458. Memorandum from Ball to President Kennedy, August 211
SUBJECT
- Woolen Textile Problem
There is only one rational way to tackle the import problem of the woolen textile industry. This is by coming to grips with raw material costs.
In this memorandum I suggest a course of action that would accomplish this in a way that would benefit the woolen textile industry, the raw wool growers, the consumer, and U.S. foreign relations.
The Present Structure of Protection
1. Our woolen textile industry presently depends on imports for two-thirds of its raw wool. This comes primarily from Australia, but also from such countries as New Zealand, Argentina and Uruguay.
2. Raw wool imports are subject to a duty of 25½¢ per pound. In addition our wool growers receive a compensatory payment that in 1961, approximated 45% of their total receipts from their raw wool sales. The National Wool Act of 1954 limits compensatory payments to 70% of the aggregate amount of duties collected on raw wool and woolen textiles.
3. There is a tariff on woolen textiles consisting of an ad valorem duty plus a specific duty of 37½% a pound.
[Facsimile Page 2]A. The specific duty component of this tariff is intended to equalize raw wool costs to the U.S. textile industry; in fact, it contains an element of extra protection.
B. The ad valorem component of the woolen textile tariff was increased, as of January 1, 1961, to a point approximately equal to Smoot-Hawley levels.
Recommended Course of Action
In order to assist the woolen textile industry and to improve its competitive position as against imported woolens, we recommend the following courses of action:
[Typeset Page 1828]1. Negotiate with Australia a reduction in the tariff on raw wool by 50% using the authority of the Trade Expansion Act. As a quid pro quo for such a reduction Australia is prepared to offer some especially valuable concessions such as a raising of the embargo on the export of Merino sheep to the United States. This should materially help U.S. wool growers to build up their flocks of fine quality sheep.
2. In order to avoid loss to the wool growers from this reduction in import duties, the ceiling on compensatory payments should be revised so as to assure them of at least the same level of income that they are now receiving.
3. Both the ad valorem and specific duty components of the tariff on woolen textiles should be maintained at present high levels. Under our GATT commitments, if we reduce the duty on raw wool, we are required to reduce the specific duty. However, we could probably avoid [Facsimile Page 3] paying substantial compensation to other countries for failure to do this, since we would have the support of Australia and other Commonwealth countries to a GATT waiver.
Advantages
This course of action offers the following advantages:
A. The competitive position of the woolen textile industry would be substantially improved as against imports, since its raw material costs would be reduced by roughly 12–15%. Its competitive position would also be improved as against the competition of fabrics domestically produced from man-made fabrics.
B. The United States wool-growing industry would be guaranteed the same level of income it now receives. In addition it would obtain special concessions, such as the opportunity to import Merino sheep.
C. The U.S. consumer would benefit by lower woolen textile prices.
D. Our foreign relations would benefit by our ability to reduce our tariffs on wool from Australia, New Zealand, Argentina, and Uruguay. These tariffs have been a source of galling complaint for a long time.
We have not computed the cost to the American treasury of the additional compensatory payment to the wool growers but the top limit would probably not exceed $25 million.
The foregoing is proposed not as a substitute for our proposed approach through the Wool Study Group, but as a supplement to that approach.
- “Woolen Textile Problem.” Confidential. 3 pp. Department of State, Central Files, 411.006/8–2162. September 1962↩