186. Letter From the Special Representative for Trade Negotiations (Roth) to Secretary of the Treasury Fowler 1
Dear Joe:
As you know, representatives of your Department, the State Department, and this Office have had two detailed and useful meetings over the past several weeks to explore those aspects of the tourism proposal which could create problems for us under the General Agreement on Tariffs and Trade (GATT).2 Especially in view of the fact that the Ways and Means Committee began executive session on this proposal yesterday, I do want to give you our thoughts arising out of these meetings.
I regard the tourism proposal as an important part of the President’s balance-of-payments program. I am also aware of the fact that your staff made a very genuine effort to render the proposal as fair as possible. Nevertheless, it does raise some fairly serious questions of consistency with our obligations under the GATT. The very fact that we all agree to the exemption for Canada, Mexico, and the Caribbean—which is not in accord with the most-favored-nation principle of the GATT—makes it all the more important to ensure that the rest of the proposal is consistent with the GATT. Otherwise, I am very apprehensive that any departure from our GATT obligations will provoke increased friction and ill-will at a time when we can least afford them and may be seized upon to justify retaliatory actions.
Setting aside the exemption for Canada, Mexico, and the Caribbean, the major GATT problem raised by the tourism proposal is the flat rate of duty of 25% on articles brought back by American tourists of a value between $10 and $500 and the flat rates of $2 and 25% on parcels sent by mail of a value to up to $10 and between $10 and $500, respectively. These flat rates would involve a breach of trade agreement rates with respect to a great number of imported products. This breach would be all the more serious since the flat rates would increase—and in many cases substantially—the rates of duty to which we agreed in the Kennedy Round and which began to become effective on January 1 of this year. There is some chance, however, that these flat rates would be tolerated by our trading partners if they were clearly temporary in nature.
But if it is your intention to make the flat rates permanent, then the returning tourists and recipients of the mail parcels must have an option [Page 533] of paying the actual rates of duty provided for in the Tariff Schedules of the United States. So long as the option were reasonably available and its exercise did not involve an excessive delay or inconvenience, this would eliminate the GATT problem. Such an option is afforded by almost all the other countries which impose flat rates in similar circumstances. I recognize that the number of returning tourists and the quantity of mail parcels are large but, in light of the meetings held to date, I am not satisfied that the administrative problems cannot be overcome. Otherwise, we would be breaching trade agreement rates on millions of dollars worth of trade.
With respect to the level of the flat rate of 25%, I have one suggestion. I understand that as of January 1, 1968, the average rate for the products involved is slightly below 20% and as of January 1, 1969, will be about 18%. While it would not eliminate the GATT problem, it would be helpful if the flat rate could be pitched two or three points below the actual average—such as 15%. If this were done, it would be clear that we were not arbitrarily using a flat rate to increase the rates of duty on the goods concerned taken as a whole. Moreover, I understand that a number of other trading countries have a flat rate of 15% on the same kinds of articles.
I would appreciate it if you would let me know of your reaction to these ideas. They would not, in my judgment, impair the value of the proposal. At the same time, they would ensure, or at least substantially improve, its acceptability by our trading partners.
Sincerely yours,
- Source: Department of State, Central Files, FT 7 GATT. Limited Official Use. The source text is Tab B to a memorandum from Solomon to Katzenbach, March 25. Regarding this memorandum and Tab A, see footnote 1, Document 192.↩
- No formal record of these two meetings has been found.↩