177. Telegram From the Department of State to the Embassy in France1

109872. CEDTO. Subj: Balance of Payments Mission.2

For Trezise. Framework in which you will be operating is laid out in following memorandum from Secretary Rusk dated January 303 which President has approved:

  • “1. The President has indicated his determination to improve our trade account. On the other hand, he does not wish to take any action that might undermine our basic trade policy or unravel the results of the Kennedy Round. He is deeply concerned that any action taken precipitately and unilaterally could begin a downward spiral which could restrict rather than expand world trade.
  • 2. The Administration is still considering several alternatives:4
    A 2 percent border tax adjustment on imports and exports based on State indirect taxes;

    Asking the GATT for a waiver to permit a 2 percent border tax adjustment because of balance of payments reasons;

    B Prime. A similar adjustment on the import side only of 2–1/2 percent. This might be done without legislation. Alternatively there is a possibility—although not a strong one—that the Europeans will offer expansionary action themselves in order to avoid restrictive measures by the U.S. This action could be: acceleration of the Kennedy Round, untying aid, reducing border tax adjustments, stepping up domestic economic growth, etc.

  • 3. We propose to go to the Europeans late this week, explain our problem, and describe the trade measures we are now considering (Alternatives A, B and B Prime above). It is essential that we get a better reading than we presently have as to what extent they will stand still without retaliation if the US—and if other countries emulating the US—should go down any of these particular roads.

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    Germany’s attitude will be crucial. We propose to initiate our consultations there with a letter from the President to Kiesinger.5

  • 4. Given the unpredictability of possible trade actions by others and the importance and delicacy of what we are trying to achieve, it is clearly in the US interest for the President and the responsible Congressional officials to have these readings before making a final decision on our next move. This move could be either a direct US action, or quite possibly negotiations to carry through on European expansionary action—if we thought that serious and substantial—or to lay a more manageable basis in the GATT for US legislative or executive action.
  • 5. In light of the need for further urgent discussions, both bilaterally in Europe and in the GATT, we will not be prepared to discuss the specific alternative proposals with the Ways and Means Committee next Monday.6 We would, however, keep in close contact with the Chairman as our negotiations and planning progress.”

Procedure outlined above has been discussed with Chairman Mills, who is in agreement.

  1. Source: Department of State, Central Files, FN 12 US. Secret; Exdis; Immediate. Drafted by Enders on February 3; cleared by Solomon, Leddy, Henry L. Heymann, Deming, Roth, and Fried; and approved by Enders.
  2. Regarding this mission, see Document 176.
  3. No other text of this memorandum has been found.
  4. A task force composed of representatives of the Council of Economic Advisers, Commerce, State, Treasury, and the Office of the Special Trade Representative developed these three alternatives, which were summarized as alternatives A, B, and C (instead of B Prime) in a memorandum from Roth to Califano, January 12. (Johnson Library, Fowler Papers, International Balance of Payments—Classified Material: 1968 B/P Operations, Box 45)
  5. See Document 178.
  6. Fowler and Roth unveiled the administration’s balance-of-payments legislative agenda in testimony before the House Ways and Means Committee on Monday and Tuesday, February 5–6. The hearings continued through March 1. See Administration’s Balance-of-Payments Proposals: Hearings Before the Committee on Ways and Means, House of Representatives, Ninetieth Congress, Second Session (Washington: Government Printing Office, 1968), Parts 1–3.