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

259. Letter From the Secretary of Commerce’s Deputy for Textile Programs (Love) to the Special Representative for Trade Negotiations (Herter)¹

Washington, November 2, 1964.

Dear Ambassador Herter:

Following your letter of October 26 to Secretary Hodges² and our conversations last Friday,³ Secretary Hodges asked me to recommend that you accept three changes in the recommendations made to you by the TEC on textile products to be placed on the exemptions list. The first of these concerns cotton textiles, the second concerns wool textile items which the TEC did not include in its recommendations, and the third concerns specific duties on wool textiles.

These changes in the TEC position are necessary for political reasons and for international bargaining. The textile industry and Congressional leaders were told that textiles would remain apart from the Kennedy Round. In addition, we should not discard any portion of those things we have to bargain as we will probably find them useful in accomplishing the Administration objectives of maintaining or achieving international arrangements.

1. Cotton Textiles. That cotton textile tariffs be negotiated only if the offering is made with the proviso that we have the right to restore duty reductions if there is a lapse in arrangements regarding international trade in cotton textiles. (Cotton textile trade available for negotiation is valued at $246 million.)

It will undoubtedly be an Administration objective to renew the Long Term Arrangement for Cotton Textiles. Preserving our right to restore duty reductions could be an important bargaining tool to accomplish this difficult objective.

It will of course be disappointing to the cotton textile industry when it learns, as it will eventually, that its duties are being reduced, but this action can be made saleable if it is understood that some international arrangement is a condition to the reductions.

As you know, the TEC agreed to inform other countries that an offering “takes into consideration the existence of satisfactory arrangements for the orderly marketing of cotton textiles”. This was as far as it was possible to go and keep cotton textiles off the exceptions list. However, the TEC procedure would require us to pay compensation or accept retaliation if it became necessary to restore cotton textile duties because no international arrangements were continued. The procedure would also give away a possible bargaining tool for maintaining or renewing the present arrangement.

2. Omitted Wool Textile Ad Valorem Duties. That the ad valorem duties on certain wool textiles which the TEC recommended for the exceptions list ($161 million) be enlarged to include wool textiles which were omitted from the exceptions list ($7 million).

Out of a total $180 million wool textiles available for negotiation, $12 million of handwoven articles and rags are not recommended for the exceptions. There are $7 million of wool textiles which were not included on the exceptions list by the Trade Executive Committee, principally tufted wool floor coverings, tapestry and upholstery fabrics, and blankets, which should be on the list.

You know the difficulties already encountered in trying to meet the Administration commitment to try to negotiate an international wool textile agreement. Every bargaining tool we possess will be needed for this negotiation. It does not make sense to reduce any portion of our tariffs, thereby assisting the foreign exporters in whatever small way without helping to achieve our own objectives.

It is entirely possible that, because wool textiles are on our exceptions list an international arrangement can be negotiated as part of the Kennedy Round. The removal of some of the items from the exceptions list would weaken our position for making such a wool textile arrangement all inclusive, to prevent possible circumvention of the arrangement.

3. Wool Textile Specific Duties. That a compromise be made on the specific duties on wool products (on which TEC has recommended no exception), and that these duties be excepted beyond a reduction of 25 percent.

As you know, the specific duty on wool textiles was set to offset the duty on raw wool, because raw wool prices in the United States are set by the cost of the imported portion. This is not true of other fibers. Over the years increasing use of blends with man-made fibers and reused wool have increased the protection afforded by the specific duties beyond that for raw wool. Therefore, to reduce raw wool and wool textile duties equally, as the TEC recommended would reduce wool textile protection.

Items come in as wool textiles containing as much as 40 percent by value of other fibers (for instance cotton or man-made fibers). On this percentage the importer must pay the equivalent of the raw wool duty, though the foreign manufacturer does not have a corresponding raw material cost advantage. This element of the duty is protective.

However, there was an understanding in 1947 that wool textile specific duties and raw wool duties should be treated equally. Since then conditions of trade have changed and, especially, the compositions of wool fabrics have changed. The loss of protection from a cut in specific duties would not now be offset by lower raw material costs produced by an equal cut in wool fiber duties.⁴ It is impossible to estimate accurately what the offset would be on an overall basis, but it is probably about half.

The TSC recommended that raw wool duty reductions be offered only if we could be released from the 1947 understanding. This is the ideal position from the point of view of putting us in the best bargaining position for an arrangement. This might be a possible alternate solution for meeting the Administration commitment to help the industry.

Unless an arrangement proves impossible to negotiate we could agree to a compromise between the TSC and TEC positions, that raw wool duty reductions be offered if the specific duty reductions can be made proportionately only half as large. This should, on the average, preserve the present bargaining position for an international agreement, yet treat exporting countries fairly.

The textile area is one that has special problems and political implications, and must therefore be given a treatment that is exceptional to the general policies and aims of the Administration in the Kennedy Round. For this reason, Secretary Hodges and I hope that these recommendations will be acceptable to you.

Sincerely,

James S. Love, Jr .

1. Source: Johnson Library, National Security File, Subject File, Trade—General, vol. 2 [all], Box 47. Confidential.
2. Not further identified, but the letter may be the one sent to Secretaries Dillon and Rusk; see Document 253.
3. October 30.
4. At the end of a long, unsigned memorandum on the compensating duty for raw wool tariff, November 3, the following points were made concerning this sentence in Love’s letter:

   “1. On many products there is no bonus protection factor (all tops and most yarns).

   “2. The AVE of the compensatory duty for the main body of trade averages about six percentage points. A cut of 50% would amount to three percentage points. Mr. Love suggests a cut of 25% only, amounting to 1–1/2 percentage points. Therefore, the most the “bonus protection” could be in his case would be 1–1/2 points, if all domestic production were blends. But that is impossible. Therefore, the bonus protection factor retained by his suggestion must be less than 1–1/2 percentage points, and probably of the order of 1/2 percentage point. That is miniscule protection compared to the negotiating price we would have to pay.”