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

471. Memorandum of Conversation, May 3, among Herter and his EEC Counterparts¹

May 3, 1963, 3 p.m.

SUBJECT

• Forthcoming Trade Negotiations: Agriculture, Tropical Products, and Procedural Matters

PARTICIPANTS

• Mr. Robert Marjolin, Vice President of the Commission, EEC
• Commissioner Jean Rey, Member of the Commission, EEC
• Mr. Louis Rabot, Director General for Agriculture, EEC Commission
• Mr. Pierre Millet, Director General for Internal Market, EEC Commission
• Mr. Theodorus Hijzen, Director of General Affairs and Relations with International Organizations, Directorate General for External Relations, EEC Commission
• Mr. Pierre Schloesser, in the Directorate General for External Relations (Specializing in GATT Affairs), EEC Commission
• Mr. Pierre Cabuy, Chef de Cabinet Adjoint, Commissioner Rey (Executive Assistant), EEC Commission
• Mr. Robert Toulemon, Chef de Cabinet, Vice President Marjolin (Chief Executive Assistant), EEC Commission
• Mr. Pierre-Emile Fay, Acting Director, Commercial Exchanges Directorate General for Overseas Development, EEC Commission
• Honorable Christian A. Herter, Special Representative for Trade Negotiations
• Honorable William T. Gossett, Deputy Special Representative for Trade Negotiations
• Mr. Irwin R. Hedges, Agricultural Economist, Office of the Special Representative for Trade Negotiations
• Mr. Michael W. Moynihan, Public Affairs Adviser, Office of the Special Representative for Trade Negotiations
• Mr. Bernard Norwood, Chairman of Trade Staff Committee, Office of the Special Representative for Trade Negotiations
• Mr. Addison Parris, Executive Secretary, Trade Expansion Act Advisory Committee, Office of the Special Representative for Trade Negotiations
• Mr. John Rehm, General Counsel to the Special Representative for Trade Negotiations
• Mr. Kenneth Auchincloss, Executive Assistant to the Special Representative for Trade Negotiations
• Mr. Lawrence B. Krause, Economic Consultant to the Special Representative for Trade Negotiations
• Hon. Charles S. Murphy, Under Secretary of Agriculture
• Hon. Roland R. Renne, Assistant Secretary for International Affairs, Department of Agriculture
• Mr. Raymond Ioanes, Director, Foreign Agriculture Service, Department of Agriculture
• Mr. A. Richard DeFelice, Acting Assistant Administrator for International Affairs, Department of Agriculture
• Hon. Franklin D. Roosevelt, Jr., Under Secretary of Commerce
• Hon. Robert McNeill, Deputy Assistant Secretary for Trade Policy, Department of Commerce
• Mr. Lawrence Fox, Director, Office of Commercial and Financial Policy, Department of Commerce
• Mr. Morton Pomeranz, International Activities Assistant, Resources Program Staff, Office of the Secretary, Department of the Interior
• Hon. Harry Weiss, Deputy Assistant Secretary, International Affairs, Department of Labor
• Mr. Robert Schwenger, Chief, Division of Foreign Economic Policy, Office of International Organization Affairs, Department of Labor
• Hon. G. Griffith Johnson, Assistant Secretary for Economic Affairs, Department of State
• Hon. Michael Blumenthal, Deputy Assistant Secretary for Economic Affairs, Department of State
• Mr. Leonard Weiss, Director of Trade and Finance, Department of State
• Mr. John C. Renner, Deputy Director, Office of Atlantic Political-Economic Affairs, Department of State
• Mr. Jacob J. Kaplan, Director, International Development Organizations Staff, Agency for International Development
• Mr. Ralph Hirschtritt, Special Assistant to the Assistant Secretary of the Treasury, Treasury Department

The greater part of the afternoon’s discussions was devoted to agriculture, since the other questions on the agenda raised hardly any difficulties between the United States and the EEC.

Agriculture: I

Governor Herter began with a strong statement of the United States view of recent EEC actions on agricultural trade. The implementation of the Common Agricultural Policy (CAP) on poultry, the Netherlands flour tariff, and possible similar actions that may be taken in the future are unilateral steps seriously affecting U.S. trade. The United States, he said, could make a good case to the effect that they are in violation of GATT and that this country is therefore entitled to take retaliatory action. So far, we have held off from retaliation—the United States does not wish a trade war. But the EEC, Governor Herter noted, had not hesitated to retaliate when the United States had raised tariffs on carpets and glass under last year’s escape clause actions.

The Trade Expansion Act, Governor Herter went on, directs the President to retaliate against countries which maintain unjustifiable restrictions contrary to trade agreements. The U.S. Government is under heavy political pressure to take such action, and from a political point of view, the time is almost over before retaliatory action must be resorted to.

The United States does not want, he stressed, to be faced with a situation in which it has to negotiate in the Kennedy Round on the basis of unilateral actions that impair past tariff concessions. Governor Herter made clear that the United States would not trade concessions on industrial products for bargains on agricultural tariffs unilaterally imposed by the EEC since the Trade Expansion Act went into effect.

Under Secretary Murphy added the point that negotiations under the Standstill Agreements do not offer a solution for the United States’ current difficulties with all the products involved. This country may, he said, call for negotiations under those Agreements on a commodity-by-commodity basis, as seemed appropriate. On poultry, we would wait to see what action the EEC Ministers take on the Commission’s recommendation before we decide whether to invoke our Standstill rights.

Negotiations under the Standstill Agreements, he pointed out, are a bilateral matter between the U.S. and the EEC. The need for a new Interim Agreement is of interest to a variety of countries and the Agreement must be worked out multilaterally.

Mr. Rey, in replying, seemed somewhat taken aback by the firmness of Governor Herter’s remarks, and the tone of the discussions sharpened noticably at this point. He restated the difficulties which the Commission foresaw concerning an Interim Agreement, and he repeated his recognition of the poultry problem and his intention to reply to Governor Herter’s queries on flour prior to the Geneva meeting.

He was greatly surprised, he said, by two points in Governor Herter’s statement:

1) The challenge to the legality of the implementation of the CAP, and the comparison of the CAP to the U.S. carpets and glass case. The agricultural tariffs of the Six had been unbound under Article XXIV:6, and their re-establishment under the CAP had been agreed to in principle by the GATT contracting parties.

2) He was quite concerned at the prospect of returning to the Council of Ministers meeting with reports of threats of retaliation by the United States. This would certainly make more difficult the problem of obtaining the Ministers’ agreement to a negotiating mandate. He would much prefer to discuss Governor Herter’s remarks with Dr. Mansholt and then raise these points again with the U.S. delegation before the Geneva meeting.

Governor Herter said that he appreciated Mr. Rey’s feelings, but that he felt it was only proper that the United States should state its concerns with complete candor and that they should be reported to the EEC Ministers.

There followed an interlude of intramural discussions on both sides of the table. Mr. Rey then reported that his colleagues shared his surprise at the U.S. attitude; they had thought on the basis of the morning’s meeting that the United States would ask for negotiations under the Standstill Agreements and that this would settle the immediate U.S. concerns about agricultural negotiations. If now the EEC was being threatened with retaliation on poultry, there seemed little reason for negotiation under the Standstill Agreements. Besides, they could not see the legal basis for retaliation in view of Article XXIV:6.

The United States has not decided on retaliation, Governor Herter declared. But the Administration is under considerable pressure in this direction. He stressed the common objective of trade liberalization which the Commission and the U.S. shared, and he said that in this context each side should make its position completely clear to the other. Mr. Gossett urged that U.S. Standstill rights not be underestimated. They were based on the situation as of September 1, 1960, and would be so negotiated.

Tropical Products

Governor Herter at this point changed the subject to Tropical Products, which the EEC had indicated that it wanted to discuss. Mr. Rey told of the EEC’s reduction by 40 percent of the margin of preference which it extends to the Overseas Associated Territories on coffee, cocoa, bananas, and vegetable oils. It also stood ready to go to zero on tropical woods and teak if the United Kingdom would also do so. The main beneficiaries of this liberalization would be the Latin Americans.

Mr. Marjolin expanded this point to say that given the extent of this EEC liberalization on tropical products, and given the EEC’s obligation to uphold the interests of the OACs, it would be unrealistic to expect the EEC to make further reductions in their tropical products tariffs.

Mr. Blumenthal noted that the Report of the Special Committee on Tropical Products contained some disagreements. Some countries, including the United States, recommended consideration by the GATT Ministers of the Nigerian proposal on free entry of tropical products, standstill agreements, and implementation of the coffee and cocoa agreements in the realm of tariffs. In particular, he urged, the Latin Americans had to be made to feel that the GATT holds some possibility of solution of their commodity problems. They had been often frustrated in this regard in the past.

Mr. Marjolin replied that the EEC’s 40 percent reduction should not be taken for granted, and that the EEC would deal with the Latin Americans when the time came.

Agriculture: II

The discussion then returned to agriculture. Governor Herter asked whether the EEC’s variable levies would be construed as tariffs during negotiations.

In the course of their replies, Mr. Rey and Mr. Marjolin made clear that the Commission does not feel that agricultural products should be subject to the linear tariff reductions. The U.S. suggestion that agriculture be separated into three categories—those covered by tariffs, those covered by other restrictions, and those to be the subject of commodity agreements—could not be accepted. It does not make sense, Mr. Marjolin argued, to reduce a tariff automatically on one agricultural product while another very similar to it is not automatically liberalized because it is not bound by a tariff. To tie agriculture to a linear cut, Mr. Rey added, would make agreement on the linear cut much more difficult.

Mr. Rey felt that agriculture should be recognized as a special problem. In response to a question by Mr. Renne, the EEC representatives agreed that all agricultural products would be open to negotiation. But they could not specify what the type of negotiations or form of trade liberalization contemplated would be. These questions, they suggested, should be studied during the remainder of the year. They did not object to Governor Herter’s suggestion that the points to be studied should include support prices, subsidies, and variable levies, among others.

Governor Herter and Mr. Blumenthal then underlined the importance which the United States lays upon the need for clarifying the negotiating processes and objectives for agriculture. This should take place before general preparations for overall negotiations have gone too far. Governor Herter reiterated the U.S. “terrible feeling of uncertainty” created by such EEC actions as maintaining its canned fruit restrictions long after the balance-of-payments justification had passed away. This is symbolic, he said, of the general U.S. worry on the score of nations making agreements and then not holding to them. We must be clear, he stressed, on what is negotiable and what is not. The United States cannot repeat its experience in the Dillon Round, when agriculture was ultimately laid aside.

Mr. Blumenthal asked when the EEC felt it could be more precise on the nature of the agricultural liberalization that it could contemplate and the degree of the linear cut.

Mr. Rey replied that he hoped agreement on the tariff reduction formula could be worked out before August. The autumn could then be devoted to studies of special problems.

Such a timetable assumed, Mr. Blumenthal noted, that the Ministerial Meeting would produce no more than a decision in principle to hold trade negotiations. This was a possibility, he admitted. But the United States was not sure, he said, that it could proceed with its domestic hearings and other prenegotiation processes on so vague a basis. We had hoped that the Ministerial Meeting could at least settle the outline of the tariff negotiating formula and the general extent of agricultural liberalization.

Mr. Rey expressed some surprise at this comment. He had thought that it was only after its domestic hearings, not before, that the United States would be in a position to know what bargain it could offer. One cannot settle all the problems of a trade negotiation in advance; they must be worked out while the negotiations are in progress. He said that he would frankly consider it a success if the Council simply gave the Commission a mandate to conduct a new round of negotiations. He expected that there could be considerable progress made on specific problems in the Trade Negotiating Committee during 1963 since there is a good deal of time.

Mr. Gossett quoted the draft Working Party Report concerning agricultural negotiations and asked what was the EEC attitude. Mr. Marjolin remarked that he was not optimistic about the possibility of an early clear answer from the EEC on this score. The internal EEC dispute on prices would delay things. The United States is bound by the Trade Expansion Act, he said, and the EEC by the Common Agricultural Policy. The problem, he suggested, is to find a common ground that would respect both these frameworks. On the side of the EEC, the variable factor which offers the basis for a solution to this problem is agricultural prices.

Mr. Rey at this point agreed with Governor Herter that a clarification of the nature and extent of agricultural negotiations ought to be possible by the end of 1963. If the basic issues are not clear by then, Governor Herter cautioned, the negotiations themselves may have to be postponed.

Mr. Marjolin raised the question of other European countries with other methods of agricultural trade protection, specifically the UK. If the EEC is to study liberalization of its agricultural trade policy, it is only fair, he asserted, that the UK make concessions on its part. Governor Herter agreed, adding that he expected that the UK was worried about its farm subsidy program.

The subject of agriculture was then left, with agreement that all delegations should work out a basis for negotiation by the end of the year.

Other Business

Governor Herter said that he was pleased to report that the Tariff Commission had issued its Sixth Supplementary Report, and that practically all the items of major concern to the EEC had been taken care of. In those cases where adjustments had not been possible, a full explanation was provided. The text would be delivered to Mr. Pringel.

Mr. Rey brought up the subject of Non-Tariff Barriers. Preliminary discussions in this field, he felt, could be held over until the autumn, and he suggested that the initiative for opening discussions should lie with the EEC. He recommended that the initial sessions, at least on “fair trade problems”, should be bilateral between the U.S. and EEC. Governor Herter agreed to hold discussions in the autumn, provided that they were not held off until late November or December.

Governor Herter said that he was unclear on the distinction which the EEC seemed to draw between “non-tariff barriers” and “fair trade problems”. Mr. Rey explained that the only distinction he could see lay between matters such as customs valuation and nomenclature, which are directly related to tariffs, and all other factors—subsidies, anti-trust laws, anti-dumping regulations, and the like—which do not pertain to tariffs.

At the close of the session, Mr. Rey expressed his delegation’s appreciation and thanks for the opportunity to hold the discussions and the cordiality in which they had been conducted. He looked forward to their meeting in Geneva, and to future bilateral meetings, which he believed would be most useful. In view of the U.S. trip to Europe later that month, he said, it would be the Europeans’ turn to come to Washington once more.

Governor Herter thanked Mr. Rey and his colleagues, expressing his own gratification at the frank and open discussions that had been held. The meeting ended with handshakes and good-byes.

1. Trade negotiation matters. Confidential. 10 pp. Kennedy Library, National Security Files, Kaysen Series, Trade Policy, Trade Expansion Act, 5/1/63–5/15/63, Box 379.