226. Memorandum From the Under Secretary of State for Economic Affairs (Ball) to the President’s Deputy Special Counsel (Feldman)0

SUBJECT

  • Escape Clause Proceedings on Carpets

The State Department is separately forwarding its departmental view regarding the escape clause proceedings on carpet. I believe, however, that there are reasons not emphasized in the official Department [Page 480]statement that have special relevance to other matters with which we are both very much concerned.

As you well know, the two countries that would be affected by a general affirmation of the Tariff Commission’s recommendations are Belgium and Japan. In deciding the issue, it is important that the President be aware of the following considerations:

I

CONSIDERATIONS WITH REGARD TO BELGIUM

The Belgian Government has made it clear that it would strongly resent the application of the escape clause so as to increase duties on Belgian carpets. The Belgian Ambassador in Washington has made strong representations to this effect. The Belgian position has also been made clear to us in Europe.

At the moment our relations with Belgium are already strained, and at a time when we need solid European support for our Berlin policy. Even before the Lumumba fiasco, the Belgians felt—rightly or wrongly—that we had a heavy responsibility for pushing them prematurely out of the Congo. Within the last week Belgian bitterness toward the United States has been intensified by the UN military action against Katanga, which had long been a rich feudal province of the great Belgian banking and mining interests. While reluctantly accepting Congo independence, the Belgians had hoped to maintain their essential interests in Katanga.

Today they see the last vestige of those interests threatened by our vigorous support of the Adoula Government and by our endeavors to bring about a reintegration of Katanga into the Congo through an Adoula-Tshombe settlement that would necessarily mean the elimination of Tshombe’s Belgian advisers and officers. When this event comes to pass—and it is settled American policy to hasten the event—the Belgian people will quite likely regard this as a final humiliation brought about as a result of American influence.

These are only some of the elements that contribute to Belgian unhappiness with our current activities. As is the case with other small nations, Belgium is feeling left out of the Four-Power Berlin talks. Foreign Minister Spaak, who has been most helpful to us in the past, is very prickly as a result of the Big Four treatment of his talk with Khrushchev.

Leaving aside its unhappy consequences for our foreign political interests, a decision to increase tariffs on Belgian carpets would have the following effects on other aspects of our commercial policy:

A. Effect on Textile Agreement.

At the last meeting of the EEC Ministers, Belgium blocked a decision that the EEC should sign the Geneva textile agreement on the ground [Page 481]that it wanted to await the outcome of the carpet proceeding. We succeeded in having this action reversed, and we understand the EEC is to sign the agreement today (Monday). But Ambassador MacArthur in Brussels had to take a strong line at the top level to obtain this reversal.

Belgium’s reluctant agreement to go along with the one-year textile agreement is, of course, only the first stage of the battle. I had a hard time persuading the Belgian representative to play ball with us during the Geneva conference, and an intransigent Belgium can make it difficult for us to work out a longer-range textile agreement that will meet our interests. Belgium is a member of the EEC and none of the other members has any real interest in a long-term agreement. If the escape clause proceeding is permitted to operate against Belgian carpets, we can confidently count on Belgium’s being in an obstructionist mood.

B. Effect on Current Tariff Discussions in Geneva.

The carpet action may have an effect of even greater importance on the current round of tariff negotiations in Geneva. As you know, we are strenuously working to obtain concessions from the Six regarding their common agriculture policy which will meet the requirements of our own agriculture. When Secretary Freeman was in Brussels recently, it was made clear to him that in the event the President approved a tariff increase on Belgian carpets the Belgian Government would drag its feet on agreeing to concessions on the part of the EEC that would make the common agriculture policy palatable to US interests. Secretary Freeman was told in effect that the Belgians would regard the President’s decision on carpets as a test of our commercial liberalism.

The proposed increase in carpet duties is relevant to the current tariff negotiations in Geneva for an additional reason. As you know, we are seeking to obtain a 20% reduction in the common external tariff of the EEC on industrial items. It is for this reason that we have recently obtained authority from the President to disregard “peril points” on a number of items in order to provide our negotiators with more bargaining power.

An increase in carpet tariffs would not only invite a reaction from an influential EEC country, which might result in the withdrawal or holding back on the 20% reduction offer, but it would actually operate to reduce our bargaining position. Our carpet concessions cover a trade of some $28 million. If the President increases the tariffs on this trade by adopting the escape clause recommendations of the Tariff Commission, the United States will be required, under GATT rules, to give compensation in a corresponding amount. The net effect of this would mean that our offers in the current Geneva negotiations would be reduced by $28 million. This would materially detract from the effect we are hoping to achieve by the “peril point” actions.

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II

CONSIDERATIONS WITH REGARD TO JAPAN

If relations with Belgium are difficult, our relations with Japan are even more sensitive in the particular area of commercial policy. [3-1/2 lines of source text not declassified]1 The Japanese Embassy here has made strong representations to us in connection with the pending carpet action. Similar representations have been made to Ambassador Rei-schauer. The carpet problem was also put up to Christopher when he was in Tokyo.

In the light of these considerations, I urge you to call the following considerations to the President’s attention before a final decision is made on the carpet proceeding:

A. Effect on Bilateral Textile Agreement with Japan.

The coming into effect and operation of the bilateral textile agreement just concluded with Japan are subject to certain specific conditions. One of these conditions is that cotton fabrics from Hong Kong shall be restrained at or about the level of imports into the United States during US fiscal year 1961, and that imports of secondary products such as household made-up goods, apparel and knitted goods shall be reduced to 30% or more below the level of 1960.

At the present moment we cannot be at all sure of obtaining a firm agreement with Hong Kong. The most we can do is to try to induce Hong Kong to join the Geneva agreement by threatening action to enforce restrictions unilaterally if Hong Kong refuses to do so. The Hong Kong authorities are sophisticated and they may call our bluff. They know that under existing law our authority to act unilaterally is far from clear. They may or may not be persuaded to accept the Geneva agreement by our assertion that Congress will provide the necessary legal clarification in January—and that in the meantime we are prepared, if necessary, to enforce restrictions anyway.

The Japanese are well aware of our dilemma. They have had a legal opinion on Section 2042 prepared by an American lawyer. They have been needling our Consul General in Hong Kong regarding the slow progress of the Hong Kong negotiations. If handled diplomatically, I think they will accept whatever solution we work out for limiting Hong Kong [Page 483]imports—whether by an agreement or by a promise to enforce restrictions either now or as soon as our authority to do so is cleared up in January.

But if we embarrass the Ikeda Government again by an increase in carpet tariffs, it may be difficult to hold Japan to the present bilateral agreement. In these circumstances the Japanese may use our difficulties with Hong Kong as a basis for requesting some further concession under the bilateral agreement.

B. Effect on Long-Term Arrangement.

As in the case of Belgium, we shall need Japanese cooperation in working out a long-term textile arrangement. The Japanese are not presently in a cooperative mood. They will be even less so if we now initiate an action for an equalization fee on cotton. (I am suggesting in another memorandum to you that this action be temporarily postponed.) The carpet action would be interpreted in Tokyo as one further evidence of our illiberalism.

It would, moreover, appear to the Japanese as quite irrational for us to strain their patience further over only a few million dollars in trade. After all, the Japanese are running a balance of payments deficit with us which will amount this year to about $900 million.

C. Effect on US-Japanese Economic Committee Meeting.

When Prime Minister Ikeda was here last June the President gave him substantial assurances of our determination to pursue liberal commercial policies toward Japan. The proposal to create a US-Japanese Economic Committee was put forward in our attempt to recognize Japan’s importance as a major industrial power and to strengthen our ties with a nation on which we must rely as a major source of strength in Asia. The Committee is having its first meeting, as you know, early in November and we have a vital interest in insuring that it meets in a propitious atmosphere. While there is no intention of discussing the textile problem at the meeting, the harrowing experience of the textile negotiations, which seriously weakened the government’s position, will have a definite effect on the climate of the proceedings. A decision to increase tariffs on Japanese carpets—coming just before the meeting—would seriously prejudice its outcome.

We would do well to remember that it was only fifteen months ago that Communist-inspired mobs in Tokyo caused the cancellation of President Eisenhower’s visit. President Kennedy’s friendliness and understanding manifested during Prime Minister Ikeda’s trip went far to repair the damage, and Ambassador Reischauer’s brilliant efforts in Tokyo have contributed to a further improvement in relations. But in the vital area of our commercial relations with Japan, disillusionment is setting in.

[Page 484]

The Japanese have the impression that we talk a good game but do not play it. I certainly cannot be sanguine about the prospects of improved Japanese-US relations if we take further actions against Japanese imports—particularly at a time when the Japanese Government is being forced to take Draconian measures to deal with an alarming trade imbalance.

III

THE MERITS

Both the Belgians and Japanese are aware of the fact that the US carpet industry’s difficulties derive not from imports but from the domestic production of machine-tufted rugs. This, as you know, is also the view of the executive agencies of our own Government.

Since the carpet industry cannot make a persuasive case for escape clause relief, both the Belgians and Japanese will be inclined to construe an upholding of the Tariff Commission’s recommendation as another action directed against them. Under such circumstances we can count on their being extremely skeptical of our protestations of liberal intentions in the future.

George W. Ball3
  1. Source: Department of State, Central Files, 411.006/9-2561. Confidential. Transmitted to Feldman under cover of a memorandum from Battle, September 26. (Ibid., 411.006/9-2661) Ball also sent a copy to President Kennedy under cover of a September 29 memorandum, which urged a delay in the escape clause announcement until after tariff negotiations in Geneva had been completed. He emphasized: “action at this time approving the tariff increase might seriously jeopardize the development of our international textile agreement as well as the tariff negotiations presently underway in Geneva.” (Ibid., 411.006/9-2961)
  2. Not attached but identified in Battle’s September 26 memorandum to Feldman (see the source note above) as telegram 842 from Tokyo. (Ibid., 611.9441/9-1261) The telegram is scheduled for publication in volume XXII.
  3. Section 204 of the Agricultural Act of 1956, P.L. 540, approved on May 28, 1956, authorizes the President, as he deems necessary, to negotiate agreements with foreign nations limiting any of their agricultural exports into the United States and limiting U.S. imports of any agricultural commodity. (70 Stat. 200)
  4. Printed from a copy that bears this typed signature.