300. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) to President Johnson1
SUBJECT
- A Tariff Problem
We have a problem involving the so-called American Selling Price (ASP) system of calculating tariffs on chemical goods. A first step in solving it would be a Tariff Commission study. At Tab A, Chris Herter asks you to instruct the Commission to make a study.2 I would recommend, instead, that you authorize Herter to make such a request to the Commission. Connor and Mann agree that we should ask for a study.
The Problem
As you know, tariffs are generally calculated on the basis of the price charged by the foreign exporter. However, on a few goods, mainly chemicals, [Page 778] we are required by law to base the tariff on the U.S. domestic price of comparable products (the “American Selling Price”, or ASP).
Such ASP valuation is not only an infernal nuisance, but is giving Herter’s people all sorts of trouble in Geneva:
- —It violates our obligations under GATT and gives the Europeans a negotiating club which they use with gusto.
- —It subjects our importers, as well as foreign exporters, to uncertainty as to the amount of the tariff.
- —It is costly and clumsy to administer.
The trick is to shift to a more defensible basis of valuation without reducing the amount of protection. Chris Herter’s memo suggests that we follow the good precedent set by the Congress last summer on rubber overshoes. Essentially, we would shift the base for calculating the tariff from the high domestic price to the lower foreign price, but—to cancel out the effect—we would apply a higher tariff rate so as to leave unchanged the dollar amount of tariff actually paid.
Procedure
As a first step, and before you decide to go ahead with the necessary legislation, we need a careful Tariff Commission study to see how this would work. The Commission will be happy to go ahead if they receive a formal Administration request.
Congressional Attitudes
Bill Roth reports that Wilbur Mills is all for a study. Tom Curtis (with a Monsanto Plant in his district) has written Herter a strong letter in favor. (Copy at Tab B)3 King and the other Ways and Means members are also friendly. This is primarily Ways and Means business, so Roth has not canvassed individual Senators on the precise question at issue. During last summer’s rubber footwear debate, Long, Smathers, Hartke, Douglas, Gore, and Ribicoff argued for eliminating ASP.
Industry Reactions
I spoke to Jack Connor to get a personal reading from him on likely industry reactions. He does not think any of the big companies will make a fuss, with the possible exception of Allied Chemical. Some of the smaller companies will be unhappy. They are nervous about any change in the present comfortable status quo. Overall, Jack’s view is that we are safe in going ahead.
[Page 779]Recommendation
That you authorize Herter to ask the Commission to make a study. (A draft letter from Herter to the Commission is at Tab C.)4 This would in no way force your hand. Once the study is in, you will have a free choice whether or not to do something about it.
- Source: Johnson Library, Bator Papers, Trade, Box 13. No classification marking. The source text bears the handwritten notes: “Passed to Bator 12–10–65 3:00 p.m.” and “This has been acted on.”↩
- Presumably Document 295, which was signed by Roth not Herter.↩
- This letter from Thomas B. Curtis, Republican Representative from Missouri, to Roth, October 1, is not printed.↩
- Not attached, but regarding a similar letter requested by Roth, see footnote 2, Document 295.↩
- McGeorge Bundy initialed below Bator’s initials.↩
- This option is checked.↩