Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

258. Letter From Secretary of Commerce Hodges to the Special Representative for Trade Negotiations (Herter)¹

Washington, October 30, 1964.

Dear Governor:

The Department of Commerce, along with other agencies, in its careful work on exceptions, has recognized that the linear tariff cut should apply to as many products as possible. This position, however, has assumed that other countries would act accordingly and that countries’ exceptions would not include broad categories of products that cannot be justified in the confrontation procedure.

It appears certain, however, that the European Coal and Steel Community (ECSC) is not going to reduce its duties on steel products below the 6 to 7 percent average level that prevailed prior to February of this year. The only undecided issue before the Community is how this result should be achieved—by a binding of these 6 to 7 percent average rates or by reductions to this level from the increased “temporary” rates made in February of this year (9 percent average) or by reductions from the pre-harmonized rates of 1958 (14 percent average). No matter how this issue is decided, the ECSC will make no effective tariff cuts on steel products.

If the ECSC does not cut its effective duties on steel products, we do not believe that the United States should cut its duties. A linear cut on steel tariffs by the United States would be impossible to defend on economic or political grounds unless other countries, particularly the ECSC, were to take comparable action.

Unless the exclusion by the ECSC of tariff cuts on steel products had economic justification, it would be a breach of the negotiating rules on exceptions. As compared with the United States, the ECSC has no economic grounds for excepting steel from tariff cuts. The United States is the world’s largest importer of steel and has been a net importer, on a quantity basis since 1958 and, on a value basis, in 1959 and since 1961. United States imports of all steel products in 1963 totalled 5.5. million tons and are expected to exceed well over 6 million tons in 1964. Net United States imports in 1963 were at the record level of 3.3 million tons. The Community, on the other hand, is not only the world’s largest exporter of steel, but is also a heavy net exporter. Community exports of all steel products totalled 12.5 million tons in 1963. Net exports totalled 8.6 million tons.

As compared with the Community and other steel producing countries, the United States is an open market for steel. United States tariffs on steel are either comparable to, or lower than, those of other industrial countries. Furthermore, the United States imposes no additional charges, such as border taxes on imports. These taxes run as high as 25 percent in European countries and are imposed on the c.i.f. duty-paid value of imports. Their cumulative effect greatly increases the landed cost of United States exports. In addition, the United States market is not restricted by “gentlemen’s agreements”, which appear to prevail among other countries’ steel producers. These agreements further protect domestic markets to the detriment of our steel exports. Such factors are relevant to any consideration of tariff cuts, particularly because of the very similar cost structures of the steel industries in all producing countries.

I recommend very strongly and emphatically that the United States should not lower its duties on steel unless the Europeans make comparable cuts in its 6 to 7 percent rates. I am not, however, recommending that we put steel on our initial exceptions list but that we withdraw steel offers from the negotiations if and when it becomes clearly evident that the Europeans are not going to cut the rates that were in effect until February of this year.

Earlier this year the ECSC proposed a harmonization of steel tariffs among the major steel producing countries.² I understand that this proposal is being studied through a subcommittee of the Trade Staff Committee. I believe the question of harmonization should continue to be explored, for harmonization might turn out to be a desirable objective after the facts are known.

I would appreciate having my recommendation above considered at the November 5 meeting of the Trade Expansion Act Advisory Committee for the purpose of agreeing on a firm U.S. position for the treatment of steel in the trade negotiations. If you agree, I am enclosing copies of this letter for transmittal to other members of the Committee in advance of this meeting.³

Sincerely yours,

Luther H. Hodges

1. Source: Kennedy Library, Herter Papers, White House Subject File, Withdrawn Documents, Box 2. Secret. The source text was attached to Herter’s November 4 reply to Hodges.
2. Harmonized tariffs, levied by the European Coal and Steel Community on steel imports from non-member countries, “are set by each member country according to production costs at a level above the minimum rate (Benelux) and below the maximum rate (Italy). Steel tariffs thus differ from the EEC’s CET [common external tariff] rates which are fixed on the basis of the arithmetical average of the national customs duties in force on January 1, 1957.” (European Community Information Service, Basic Glossary of Terms for “Kennedy Round,” January 1964; Kennedy Library, Herter Papers, Glossary, Box 9)
3. In his November 4 reply (see footnote 1 above), Herter expressed “considerable sympathy” for Hodges’ position but thought it “better not to try to settle this issue at the Advisory Committee meeting on November 5, which as you know will be devoted to the initial exceptions list that the United States will table on November 16.” He expected that the proposal would be revived after the exceptions lists are tabled, if the ECSC does not offer “a reduction from the rates existing before February 1964.”