Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

103. Memorandum From the President’s Assistant for International Economic Affairs (Flanigan) to President Nixon ¹

Washington, October 11, 1972.

SUBJECT

• United States-European Community Relations

1. On Thursday and Friday of last week the annual US-EC consultations were held in Washington between Administration representatives headed by Deputy Secretary Irwin (attached at Tab A is his report) and representatives of the Community headed by Commissioner Dahrendorf.² The American positions were based on the decision, reached at recent CIEP meeting, to keep maximum pressure on the Community in respect to U.S. economic interests, short of creating an irresolvable confrontation.³

2. The net result of the consultations confirms your conviction that the Community, and particularly its bureaucracy in Brussels, is determined to maximize its economic potential regardless of the cost to the United States and the Atlantic system. While paying lip service to the importance of Atlantic unity, specific decisions are resolved in favor of the Community and contrary to the interests of the United States. Examples of this, that were put forth at last week’s meeting, were decisions by the Commission to propose to the Community governments (a) a Mediterranean policy and (b) an industrial policy.

The Mediterranean policy is based on perceived special political and economic interests between the Community and the countries of the Mediterranean basin. The policy would be implemented by special technological and assistance programs and by trade preferences. Clearly the latter exacerbate the discrimination against current U.S. agricultural exports, and potential industrial exports to the Community. Potentially more harmful would be extension of reverse preferences given by developing Mediterranean countries to the Community, which have even less justification.

The Commission’s proposed industrial policy uses protectionist devices, such as R&D subsidies, to foster high technology industries in Europe. This is particularly designed to strengthen Europe’s commercial airplane and computer industries, both being areas of strong U.S. technological dominance and exports.

3. The current membership of the Commission is clearly dedicated to a course of action contrary to the U.S. economic interest. Happily, with the enlargement of the Community to nine, plus the elections in Germany and Holland, a new Commission will be formed shortly after the first of the year. Sicco Mansholt will be replaced as President by a Frenchman, and any replacement will be an improvement. The new Commissioners from England, Ireland (your meeting with Hillary should be helpful here)⁴ and Denmark, and from Germany should the CDU win, could create a greater awareness of the importance of the Atlantic system and of American opinion. It will be important to schedule a quiet but high level visit to Brussels to meet with all the new Commissioners, especially the new President and the Commissioners for Finance, Trade, and Foreign Affairs very shortly after they are installed.

It will be even more important that the new governments in Bonn and the Hague be visited by high level Administration representatives shortly after their elections to attempt to develop a common position on the economic relationship of the Community to the U.S. Hopefully the makeup of these new governments will be sympathetic. Should the CDU win, both Strauss and Narjes, the proposed German Finance and Economics Ministers, have a reputation for an Atlantic viewpoint. I have preliminary work on such visits underway.

4. If we are to be successful in deflecting the Community from its current course, and in creating a climate in which we can reach meaningful agreement in the broader areas of monetary and trade reforms, we must develop viable solutions to the two major US-EC problems, the Common Agricultural Policy and the Community’s growing number of Preference Agreements with non-Community countries.

Regarding preferences, every effort will be made to get agreement from the Community not to extend preferences to additional countries, though this horse is largely out of the barn.

With regard to preferences already granted to developed countries, largely European, our policy should be to (a) in the short run, get special tariff relief where an existing U.S. industry is hurt, such as our wood products industry, whose $600 million of annual exports to the Community are in danger, and (b) in the long run, reduce industrial tariffs multilaterally so that the tariff preferences are ineffective against U.S. exports.

With regard to the Community’s preferences for developing countries, these should be subsumed in a multilateral program of generalized preferences, which the U.S. already supports. Reverse preferences, however, which are of no benefit to the developing countries, should be phased out. Several Community members have evidenced sympathy for this position. For these developing countries to which the Community wants to show a special interest, it can undertake a special program of aid, investment and technological assistance. So long as this special program does not include additional trade preferences which discriminate against the United States, this country would have no reason to object—rather it would applaud.

In the area of agriculture, the U.S. could direct its rhetoric more at international agricultural trade than at the Community’s overall agricultural policy, which they consider to be an internal matter, though this is only a semantic difference. The Europeans must indicate a willingness, first, to reduce their subsidies to agricultural exports to third markets, and subsequently to reduce the protection in the future against agricultural imports into the Community. These, rather than a Common Agricultural Policy, are our rightful goals and could possibly be attainable.

5. In the broadest context, the strategy for our economic relations with Europe can only be a part of our overall relations with Europe. As agreed in the CIEP meeting, a review of these relations by NSC and CIEP is at the top of the work plan.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 219, CIEP. No classification marking. Attached to a November 3 memorandum from Flanigan to Kissinger regarding U.S.-European relations.
2. The consultations were held October 5-6. Irwin’s report is Document 102.
3. See Documents 100 and 101.
4. The President met with Irish Foreign Minister Patrick Hillary on October 6. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Dairy)