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

304. Memorandum of Conversation Between U.S. and EEC Officials¹

Brussels, January 11, 1966.

SUBJECT

• The Kennedy Round

[Here follows a list of 23 participants.]

Introduction

In opening the meeting, Commissioner Rey, after welcoming the American delegation, said that it was a good idea to have a meeting at that time for a number of reasons. The U.S. and the EEC were the principal partners in the Kennedy Round; the Wyndham White report had just been released;² time was short and it was a common goal of the U.S. and the Community to complete the Kennedy Round by the end of 1966; and also because the meeting would be helpful in the preparation of the Commission’s report for the Council concerning the Kennedy Round. Rey expressed reasonable optimism regarding the present political situation in the Community. He doubted, however, that the Luxembourg meeting would solve everything. Rey felt that there was a common will among the Six, not just the Five, to develop the EEC, which meant also a common desire to deal successfully with the Kennedy Round.

Ambassador Roth responded that the U.S. realized the difficulty of discussions on the Kennedy Round at the time and that it had had some hesitation about proposing the meeting. However, in light of Wyndham White’s report and since the Commission was preparing a report on the Kennedy Round, a meeting seemed opportune. Interest in the Kennedy Round was a perennial concern of both parties but Ambassador Roth assured the EEC representatives that the U.S. continued to have a paramount interest in the negotiations.

Strong U.S. interest in the Kennedy Round for both political and economic reasons had been stressed in the good discussions with Chancellor Erhard in December. In recent weeks the President had given more attention to problems of world trade, including taking liberal decisions on certain escape clause actions. It was also the President who had decided that the question of “American selling price” should be studied. The President has a strong interest in the Kennedy Round. The U.S. knew that the Commission’s feelings concerning the Kennedy Round were also strong.

Kennedy Round Timetable

Ambassador Roth said the U.S. felt that 1966 was the critical period for the Kennedy Round. Within the first six months of 1966 we would all know whether there could be a successful Kennedy Round. It would be necessary that the negotiations in Geneva be resumed, with EEC participation, by spring, so that before the summer vacation period one could see a package beginning to emerge. This would allow the negotiations to be completed by the end of 1966 and an agreement signed in early 1967. The schedule now was so very tight that, if it were not kept, the U.S. doubted that the Kennedy Round could be successfully concluded.

Ambassador Roth continued that the question was often raised whether, if the present time schedule were not met, it would be possible to get an extension of the Trade Expansion Act (TEA) through Congress. The Administration believed, Ambassador Roth stated, there was no substance to such hope. First, the President is determined that Congress should adjourn its current session in July, 1966 in view of the fall elections. Thus, there would be no time to introduce a bill. Second, in 1967 there would be only six months left for such action by Congress. It could perhaps be done, the Ambassador observed, but the Administration was very concerned over the likelihood of the TEA’s liberal authority being, in the case of Congressional extension, whittled down by protectionistic amendments. Each year protectionistic amendments were attached to many acts. Often such acts could be vetoed. In the case of an extension of the TEA, however, such veto could not be used. Therefore, the judgment of the Administration is to stick to the TEA and make full use of the existing liberal authority.

Ambassador Roth added that the U.S. had another concern. Commercial policy seldom stood still. If the Kennedy Round did not succeed, there was the danger of a more protectionistic attitude in the U.S. and probably also in Europe.

Ambassador Roth outlined what actions were necessary to meet the timetable: 1) The EEC had to be in a position to negotiate again. This involves a matter on which the U.S. cannot comment because it is an internal Community affair; 2) If the negotiations continued, there would be a need for the EEC to maintain in Geneva a permanent negotiating delegation at a senior level. We are aware of the EEC’s problem and especially the one for Mr. Hijzen is having to negotiate in Geneva and Brussels; however, the presence of such a team was particularly necessary in the critical period which was hopefully ahead, when the negotiating situation would require decision-making on a day-to-day basis; and 3) We would also hope that the 111 Committee, under a new negotiating mandate would have flexible authority for taking day-to-day decisions. The U.S. had a large negotiating team in Geneva which could make certain decisions very quickly. Ambassador Blumenthal had wide authority in this respect.

Rey indicated that he would report to the Council the dangers of a further delay in the Kennedy Round, noting that the Commission fully shared this view, and in fact was basing all its efforts to keep within the time limits of the TEA. Unfortunately, Rey observed, it does not depend on the Commission alone. The Commission’s present difficulty was in getting decisions from the Council of Ministers. Rey hoped the crisis would be solved in the spring, but observed that, of course, the Commission just did not know when the Six would resume functioning. The Commission would, in its report, inform the Council of the U.S. delegation’s emphasis on the dangers involved in getting new legislation. He remarked that the TEA had been a remarkable achievement over protectionist opposition that no one could be sure of repeating.

Turning to the problem of permanent Community representation in Geneva, Rey said that the Commission was very near a solution, hopefully within the next few weeks. He added that there need not be any fear that the EEC would not be fully represented when it was able to resume in Geneva.

He noted that the 111 Committee was a matter for the Council. Council decisions concerning the mandate were closely linked with the solution of the crisis. But the question of finding means to accelerate the decision-making process was one the Council would have to resolve when it meets. Rey added that he believed the Council should meet as often as necessary, not just once a month, to cope with Kennedy Round issues, once the need arose. The Council will have to devise procedures to accomplish this.

Agriculture

Ambassador Roth commented that in Washington the decision to table agricultural offers on September 16 had posed many problems and has been very difficult. The two major reasons why the U.S. finally tabled were: 1) the necessity of maintaining the momentum of the negotiations; and, 2) because of a desire to emphasize U.S. concern that agriculture be as much a part of the Kennedy Round as industry. The U.S. felt that there had to be coordinated industrial and agricultural movement. Unfortunately, the Ambassador said, the agricultural negotiations were now out of step with those in industry, a fact which has caused considerable concern in American agricultural circles and in Washington. Most concern was over the question of timing: when would the EEC be ready to put its offers on the table? Would it be able to keep the early spring dates Wyndham White suggested? Ambassador Roth asked if the Community could make offers in steps, beginning perhaps with the CAP products where regulations were complete.

Ambassador Blumenthal observed that the U.S. had tabled its agricultural offers in September, 1965, leaving aside for the moment products of interest to the EEC, including dairy and meat. The U.S. considered these concrete and specific offers very good indeed and hoped that others would match them. The quality of the offers made by other countries in Geneva was mixed; some concrete and specific, others of a more general nature, but all offers had been affected by the uncertainty as to what the EEC would do. This was particularly true for countries which had important markets in the Community. Countries whose main export interests were meat and dairy products were, of course, particularly disappointed.

Thus, Ambassador Blumenthal continued, the big question remained: when would the EEC be ready to make its offers? At that time, the U.S. and others could complete their offers. The Ambassador asked for the Commissioners’ views regarding the timing of Community offers. The U.S. fully concurred with Wyndham White that April was the latest period for resumption of the negotiations. The U.S. realized, of course, the internal difficulties of the EEC. But the U.S. was sure the Commission realized that the EEC could not wait for the completion of all CAP regulations before making offers.

Ambassador Blumenthal concluded by saying that this was, of course, not the time to discuss such issues as the MDS or a grain agreement. But he did feel it was necessary to point out that the U.S. could not afford the luxury of waiting for new offers of a general nature which then would involve more delay in being made more specific. The U.S. would look at offers in terms of increased trading opportunities they provided. Moreover, a MDS binding in place of a current fixed tariff binding would be unacceptable.

Commissioner Mansholt agreed with the need for keeping the agricultural and industrial negotiations in parallel. The Community also wished to do so. Unfortunately, however, the fact had to be faced that agriculture was not only lagging behind, but that the agricultural negotiations had come to a complete standstill. The Commission recognized that because of agriculture the Kennedy Round is endangered, and recognizes equally that this situation depends on the Community and its ability to get agriculture moving.

As to the timetable, Mansholt continued, it was very difficult to predict anything in such a clouded situation. The following week, at Luxembourg, would indicate the future. Hopefully the political crisis would be resolved in February or March.

After the political solution, he felt that the first thing which would have to be dealt with was agricultural policy—which meant a package of agricultural decisions. Mansholt thought the package would cover: a) the financing of the Common Agricultural Policy; b) price decisions on dairy products, meat, fats and oils, and rice; and c) certain other regulations. It would not be too difficult to obtain agreement on the financial regulation, he thought. The toughest problem was, however, agricultural prices. The Commission hoped to submit to the Council price proposals by mid-February, whether or not the crisis was solved. The Council might begin to deal with these problems in March or April, if it were assumed, optimistically, that the political crisis were resolved the end of February or early March. At any rate, the Council would have to take decisions of fundamental importance on the elements of the package. Only after these decisions had been taken would it be possible to obtain a concrete mandate for the Kennedy Round. Wyndham White’s deadline of April 30, Mansholt observed, seemed too optimistic. It would be better not to expect a concrete mandate by April 30 for all agricultural products. After the solution of the crisis, the only real deadline which could not be changed was the expiration of the TEA. The Commission and the Council had to do their utmost to meet this deadline. For this purpose the Council would have to reorganize its working methods, including the scheduling of special Council meetings only for the purpose of preparing a negotiating mandate. Should the Kennedy Round be in full swing in the latter part of spring or in early summer, the Council would have to devote a great deal of attention to it, using more flexible working methods than in the past and also giving more flexibility to the Commission.

It would be very hard to get a mandate for staged agricultural offers, Mansholt continued. The Council could not agree on a negotiating mandate for only certain products if there were still no Common Agricultural Policy regulations for other products. This would create an imbalance in the gains and losses to be expected by the Member States, and no Member State was willing to give away its bargaining power. Thus, in his personal opinion, all offers had to come at the same time. However, this did not mean that all CAP regulations had to be decided, but it did mean that at least the regulations for fruits and vegetables, fats and oils and sugar had to be completed before offers could be made. Price decisions would be the greatest concern. However, a Common Agricultural Policy regulation for tobacco was not necessary to make offers on this product.

Mansholt summed up by repeating that everything depended on the Council. In settling the political issues of the present crisis, it would be difficult for at least two or three Member States not to accept a solution without the Kennedy Round being of part of it.³ After the solution of the crisis, the Community would have to move very fast on the Common Agricultural Policy and on the questions of the Kennedy Round. The deadline of April 30 was, however, premature.

Rey agreed with Mansholt that the Council would have to make decisions on tabling offers. He also conceived that the Kennedy Round brought both incentive and a pressure of time. The Ministers would have to make decisions. The Commission would have to tell them that time was pressing and decisions were necessary.

Ambassador Roth concurred in the hope that a specific Kennedy Round commitment would be part of such a deal.

Mansholt said he did not want to mention a date, but that the problem was time. Before the summer holidays there had to be a period of substantive negotiations. After the experience with September 16, however, he preferred to be cautious about mentioning a date. Mansholt hoped that the Community would be in a position to table by May or June.

Ambassador Blumenthal replied that the U.S. knew the political crisis had to be settled, but he wondered how all the agricultural regulations could be completed and offers made in time to permit negotiations before the summer vacation. Such pre-August negotiations were, of course, necessary to complete the Kennedy Round negotiations in time.

Turning to grains, the Ambassador indicated that all negotiating partners would have to re-examine their situation and positions. The EEC would have to make certain additional decisions on grains. Would it be able to make these decisions as something apart from the other decisions on offers?

Ambassador Blumenthal asked if, after the political crisis were settled, there were no chance that the Member States would face up to the necessity of getting started in cereals, non-CAP and completed CAP items and then, say, by June, get other offers on the table.

Mansholt replied that as for grains, he did not exclude the possibility of additional decisions being taken independently of the package, especially as grains had been treated in a different way. New Council decisions were needed so that the Community could continue, and the Commission would try to get these decisions.

As for the interdependence of the various decisions, it seemed very difficult, almost impossible, to Mansholt, to proceed when prices had not been decided. He had a feeling that price decisions would perhaps enable the Council to issue a Kennedy Round mandate—even if fats and oils regulations had not been completed. The difficulty was that in the past the Member States had refused to take price decisions without having regulations. An offer for sugar could not be made until the policy was decided. Mansholt observed he would not know what to propose to the Council as an offer if the policy had not been decided.

Mansholt’s feeling was that as soon as the crisis was solved, agricultural decisions would be taken quickly. The Kennedy Round added pressure. The French had a political election not far off, which implied France would have some interest in getting the decisions.

Mansholt said he did not think August would be a holiday this year. If the EEC could make agricultural offers by the end of June, Mansholt thought there would still be time to conclude the Kennedy Round negotiations by the end of the year.

Ambassador Roth emphasized that it was most important to have offers on the table well before August in order to be able to discuss them in sufficient time.

Mansholt added that he did not think, insofar as the timetable was concerned, partial offers would do, but instead might produce a mess in the Council. The mandate was a process of give and take. Partial offers would take much more time.

Rey said he shared Mansholt’s view that decisions would come quickly after the crisis was settled. He also wanted to clarify the point that Mansholt did not exclude the possibility, especially in grains, of partial decisions.

Industry

After Rey’s brief opening remarks, Ambassador Roth began the afternoon discussions by drawing the Commission’s attention to two recent Presidential decisions concerning the liberalization of earlier U.S. escape clause actions (stainless steel table flatware and clinical thermometers).⁴ Ambassador Blumenthal followed with a review of the state of the industrial negotiations.

Completion of Offers

Ambassador Blumenthal agreed with Wyndham White that full offers had to be the starting point for the negotiations and with his appeal for complete initial offers as soon as possible. The U.S. had on November 16, 1964 made a complete and precise statement of its industrial offers and exceptions.

The Community’s industrial offer was still not complete; still lacking were offers on partial exceptions in the sectors:

a) certain chemicals (BTN Chapters 29 and 39)

b) pulp and paper

c) iron and steel

d) aluminum

e) ceramics

The U.S. agreed with the Director General’s judgment that completion of offers for those sectors was needed by March or early April so that negotiations could begin.

Bilaterals

Ambassador Blumenthal noted that Wyndham White urged early completion of the bilateral examination of the initial offers. The U.S. considered that technical work of this nature was essentially finished and that the substantive phase of the negotiations could not get underway until offers were completed and sector discussions begun.

Improvement of Offers

There had apparently been some misunderstanding of the U.S. position regarding improvement of offers. The U.S. did not insist that any participant take unilateral action to reduce its exceptions list. The U.S. would, however, be prepared to explore without commitment possibilities for improvements in offers if the EEC could participate in such exploration. It was important for negotiations to be able to indicate when improvements might be possible. Only in that way could the outlines of a final package begin to appear. Further bilateral exploration, however, was of limited value until present gaps in offers were filled in.

Disparities

Ambassador Blumenthal cautioned about the need to avoid misunderstandings on this issue. Since no rules had ever been agreed upon, the U.S. considered that each participant was free to deal with these cases as seemed appropriate. The U.S. was prepared to consider any such cases claimed by the Community on a case-by-case basis, as less-than-50 percent offers. We were quite happy to allow the EEC to choose the time when it would indicate its disparity claims, since we felt many potential disparities might be taken care of in the EEC’s bilaterals with other countries and in the sector work.

Ambassador Blumenthal agreed with the Director General of GATT that the disparities issue would inevitably arise in various sector negotiations, and in each such case we would have to know what the disparity claims were. The U.S. hoped that few disparities would be invoked; we did not intend invoking any.

Sectors

The key to the industrial negotiations may lie in the sectors. Active negotiation in the five sector groups was, in the U.S. view, one of the major areas in which the Kennedy Round negotiations had to make progress. Even the completion of initial offers and further bilateral discussions were apt to be unproductive unless we could make real progress in the special sectors.

[Here follows discussion of chemicals, tariff disparities and concordances, iron and steel, cotton textiles, non-tariff barriers, and LDC and tropical products.]

1. Source: Department of State, Central Files, FT 7 GATT. Limited Official Use. Drafted by Stanley D. Schiff (USEC) and David E. Biltchik (EC) on January 28. Transmitted as an enclosure to airgram Ecbus A–350 from the Mission to the European Communities, February 1. The airgram was received February 10 and repeated to 17 diplomatic missions. The meeting was held at the EEC Commission.
2. Attachment to Document 302.
3. Clearly implied was a settlement of the purely political issues in Luxembourg and subsequent extraordinary sessions, followed by a package deal of which the Kennedy Round would be a part, in a later meeting of the Six in Brussels. [Footnote in the source text.]
4. Not further identified.