476. Memorandum from Roth to Bundy, August 281

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  • Policy Issues Concerning the Trade Negotiations

I have tried to set out briefly below the major policy issues and considerations that confront us as we move closer towards the so-called “Kennedy Round”:

1. Schedule of Negotiations

When, in view of necessary preliminaries in the U.S. and the preparation which other countries want to perform, are the trade negotiations proper (as opposed to the preliminaries) likely to begin? And how long are they likely to last? May 4, 1964 was the date chosen by the GATT Ministers for the start of the negotiating conference, but it now seems unlikely that specific bargaining will take place before the fall of 1964. Experienced trade negotiators expect the conference to last at least a year. The negotiating period and its preliminaries will of course be a time of extra sensitivity for the foreign commercial policy of the U.S.

2. Nature of the Tariff Cut

Should, and can, the United States continue to press for a linear cut of 50 percent? Which of the industrialized countries should be allowed to vary from the formula adopted, and in what way? On the latter point, Canada, Australia, and Japan, among others, have claimed that the special structure of their economies prohibits them from making general and uniform tariff cuts.

3. Exceptions

What rule should be adopted prior to the negotiations to govern the exceptions which countries will inevitably wish [Facsimile Page 2] to make to the general formula of tariff reduction? At present it seems likely that no rule will be devised more specific than the principle agreed upon by the GATT Ministers in May: that there will be “a bare minimum of exceptions which shall be subject to confrontation and justification.”

What items should the U.S. add to the list of exceptions made mandatory by the Trade Expansion Act? This decision must await completion of the public hearings, the Tariff Commission’s report to the President, and investigation by the various agencies. This issue can [Typeset Page 1879] be expected to generate considerable domestic political pressure on the Administration.

Which products likely to be claimed as exceptions by other countries are of major trade interest to the U.S.? This will be the subject of analysis by “country teams” which will also assemble material to be used in the “confrontation and justification” process.

4. Disparities

At the Ministerial Meeting in May, it was agreed that “in those cases where there are significant disparities in tariff levels, the tariff reductions will be based upon special rules of general and automatic application,” with a view to reducing the disparities. This clause grew out of the EEC’s insistence that disparities between certain high U.S. tariffs and the EEC’s more moderate rates on the same items would create a major problem of reciprocity for them under a rule of linear cuts.

What sort of special rule for disparities should the U.S. agree to? To what extent should the U.S. insist that a disparity be proven “significant” (in trade terms) before submitting it to this special rule?

The Trade Negotiating Committee (TNC) of the GATT is to resume consideration of this issue at a subcommittee meeting October 23–November 1.

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5. Agriculture

The U.S. has made clear that the trade negotiations must include significant liberalization of agricultural as well as industrial trade. How is this to be achieved—particularly vis-à-vis the U.S.’s largest overseas agricultural market, the EEC—in view of the following problems:

a. Agricultural trade is of three types: that governed by fixed tariffs, that governed by non-tariff restrictions as well as or in place of tariffs, and that which the GATT Contracting Parties have agreed to try to regulate by means of Commodity Agreements. Different arrangements will probably have to be made for these various categories in the course of the trade negotiations. A subcommittee of the TNC is to consider this problem in a meeting October 2–9.

b. The products for which Commodity Agreements are to be explored are, so far, Cereals and Meats. What form of agreement should the U.S. favor for these commodities, and what are the political chances of Senate ratification of these agreements? The GATT Cereals Group will probably meet some time in October.

c. The Common Agricultural Policy (CAP) of the EEC is so designed that the level of levies on imports from non-members depends upon the target price agreed on for each product covered by the CAP. Due to the agony of formulating the CAP among the Six and to the continued [Typeset Page 1880] political sensitivity of farm prices, the EEC is strongly reluctant to negotiate internationally on the levels of its target prices either before or after these levels have been agreed on internally. As in the Dillon Round, the CAP and the sensitivity of the EEC member governments to agricultural problems is probably the major obstacle to significant negotiations on agricultural trade.

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6. Non-Tariff Barriers

The trade negotiations are to include discussions aimed at liberalizing trade restrictions other than tariffs. A TNC subcommittee will open talks on this subject at a meeting from October 21–November 1. The main targets of foreign criticism of the U.S. in this regard are likely to be:

a. American Selling Price (ASP). On certain products, notably synthetic organic chemicals and rubber-soled footwear, the duty charged on imports into the U.S. is calculated not on the basis of the invoice price, as is normal, but on the basis of the U.S. market price of the equivalent product. To what extent should we be willing (or able—ASP was imposed on chemicals by legislation) to negotiate abolition of ASP in the course of the Kennedy Round?

b. Anti-Dumping Legislation. Foreign exporters and U.S. importers complain that they are harassed by the prolonged and complex procedures under which dumping cases are handled in the U.S. They are particularly critical of early “withholding of appraisement” by the Customs Bureau, which subjects their business to uncertainty lasting often several months. On the other hand, there is mounting pressure in industry and Congress to tighten rather than liberalize administration of dumping cases. Should the U.S. agree, in the course of the trade negotiations, to liberalize its anti-dumping procedures, and if so, should this be done on the basis of (i) administrative changes, (ii) attempted revision of the legislation, or (iii) conclusion of an international convention on dumping?

c. Procurement Policies. U.S. government procurement regulations under the Buy American Act will be criticized as overly restrictive. The U.S. must determine what modification in procedures regulations it might be willing to make in the course of negotiations. This decision, of course, will have to be made in the light of the current review and probable modification of procurement regulations.

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7. Less Developed Countries

At the Ministerial Meeting of the GATT and elsewhere, the LDC’s have contended that they cannot make any concessions of their own in the course of trade negotiations. The U.S. position has been that the LDC’s, while not expected to participate in the full linear cut, should consider the possibility of modifying some of their commercial policies [Typeset Page 1881] in such a way as both to benefit their own economies and to expand world trade. Up to now, the LDC’s have reacted to this suggestion with coolness and some suspicion. On their part, they have proposed that the industrialized countries should extend preferential trade treatment to LDC’s and should sanction preferential trading arrangements among the LDC’s themselves.

The LDCs’ attitude grows largely out of their long-standing resentment of GATT as essentially a rich man’s club whose rules are designed for trade among developed countries and take no account of the special problems of the underdeveloped world. Their bargaining position is strengthened by the imminence of the U.N. Conference on Trade and Development, to be held in the spring of 1964, at which the LDC’s and the Soviet bloc are expected to demand that the U.N. be given further responsibility in regulating world trade.

A GATT Working Group on Preferences is to meet from October 7–11. The U.S. must determine what reaction it should make to the LDC proposals on preferences, and, more broadly, to what extent the GATT itself should be modified in order to meet any legitimate complaints of the LDC’s. An October 14–18 meeting of the GATT Committee on Legal and Institutional Framework is expected to deal with this problem.

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8. Delegations and Interagency Staff Work

Members of this Office will head all U.S. delegations to GATT meetings preparatory to the trade negotiations. Selection of other agencies’ representatives on these delegations may raise problems, in that very often agencies wish to be represented even on delegations in which they have no direct interest. We plan to keep delegations as small as possible.

In order to prepare for the negotiations proper, we plan to form “country teams” which would be devoted to research and analysis on the trade of the major countries that will participate in the negotiations. The staff of these teams will be drawn from the various agencies, and they will be chaired mainly by senior Foreign Service Officers of the State Department. We are now investigating whether it would be practical or advisable (a) to hire non-government people to chair or serve on these teams, or (b) to put officials of agencies other than State and this Office in the chair of any of the teams.

9. Poultry

The EEC appears currently to be scrambling to agree to some modification of their poultry levies before the U.S. withdrawals are proclaimed, but so far the only proposal of which we have heard is an 11 pfennig/kilo reduction which, we have informed the Germans, [Typeset Page 1882] would be insufficient to enable us to delay the withdrawal procedure. The proclamation of withdrawals will, however, be postponed at least until the EEC Council of Ministers has had a further meeting on the subject, expected September 24–25 at the latest.

The main issue is whether the U.S. should agree to submit to the GATT for adjudication the figure of $46 million, which is our estimate of the U.S. trade affected by the [Facsimile Page 7] poultry levies in 1960 as a base year. The EEC has repeatedly challenged this valuation as too high, and it seems clear that they would bring formal action in the GATT if and when we put our $46 million of withdrawals into effect. Prior adjudication of the figure would forestall prolonged litigation in the GATT and remove the possibility of counter-retaliation.

It has been agreed by Governor Herter, Secretary Freeman, and Under Secretary Ball that the next move in the situation is up to the EEC. If they come to us with proposals for solving the poultry problem, we should then consider whether we should not suggest GATT adjudication of the trade figure.

William M. Roth
  1. Trade negotiations: policy issues and considerations. Limited Official Use. 7 pp. Kennedy Library, National Security Files, Subjects Series, Trade, General, 8/63, Box 309.