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

297. Memorandum of Conversation¹

Washington, November 9, 1965.

PARTICIPANTS

• Sir Richard Powell, Permanent Secretary, British Board of Trade
• Mr. John E. Chadwick, Minister (Commercial) British Embassy
• Mr. William Hughes, 2nd Secretary, British Board of Trade
• Mr. Basil Engholm, Deputy Secretary, Ministry of Agriculture
• Mr. Roy Denman, Assistant Secretary, British Board of Trade
• Mr. Frederick Kearns, Assistant Secretary for the Ministry of Agriculture
• Mr. Frederick Jackson, First Secretary (Commercial) British Embassy
• Mr. John Eaton, Embassy Agricultural Attache
• STR
  • Governor Herter
  • Ambassador Roth
  • Mr. Norwood
  • Mr. Gates
  • Mr. Hedges
  • Mr. Malmgren
  • Mr. Simanis
  • Mr. Wilson
• STR Geneva
  • Mr. Lewis
• State
  • Mr. Greenwald
  • Mr. Hill
  • Mr. Hopp
  • Mr. Hinton
  • Mr. Enders
• Labor
  • Mr. Weiss
  • Mr. Blackman
  • Mr. Schwenger
• Treasury
  • Mr. Ryss
• Commerce
  • Mr. Trowbridge
  • Mr. Garland
  • Mr. Fox
  • Mr. Nehmer
  • Mr. Strauss
• Agriculture
  • Mr. Schnittker
  • Mr. Ioanes

EEC Crisis and Kennedy Round:

Governor Herter opened the discussion and requested Sir Richard Powell’s views on the EEC crisis and its relevance to the Kennedy Round. Powell replied that the U.K. had received the impression from the French Embassy in London that the EEC crisis was serious but not insoluble. While it is not entirely clear what the French want, de Gaulle apparently does not intend to renegotiate the Rome Treaty. He will probably insist on a change in personnel at the Commission but not on formal abridgement of the Commission’s powers. The issue of majority voting, in Powell’s estimation, is not an essential one. Alluding to “power politics,” he said that no issue would be forced by any group against the adamant opposition of one of its major members.

He emphasized that resolution of the crisis would be a time-consuming process and that the EEC would probably not be able to resume negotiations in the Kennedy Round before the Spring of 1966. Rather intensive work would then be necessary in the summer and fall to conclude the Kennedy Round according to the U.S. schedule. Powell said that, after his conversation with Under Secretary Ball,² he was aware of the difficulties the United States would encounter in obtaining an extension of the negotiating authority due to expire in the middle of 1967.

He doubted that technical discussions could be prolonged beyond the end of this year and believed that we could then expect a hiatus in Kennedy Round activity until the EEC returns. Nonetheless, we can also expect results from the Kennedy Round which will be substantial enough to justify the time and effort expended.

Powell concurred in Herter’s observation that, if NATO deliberations become involved with trade, the timetable problems that would ensue in the Kennedy Round would be insurmountable. He added, however, that such an eventuality has never been suggested by the French in their discussions with the U.K.

Herter expressed basic agreement with Powell’s comments but noted that the situation was so indefinite that it is impossible to predict when the EEC would return to the Kennedy Round. He remarked parenthetically that the Community’s delegates are now empowered only to deliver rigid positions and it would be desirable if someone were given authority to negotiate.

In discussing the prospects for renewal of TEA negotiating authority, Herter pointed out that Congress has been growing more protectionist in the past few years and would not be so well disposed toward tariff cuts as it was when the Act was passed in 1962.

Ambassador Roth added that protectionist sentiment in Congress is abetted by delays in the negotiations. He thought it would be extremely difficult to obtain extension even if the Kennedy Round is close to a successful resolution. Still, if the timetable proceeds as Powell predicted, there was no reason why the negotiations could not be concluded before the deadline.

Roth continued that there had been several articles in the press which had erroneously reported that the United States was exploring alternatives to the Kennedy Round. He said that, if necessary, such alternatives could be devised quickly enough in the future but there is no point in considering the possibilities at this juncture. Powell responded that the U.K. also was not discussing alternatives. In fact it was difficult to conceive of tariff negotiations without the EEC; twenty-five percent of U.K. trade is with the EEC and the trend is upward. In answering a question from Roth, Powell said there has been no diminution of assurances by EFTA spokesmen that “bridge-building” with the EEC requires, first of all, a successful Kennedy Round.

EEC Exceptions List:

Denman, in response to a question from Roth, said that there was some chance that the EEC might improve its partial offers but, that it was unlikely that it will make offers on its exceptions. Germany will try to improve the package to avert extensive withdrawal of offers made by other participants. If there are significant withdrawals by others, we can expect the EEC to try to add to its exceptions.

Sectors:

Roth thought that it was time for considerable substantive work in sector meetings, all possibilities in bilaterals having been virtually exhausted. The United States, he continued, has been uneasy over decisions which might have been taken in paper and pulp discussions between the EEC and the Scandinavians. The British responded with an optimistic appraisal of paper and pulp. Powell discounted the possibility that there has been an EEC-Scandinavian agreement of detriment to third countries. He believed that the EEC simply did not want to have multilateral discussions until it had settled a number of problems bilaterally with the Scandinavians, who supply 80 percent of EEC imports in this sector. Hijzen has indicated he is now willing to start talks and is optimistic about prospects for agreement. The Scandinavians are also prepared to join in paper and pulp talks.

Turning to steel, Denman agreed with the U.S. view that a concord-ance could be of only limited value, resulting in simple harmonization of rates without any reduction. A more significant effort would be to try to get the EEC to reduce its present rates. It may be best, he said, to concentrate on a few specialties.

Roth noted that U.S. steel production is down to about 65 percent of capacity and that there is considerable unemployment in the industry. Powell countered that this might indicate structural overcapacity. The level of imports, Gates said, always rises when there is a threat of a strike and never returns completely to the previous level.

Adjustment assistance procedures, Roth explained, have not helped the workers in the United States. Congress will be asked next year to improve the law.

He then turned to the matter of ASP removal on benzenoid chemicals and outlined preparations now underway which will probably last about six months. A study is being conducted to determine actual prices. Often the prices quoted by foreign subsidiaries of U.S. firms have no meaning except for tax purposes. When Customs completes its collection of data on the difference between foreign invoice value and foreign export value, STR will ask the Tariff Commission to determine equivalent value for ASP. Subsequently, public hearings will be necessary. Ultimately, a decision will have to be made on whether further cuts will be offered in the Kennedy Round; but it is difficult to envisage a 50 percent cut in the face of expected industry objections. Since we shall probably have to ask Congress for authority to take any action on ASP, we shall also have to show that we have been offered reciprocal concessions in the non-tariff barrier field. Fox suggested that U.K. relaxation of the coal quota could be part of such a package.

In response to a statement by Powell on U.K. disappointment over the new tariff treatment replacing ASP on rubber footwear, Roth explained that we regarded it as unfortunate that Congress had established a higher rate on synthetic footwear; but, in the process, the rate on natural rubber items was set at a much lower rate then would have been possible by simple conversion of ASP. Jackson countered that U.K. footwear, being high priced, is now subject to higher rates in both categories.

Denman expanded the U.K. arguments against the projected U.S. scheme for action on benzenoid chemicals. He maintained that the U.K. chemical industry considered ASP rates to be prohibitive, in essence a device to permit protection of more than 100 percent. Simple conversion, even with an ensuing 50 percent cut, could hardly be considered adequate, he said. In his opinion, the EEC was even more opposed to ASP than the U.K. and might be prompted to exclude chemicals from the Kennedy Round entirely. Powell added that the end result could be an EEC-EFTA arrangement on chemicals similar to the U.S.-Canadian auto agreement.³

Fox, in reply, reiterated our need for reciprocity and pointed out that, until the outcries on ecretement materialized, cuts in high rates had always been regarded as more significant than cuts in low rates. He added that it would be difficult to get Congress to act if it became known that ASP conversion is regarded abroad as valueless. If there is to be no major reduction on chemicals in the Kennedy Round, he emphasized, it is important that we know early. Powell said that we would have to have another bilateral to review the U.S. resolution of the ASP problem when it is final.

Textiles:

Ambassador Roth noted that Wyndham White’s package proposal on cotton textiles will be considered in the GATT on November 17 and 18. He said that we had disabused India’s Ambassador Lall of his misconceptions regarding the LTA when Lall was in Washington recently. We had explained to him that, using the language of the LTA, it was still possible to move toward liberalization; practical problems could be solved in bilaterals. There is no rigidity on our part regarding liberalization, and we believe we could do more if the LTA is allowed to remain.

Mr. Nehmer remarked that U.S. imports of cotton textiles are at an all-time high—about 20 percent above last year in volume. He referred to textile trade figures which have appeared in the European press purporting to show that the EEC imports a larger share of its cotton textile needs than does the United States. One defect, however, in the EEC figures is that they do not separate out non-cotton apparel. It should also be noted that the EEC imports significant quantities from the bloc and consequently purchases proportionately less than the United States does from LDC’s.

Powell said that the U.K.’s situation is a special one; it is necessary to allow for improvement in the structure of its domestic cotton industry. It also had difficult political problems with the Commonwealth over cotton imports. The U.K. had chosen to institute a global quota in order to permit new suppliers among the LDC’s to obtain part of the market. It would be willing to establish individual quotas instead, if the LDC’s could decide among themselves on their respective share of the market.

Nehmer said that the proposals of the U.K. presented only limited possibilities for growth. The exporting countries don’t look at problems as we do. If they are dissatisfied enough, there could be repercussions in the sector meetings. We will continue to point out that our imports have gone up considerably.

To Nehmer’s comment that the U.K.’s policy may encourage U.S. wool producers to exert pressure for a similar arrangement Powell replied that he sees no parallel between cotton imports from LDC’s and wool imports from DC’s.

Non-Tariff Barriers

Sir Richard hoped that solutions to the U.S. non-tariff barrier problems of chief concern to Britain, i.e., dumping, ASP and wine gallon, could be pursued in the Kennedy Round. He was conscious of the domestic pressures in the United States in regard to these problems. Mr. Denman added that British requests in relation to these problems were clearly set out. He hoped there could be US–UK discussions on the antidumping question prior to the December meeting.

In regard to British barriers of concern to the United States, Sir Richard said that he could say nothing helpful on coal. In the face of more pit closings in politically sensitive areas, the government will not be able to make any move. On Northern Ireland imports, he doubted the possibility of liberalization, but the matter was under discussion.

He was not in a position yet formally to respond to the question of television programs. Decisions regarding the use of British vs. imported programs rested with the Independent Television Authority (ITA) and BBC. The government could not intervene. Although they recognized that an answer must be given to the American complaint, it would be improper for the government to put pressure on the ITA.

Mr. Greenwald pointed out that the new restrictions governing 8 to 9 p.m. weekday programs were directly discriminatory against United States programs. The British sell $10 million worth of TV programming to the United States while we sell only $3 million to Britain. The United States has no limitation on imported material. He urged that the British networks be given the right of free choice.

Mr. Fox voiced United States concern with the aspects of the National Plan which appeared to be forms of subsidization to encourage import substitution.

Sir Richard said that certain measures such as investment allowances were being discussed, but that they were not designed to be discriminatory against any particular import or source, but rather to stimulate efficiency in UK industry.

Concluding the NTB discussion, Mr. Roth urged that something be done on coal in the Belfast area. He warned that to get United States action on NTB’s, particularly wine gallon, would require going to Congress with persuasive incentives in the form of concessions from other Kennedy Round participants. These would not necessarily be on the industrial side. On anti-dumping, we were preparing for the December meeting. We were facing grave problems on steel imports with some type of Congressional action certain in the spring. While realizing that the withholding of appraisals was the main problem for exporters, we wanted to have the whole dumping question explored in depth.

Sir Richard proposed bilateral talks prior to the December meeting, perhaps in London. Mr. Denman asked if we were prepared to accept the British proposal as the basis of the December discussion.

Mr. Roth responded that we wanted to focus on some of the underlying issues that the British proposal raised, and that we would discuss it in that context.

As a final matter, Mr. Roth raised the question of the U.S. request that a single UK tariff rate be applied on fruit cocktail. Sir Richard answered that Australian assent was needed and the Australians had not responded. He would personally prod them for an answer on his return.

Afternoon discussions opened on the subject of agriculture. Mr. Roth briefly reviewed U.S. reasons for deciding to table Kennedy Round agricultural offers on the scheduled September 16 date, and expressed appreciation that other participants agreed to do the same. Most of the offers were not as handsome as they should have been. We were disappointed in the U.K. offers. This was not the place to go into detail, as Geneva bilateral talks were set for late November, but we did not consider U.K. offers a rich package.

Turning to the US–UK grains agreement, Mr. Roth made it clear that the United States was unhappy with its experience under the arrangement. Imports the first year fell below the 3 year average foreseen in the agreement and our anticipated sharing in the growth of British consumption had not materialized. Future prospects for holding our own present share of the market appear dim. We understand that the United Kingdom is committed to increasing the level of standard quantities to reflect growth and also perhaps to maintaining price levels. The most obvious forms of remedial action are therefore precluded. Because our expectations had not been realized, we questioned the value of the agreement both as a bilateral arrangement and as the pattern for a multilateral grains agreement in the Kennedy Round.

Sir Richard responded first on the question of British Kennedy Round offers, saying that despite misgivings on the wisdom of tabling on September 16, they had agreed to follow the U.S. lead. In judging the value of the offer, it should be remembered that much had been withheld pending participation by the EEC. The British had been careful not to expose their hand. Secondly, the value of U.K. offers compared favorably with those of the United States. He valued total U.K. offers at $555 million and total U.S. at $500 million. A reason that offers to the United States were small was that none were tabled on products covered by Commonwealth preference because releases would be needed if rates were to be lowered. These items would be discussed in Geneva.

Mr. Roth mentioned the additional problem of the U.K. offers on products covered by illegal quantitative restrictions. The United States cannot take these offers into consideration. This was recognized by the British, who responded that the trade value for the United States of their offers would not be basically altered.

Under Secretary Schnittker had to leave the talks at this point. He commented that the idea of bringing domestic agricultural policies to the bargaining table was becoming a platitude. The United States had its eye on results and was looking forward hopefully to the December discussions on grains.

Mr. Engholm responded for the British on the grains agreement. The National Plan noted that a 4–3/4 million ton increase in cereals production was technically possible but it did not set such an increase as a goal. He also noted that while some increase in production could be expected, there would be an increase in consumption in response to the anticipated expansion in livestock production. Mr. Roth was correct in saying that there was a commitment on standard quantities. Levels would not be reduced but would be increased to reflect growth in consumption. There had been no commitment on prices, however. The United States had been aware before signing the bilateral of a White Paper which stated that standard quantity levels would have to provide for growth in demand.⁴ This provision assured that domestic producers would not be penalized and was not inconsistent with the international arrangements.

He said the U.S. disappointment in the cereals agreement was understandable. However, the agreement had been in operation only fifteen months. The British had taken every reasonable step to make it work. The standard quantity levels were low in relation to the expected harvest. When the harvest was larger than expected the penalty provisions started to operate. At the suggestion of the United States at the first review, the British cut the guaranteed prices, which proved their good intentions. This act took political courage for a government in office only six months and facing a balance of payments crisis.

The 1965 harvest would be larger than that of 1943, but there were signs that the rate of expansion was slowing. Imports were higher this year, although not up to the base level. Consumption was increasing at twice the expected rate. Remedial actions had not yet taken full effect, and imports from the United States would fall short of the base level this year. He hoped that by the time of the December talks, the British would have a good idea of the prospects for next year.

Mr. Engholm did not consider the results for the United States as unsatisfactory as they had been represented. Although total imports had fallen over the past two years, three countries last year had exceeded their average for the previous three years, and the United States might do the same this year. It was the minor suppliers that were most adversely affected by the import declines.

As to the Kennedy Round aspects, he said that the U.K. offer faithfully translates the principles of the agreement. He thought it unwise for the United States to discount the value of the agreement because of unexpected disappointments in the first fifteen months.

Mr. Roth pointed out that the agreement rested on two bases, the first that imports would hold their relative place in the U.K. market and, second, that mechanisms would work in a sufficiently flexible manner to make this possible. Because of the unexpected production increase, the mechanism went into action to cut prices the maximum 4%, however, at the same time the standard quantity levels were increased.

Mr. Engholm explained that the increase in the standard quantities made a greater than 5% price cut possible because the two were tied together.

In response to Mr. Roth’s comment that the U.K. offer on grains was not as useful as had been hoped, Mr. Engholm said that in the Kennedy Round the British would go further if other countries were more forth-coming.

Mr. Ioanes stated that because its remedial features lack teeth, the United States cannot accept the arrangement as a model for a world grains agreement.

Mr. Engholm pointed out that the mechanisms had caused a reduction in subsidies to growers last year and would again this year. Price pressures had not, however, brought prices down to the minimum import level. Responding to Mr. Ioanes’ request, he promised to provide figures to support his earlier contention that three exporters were ahead of their previous three-year average in shipments to the U.K. Imports are expected to increase this year, although not proportionate to the increase in production.

Mr. Ioanes pointed to this fact as the real issue. Exporters were not getting a fair proportion of growth because the remedial mechanism could not overcome the essential disadvantage of exporters caused by the inflated base figures.

Mr. Engholm responded that Britain had emphatically not agreed to U.S. imports getting a proportionate share of the growth. This was not in the agreement. They had only agreed to consider this as part of a multilateral agreement. He reiterated that it was too early to make an overall judgment of the value of the agreement.

Sir Richard concluded the discussion on the grains agreement, saying that a judgment of its first year of operation had to take into consideration the change in government, the severe balance of payments crisis and the severe pressure of imports. He did not think it practical to think the remedial mechanisms could be stiffened unless strong incentives were provided by the Kennedy Round.

1. Source: Johnson Library, Roth Papers, Chronological, July 1–December 31, 1965, Box 1. Limited Official Use. The source text bears no drafting information except the date of December 22. The meeting was held in Herter’s office.
2. This conversation has not been further identified.
3. See footnote 4, Document 282.
4. This paper has not been identified.