40. Memorandum From the Deputy Assistant Secretary of State for European Affairs (Springsteen) to the Deputy Under Secretary of State for Economic Affairs (Samuels)1

SUBJECT

  • Review Group Meeting May 7 on NSSM 79 and 912

The NSSM 79 exercise has pointed up differences among Government agencies concerning the future development of the European Communities. The agencies dissenting from the Department’s view would not agree to state the differences in the framework of a single paper and submitted separate written statements.3 It is possible to summarize the issues and differences as follows:

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Appraisal—On the transitional tariff effects, the Department’s study shows practically no adverse effects to our industrial exports if the Community is enlarged to ten, and moderate (up to $300 million maximum damage) if complete free trade arrangements are extended to all the EFTA neutrals.

The Department’s study estimates damage to our agricultural trade of $100 million if CAP prices remain unchanged.

The dissenting agencies do not quarrel directly with these studies, although they play up the imprecision of any quantitative projections. Agriculture’s estimates of damage to the world grain market are more moderate than the Department’s and about the same for damage to U.S. exports. USDA does, however, express concern that U.S. soybean sales may somehow be threatened. The Department sees no reason why enlargement should in any way reinforce or renew the threat to soybeans which has been successfully warded off. Our GATT rights for soybeans in both the EC and the UK are strong and uncontested. USDA also anticipates sharp losses (unquantified and unexplained) for US exports of tobacco, lard, and canned fruits. The Department’s studies do not bear out this concern. Both the Department and USDA agree that other suppliers of beef products, dairy products and sugar would be hurt. The U.S. has quotas on these commodities, but we may be under some pressure to enlarge or alter them.

All agencies agree that the longer term dynamic effects will be more important. The Department’s study points out that the income growth will lead to increased European imports, but that the enhanced competitive position of Europe, and some of its common policies may have an adverse effect on U.S. economic interests. The Department’s conclusions are that the Common Market has been a boon to our industrial exports and investments. British accession, the Department feels, will reinforce the basically liberal outlook of the Commission, the FRG, The Netherlands and others.

The dissenting agencies are more pessimistic concerning the future. They see our competitive position eroding and they believe that enlargement and further deepening of the Community will result in a number of autarkic measures aimed at the U.S. in both trade and investment. In particular they express concern that preferential industrial and procurement policies would adversely affect nearly $4 billion of high technology items or over 35 percent of total U.S. exports to Europe.

The Department sees no basis in fact or discernible trends to warrant such a pessimistic conclusion.

Strategy and Recommendations

While no one suggests questioning the basic policy of support for the Community and its enlargement, the differences in appraisal are reflected in different overall strategies and recommendations.

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All agencies appear to agree on both continuing support for European unity and enlargement of the Community, as well as on the need to influence developments in the Community in such a way as to maximize our economic benefits and minimize our losses.

All agree that we should, in connection with the negotiations, exercise fully our GATT rights augmented by bilateral and multilateral diplomacy. All would agree that we should continue to follow internal developments in the Community and influence them in our best interest.

The dissenting agencies, however, adopt a harder and more interventionist tone. They would invoke the U.S. troop presence in Europe and other elements of leverage. They would make the participants in the enlargement negotiations see that the ability of any U.S. administration to maintain its military relationship with Europe could be jeopardized if there was serious damage to our economic interests. They would want us “promptly and firmly” to demonstrate by our statements and our actions an intent to protect our basic economic and financial interests. We would “make clear without delay” or “stress at the outset” a number of U.S. desiderata and “that we are prepared to use such leverage as is available to us as a world power.”

It is clear from the discussions in the ad hoc group and the drafting group that what these words are meant to convey is a major and clear-cut effort to put the Europeans on notice. The Department does not believe that such a diplomatic campaign is required by the facts. We believe it would be interpreted in Europe as a clear reversal of the President’s position on European unity and on nonintervention in the process of unification. It would be read as a signal that henceforth we will put our economic and commercial interests above our political objectives. The agencies, at least on the working level, wish the U.S. to give such a signal, and in the paper submitted by Treasury, Commerce and Agriculture, have come close to saying so explicitly.

In addition, the agencies would pose specific conditions to enlargement—the toughest being in agriculture where they would insist that there be a reduction in agricultural protection. USDA would have us stress that a midpoint between present EC and UK grain prices “would be acceptable.”

The Department agrees with the other agencies that we should use what leverage we can to effect a lowering of CAP grain prices. The problem is that this is likely to be the most intractable aspect of the negotiations. We believe we may be able to influence or reinforce a trend in the EC towards more sensible prices, but we are unlikely to get very much in the course of the enlargement negotiation and for the U.S. to pose hard conditions may well jeopardize the negotiations. There is [Page 100]no disagreement and no apparent problem on maintaining UK and EC zero bindings for soybeans.

The agencies would also make clear in connection with the accession negotiation our opposition to what are only distant dangers in connection with the ongoing development of the Community. Specifically, they mention nontariff barriers such as a “buy European” policy. STR wants us to make clear we would expect compensation for trade and investment barriers not the inevitable result of a customs union.

The Department feels it would be diplomatically inappropriate to intervene in the negotiations by “making clear” in connection with the enlargement negotiation a number of positions which relate to the internal work of the EC and which will not arise as part of the enlargement negotiation. To do so would only be interpreted as a major diplomatic campaign reversing U.S. policy on the Community. We have other ways of defending our interests on the Community’s internal development and have a pretty good record so far.

Furthermore, the points the agencies would have us make would be interpreted as challenging the right of the EC to develop an economic union as opposed to a mere customs union. If we want the European countries to become more united economically and politically, we cannot object to their adopting a collective procurement policy or a common investment policy. We can try to influence the content of such policies in a liberal outward looking direction. But it would be contrary to our policy of encouragement of unity if we were to seek to block the development of common policies.

The dissenting agencies would also have the U.S. actively seek to establish a continuing consultative mechanism through which we could be kept informed of the negotiations and register our concerns. The Department feels that we should be prepared to respond positively to a European initiative for a US-EC consultative mechanism, but we doubt that the French will permit the EC to set up such a mechanism at this time. Furthermore, to request such a mechanism in connection with the negotiation would be interpreted as intervention and resented by the parties. Such a request would also encourage other affected countries less interested in the success of the negotiations to seek to read themselves into negotiations. The Department believes that we can rely on normal diplomatic channels and informal high level visits, as well as existing international forums such as the OECD to keep ourselves informed and to make our views known.

Finally, the Department’s strategy, besides trying to influence the accession negotiations and the continuing internal development of the Community, also contemplates engaging the Community in multilateral negotiations. Some of the agencies during our discussions expressed doubts about the feasibility or desirability of a major new round of trade negotiations in the near term. The dissenting agencies do not view such a [Page 101]negotiation “as an acceptable substitute” to getting what we want during the negotiation.

The Department clearly does not see a trade negotiation as a substitute for appropriate action to protect our interests during the accession negotiation. But in the last analysis only by lowering the Community’s barriers through reciprocal action will we reduce the incidence of discrimination which is inherent and inevitable in a customs union. Perhaps more important, the Department’s study points out that the Community will be engaged for the better part of the decade in the complex task of digesting the new members while moving towards an economic and monetary union. A major negotiation will be useful in maintaining the outward looking orientation of the Community and to cement the Alliance in the economic field. We are aware that this decision will be made only after the President’s Commission on Trade and Investment makes its report. However, we should be gearing up now for such an effort by developing viable negotiating approaches on NTBs including preferential government procurement and agriculture.

EFTA neutrals and EC preferences

Only STR has included dissent on these issues although some of the other agencies are known to have strong views on the issues.

On the EFTA neutrals, STR wants us to make clear our policy from the outset. The Department feels that this situation is so fluid and delicate that we should adopt a low profile and a holding position until the issues between the EC and the EFTA neutrals are clarified, and we have suggested such a response to queries that holds open all our options. We do not want to adopt positions that tend to force the neutrals and the EC into agreeing on full membership of the neutrals, which might undermine the political development of the community. Furthermore, we must take into account the peculiar problems of Austria and Finland.

On EC preferential arrangements, STR has provided its recommendations. The Department’s paper merely sets out the problems in all their complexity.4 In general, we find STR’s recommendations a bit too detailed and tactical for Review Group consideration at this stage.

Although the Department has not yet developed its position on the options, STR’s recommendations as presently worded would give us too rigid a framework for diplomatic maneuver. We believe the NSC should only give general guidelines and leave it to the bureaucracy to work out the detailed positions in each case.

  1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 79. Confidential. Drafted by A. Katz (EUR/RPE) and cleared by Camps (S/PC), Gold (E), and Higginson (E/OT). Also addressed to Pedersen (C) and Cargo (S/PC).
  2. The Review Group meeting was held on May 13. NSSM 79, dated October 13, 1969, is entitled “UK Accession to the European Community.” NSSM 91, dated March 27, 1970, expanded the scope of NSSM 79 to cover preferential trading arrangements of the European Community with countries not applying for full membership. (National Archives, RG 59, S/S Files: Lot 80 D 212)
  3. On April 23 Hillenbrand, in his capacity as Chairman of the NSC Ad Hoc Group (established pursuant to NSSM 79), sent Kissinger, in his capacity as Chairman of the NSC Review Group, a memorandum entitled “Enlargement of the European Community, NSSM’s 79 and 91.” Hillenbrand noted that it had not been possible to reach agreement in the Ad Hoc Group on either substance or presentation and he attached a State Department paper, a joint Treasury-Commerce-Agriculture paper, and an STR paper. (Ibid.)
  4. Reference is to an undated memorandum on “EC Preferential Trade Arrangements” which Richardson gave Kissinger on February 26. The memorandum explained how the preferential trade agreements were contrary to GATT MFN obligations and U.S. trade interests. The memorandum is attached to the memorandum printed here.