-rightness on the part of United States policy, but not as being different in essential character from those that we have confronted and have attempted to deal with, particularly in the last few years.

I would, therefore, suggest that these two approaches are more different than has generally been accepted in the discussions that have gone forward in recent days. They represent a different concept of needs and objectives and these differences are reflected in the differing views on the content of legislation and its timing. The basic policy objectives must be resolved first before either the substance of policy or the timing of the legislation is decided.

The following is, at least, a partial catalogue of the questions that have to be answered before we can come to an intelligent decision:

1. What should our basic long-term policy objectives in the field of trade policy be and how do they relate to our broader political objectives?

2. Can they be articulated and supported adequately so that we can move in 1962 or would they be compromised by acting now?

3. What is disposition of Europeans, Canadians, Japanese toward these objectives? Can they be expected to subscribe to them and when?

4. What bearing do the European negotiations have on the attainment of these objectives? Will these negotiations prejudice the attainment of US objectives or must we accept the results (on European terms) of these negotiations as a prerequisite to the attainment of US objectives?

5. Should we desire to do so, how can we best influence these negotiations to produce results which are consistent with US interests? Can we do this better with or without negotiating authority for the President? Can the issues be identified sufficiently clearly now so that we know what kind of negotiating authority is needed?

Myer Rashish

1. Transmits analysis of differences between Ball and Petersen approaches to foreign trade legislation. Confidential. 6 pp. Kennedy Library, Petersen Papers, Trade Legislation, 1/13/62–11/5/62.