Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

224. Memorandum From the Department of State to Members of the President’s Cabinet Textile Advisory Committee ¹

Washington, June 13, 1964.

SUBJECT

• Wool Textiles

The Department of State has made an intensive investigation of the wool textile import problem. As part of this investigation, two Special Representatives of the Secretary of State, Messrs. Wilson W. Wyatt and Warren M. Christopher, made a special trip to Europe in mid-May. It is their belief that the prospects for an international wool textile agreement are remote at this time, but that an alternative proposal may offer a solution. Their report is attached at Tab A.

Based on our investigation, we have reached the following conclusions:

1. The scope of our wool textile import problem is not industry-wide but is limited to knit outerwear. Overall imports of wool textiles, measured on a square yard equivalent basis, increased only 1.5 percent in 1963 over 1962. Total imports in the first four months of 1964 declined one-third from the same period in 1963. Imports during the twelve-month period ending April 1964 were also significantly lower than during the twelve-month period ending April 1963.

Imports in 1963 from all EEC countries, from the United Kingdom, and from Hong Kong were all below 1962 levels. Imports from Japan, however, increased 12 percent. These nine countries accounted for 85 percent of our wool textile imports in 1963.

Woven fabric imports (about 30 percent of the total) and yarn imports (about 13 percent of the total) were down slightly in 1963 and in the first four months of 1964.

On the other hand, imports of tops (about 8 percent of the total) were up in 1963, but were much lower in the first third of 1964 than in the same period a year ago. Imports of apparel (about 35 percent of the total) rose in 1963, and have remained high in 1964. This rise in apparel imports, however, was caused solely by increased imports of knit outerwear from Italy. Imports of other apparel remained about the same as a year earlier. The value of knit outerwear imports in calendar year 1962 was $78 million. In 1963, their value was $99 million. Two-thirds of the knit outerwear came from Italy in 1963, whereas only half the 1962 imports were of Italian origin.

A more detailed picture of our wool textile import situation is attached at Tab B.²

2. Wyndham White’s Article XIX proposal offers the most promising approach to meet the problem of increased imports of knit outerwear. Five approaches have been suggested to meet the wool textile import problem:

(a) Negotiation of an international wool textile agreement patterned after the Long-Term Cotton Textile Arrangement. The governments of our major wool textile suppliers have stated that they would not accept an international agreement. Wyndham White has said an international agreement is “completely non-negotiable”. (See Tab A.) Although some European wool textile industries are now in favor of an agreement, no European government has adopted this position. The British Government has repeatedly stated that no matter what position its industry takes, it will not support nor participate in an international agreement. The Japanese Government is even more adamantly opposed to such an agreement.

Without United Kingdom participation there is no hope for a wool textile agreement. Even if the United Kingdom were to participate, obtaining Japanese participation would be an extremely difficult task and seriously damaging to our overall relations with Japan. (See Tab C.)³

(b) Import quotas. The Administration has refused to recommend such action for three reasons. First, imposition of quotas would either require the United States to pay substantial compensation or expose the United States to damaging retaliation. Second, it would significantly weaken our chances for a successful Kennedy Round. Third, it would establish a precedent for protection which could rapidly spread to other products. We see no reason for altering the Administration’s position in the present circumstances.

(c) Escape clause or national security action. The industry has declined to take its case before the Tariff Commission. The Office of Emergency Planning has concluded that textiles do not require national security action.

(d) Negotiation of higher tariffs or quotas in the Kennedy Round. The mere suggestion that the United States may have wool textiles on its exceptions list for the Kennedy Round has evoked strong protests in Europe, particularly in Italy. We could negotiate increased protection of wool textiles as part of the Kennedy Round only if we were willing to make the bargain by granting concessions wholly out of line with the value of the protection we would receive.

(e) New interpretation of GATT Article XIX. Wyndham White has suggested a new interpretation of the GATT Article XIX “escape clause” to permit discriminatory action when imports from one or a few countries cause “market disruption”. The proposal is aimed at meeting fears that deep tariff cuts in the Kennedy Round could lay domestic markets open to disruptive low-cost imports. Wyndham White weds the broadened Article XIX interpretation to a concurrent agreement by the major trading countries to take discriminatory action only if an international panel of experts finds actual “market disruption”. He would use the “market disruption” standards agreed to by the GATT contracting parties in 1960 and set out in the Long-Term Arrangement.

If Wyndham White’s proposal were adopted, the United States might be able to claim “market disruption” in knit outerwear. As pointed out in section (1), if we could meet the problem in this segment of our wool textile industry, the whole wool textile import situation would probably be stabilized.

3. Wyndham White’s proposal requires intensive study. Wyndham White’s proposal seems to be, therefore, the most promising approach to our wool textile import problem. Its ramifications extend, of course, far beyond this problem, and they will require careful analysis. We have already begun an intensive study of the proposal’s possibilities in connection with our preparation for the Kennedy Round negotiations. At our next Geneva meeting on the proposal, we will suggest that a GATT Working Party be established to analyze the proposal.

Although our study is by no means complete, we believe that Wyndham White’s proposal may have several positive advantages, particularly as applied to our wool textile situation. The proposal creates, however, a number of domestic legal and political questions that must be resolved in the context of our overall trade policy. These questions include the wisdom of permitting developed countries to impose discriminatory restrictions, the scope of our own domestic legal authority to enter into such an agreement, and the effect of the proposal on our relations with less developed countries.

We believe that we may be able to resolve these questions, at least for wool textiles, but a considered judgment must await the conclusion of our study. As an alternative, we may be able to suggest a variant of the Wyndham White proposal which could meet our requirements.

Recommendations

(1) In line with the findings of Messrs. Wyatt and Christopher (Tab A), we should proceed as rapidly as possible with our intensive study of Wyndham White’s proposal and variations of this proposal, with particular attention to our wool textile problem.

(2) We should impress upon the domestic industry and the interested members of Congress that this course seems to be the most fruitful approach to the situation, although we recognize that the industry considers knit outerwear imports to be only a portion of the total problem. We should also indicate that if the industry should reject this approach, it is difficult to foresee any feasible alternative in the future.

(3) If Wyndham White’s proposal should not be adopted by the GATT within a reasonable period of time, we should re-examine the situation. No matter what happens, the entire wool textile problem should be kept under close and constant surveillance by this Committee.

Tab A

REPORT OF THE SPECIAL TEXTILE MISSION

The mission left Washington on May 11 for Europe for such conferences as might be indicated in determining whether an international wool textile agreement is presently negotiable. Initial conferences were scheduled for Geneva, and, depending upon developments, it was contemplated that there might be additional conferences thereafter in one or more of the following: London, Brussels, Rome, Hong Kong, and Tokyo.

Conferences in Geneva with Ambassador Blumenthal and other members of the United States Mission and with Eric Wyndham White, the Executive Secretary of GATT, revealed that a new procedure under Article XIX of the GATT for dealing discriminatorily with problems of market disruption was in the process of being launched with the United States, the United Kingdom, the EEC, and Japan for consideration as a part of the machinery of GATT.

Since (1) the groundwork for this development had already been thoroughly laid, (2) the proposed procedure appeared to hold some promise as a method of solving the wool textile problem, (3) the proposed procedure was regarded by the Executive Secretary of GATT as of vital importance to the success of the Kennedy Round, and (4) open discussion of a possible international wool textile agreement at this time was thought by Wyndham White to be possibly fatal to the consideration of the new procedure, the mission concluded that it was unwise to proceed to other capitals to discuss the possibility of an agreement, without further decision in Washington.

The mission gave intensive study in Geneva to what might be accomplished through the context of the new GATT procedure, and how this development might be directed toward solution of the wool textile problem. It believes that the contemplated new procedure can be effective in achieving solutions in meritorious wool textile cases, such as in the knit outerwear problem. It also is convinced that cooperation with respect to consideration of the proposed new procedure will be helpful to the United States with respect to our general wool textile problem. Therefore, it is necessary that the proposed new procedure be studied intensively and expeditiously.

The mission found that Wyndham White, who had been of decisive benefit in securing the cotton textile agreement, is convinced that an international wool textile agreement is “completely non-negotiable” under present circumstances. The mission also is inclined to believe that the prospects for such an agreement at this time are remote.

1. New Procedures under Article XIX of GATT . Wyndham White has developed a proposal for new procedures under Article XIX of GATT which he is vigorously pursuing in discussions in Geneva with representatives of the EEC, Japan, the United States, and the United Kingdom. These new procedures have a practical significance at the present time because of the deep linear tariff cuts contemplated under the Kennedy Round. Contracting parties, particularly the countries of Western Europe, may be reluctant to make deep cuts unless there can be some mechanism under GATT which can be used to limit rising imports. Recognition of the problem of wool textiles also explains Wyndham White’s desire to gain acceptance for these new procedures in the near future.

The new Article XIX procedures would not require an amendment of GATT. The procedures would permit discriminatory action (quantitative restrictions as well as increases in tariffs) as opposed to past invocations of Article XIX on a nondiscriminatory basis. This article has been used from time to time in the past when an importing country felt that it needed to take emergency action because imports were creating serious injury. As a matter of policy, the contracting parties had not used Article XIX on a discriminatory basis. However, with the development of low-cost imports, which may be exacerbated by the tariff cuts contemplated under the Kennedy Round, it is necessary to develop these procedures to permit restrictions on particular imports from particular countries which may cause market disruption.

The ability to take discriminatory action under Article XIX, therefore, would be completely new. Wyndham White is convinced that this is a means of solution for reasonable and meritorious cases of market disruption from disruptive imports at excessively lower prices. He contemplates that rollbacks in trade would be possible under these procedures.

Precedents exist for this approach in the escape clause or safeguard provisions of the Treaty of Rome and the Stockholm Convention. Even though the member states of the EEC and EFTA had entered into free trade association among themselves, with the understanding the safeguard provisions could be invoked in case a particular industry was being hurt by imports from another member state, the safeguard provisions of the Rome Treaty have been little used and the similar provisions in the Stockholm Convention appear never to have been used.

Wyndham White proposes that a small panel of high-level, respected, and experienced people be constituted to pass on market disruption claims. The panel would be similarly constituted as the one which arbitrated the “chicken war”. As in the case of the poultry arbitration, it is envisaged that action could be rapid, within two weeks or so. In an emergency, restrictions could be imposed before the panel could act. The restrictions could remain if a finding to the contrary is not made by the panel within thirty days. The decision of the panel would be binding; there would be no appeal to the GATT contracting parties. Compensation would not necessarily have to be paid if action were taken under the new procedures. In any event, this question is being ignored in the consideration being given to the new procedures at this time. Wyndham White assumes that the new procedures would not result in any compensation or in grounds for retaliation being established.

Wyndham White contemplates that if a consensus in favor of the new procedures can first be obtained from the EEC, Japan, the United States, and the United Kingdom, a working party would be established to work out details. He envisages that the Big Four would adopt these procedures and the others could subscribe to them. The new procedures would be embodied in a protocol, probably as part of the Kennedy Round, but it would not be necessary to wait until the conclusion of the trade negotiations for the new procedures to become effective.

Looking at the new procedures from the standpoint of wool textiles, we feel that they would be in our interest. They would offer the possibility of new discriminatory action in meritorious cases. They would probably remove the element of retaliation from Article XIX cases such as resulted from our invocation of this article in the carpet and glass cases in 1962. They would permit quick action. They have the possibility of becoming effective in the immediate future. They would not prevent consideration of a wool textile agreement at a later date, should such a course be decided upon. In short, we feel the new procedures would launch an international procedure for dealing judiciously with market disruption on a discriminatory basis.

2. Probable Application of the New Procedures to Wool Textiles. The new procedures would permit the United States to deal with import problems faced by those sectors of the wool textile industry facing market disruption. The discriminatory application of these procedures would make possible action in the form of quantitative restrictions against imports from specific countries with regard to specific categories of wool textiles. It is not inconceivable that consultations which the United States might have with the governments involved prior to invoking Article XIX would result in these countries taking action themselves to control their exports without the need for the United States to impose quantitative restrictions on their trade.

The governments now involved in consideration of these new procedures accounted in 1963 for 85 percent of our total imports of wool textiles. Cases might be initiated upon the achievement of a consensus from among the “Big Four”. It might be possible to institute a case by late summer or early fall.

It must be emphasized that this procedure can only be effective with regard to good cases where the United States can show reasonably that there is a situation of market disruption. The objectives of the new procedures would be defeated if the United States or any other importing country were to submit “poor” cases constantly for adjudication.

It should also be emphasized that invoking the new procedures does not close the door to other actions by us if, by chance, we should not be successful as to what we consider to be meritorious wool textile cases.

3. Present Sensitivity of Discussion of Wool Textile Agreement. We consider it essential that there be no public discussion of the relation of the new procedures to the United States domestic wool textile problem. To do so might well kill any chances for the new procedures being adopted since other countries now considering these procedures might feel that we are interested in them only as a means of solving our domestic wool textile problem.

Furthermore, it was, and still is, our feeling that a discussion of a wool textile agreement with other governments while they were considering these new procedures could taint or jeopardize the chances for success of either the general problem or the textile problem. We felt that the power of decision on the basic proposal to develop new procedures for Article XIX would be pre-empted by discussion of a wool textile agreement with other countries at this time. Since it was beyond our responsibility to pass judgment on the new procedures, we did not wish to take any action to jeopardize the current consideration of them. Hence we did not proceed beyond Geneva and for the same reason we did not discuss the wool textile problem with representatives of other governments as were present in Geneva. In any event, as pointed out above, we had the judgment of Wyndham White as to the non-negotiability of a wool textile agreement at this time.

Wilson W. Wyatt ⁴
Warren M. Christopher

1. Source: Washington National Records Center, RG 40, Secretary of Commerce Files: FRC 69 A 6828, Textiles, Cabinet Committee on Textiles. Limited Official Use. According to a covering memorandum from Nehmer to Read, also dated June 13, copies of the memorandum were distributed to Secretary of Commerce Hodges, Secretary of Labor Wirtz, Under Secretary of Agriculture Murphy, Assistant Secretary of the Treasury Wallace, and the President’s Deputy Special Counsel Feldman.
2. “Analysis of Recent Trends in Wool Textile Imports,” not printed.
3. “Attitude of Foreign Governments to an International Wool Textile Agreement,” not printed.
4. Printed from a copy that bears these typed signatures.