181. Report of the Task Force on Foreign Trade Policy1
A new administration wants to put its own stamp on things even if it wishes to continue the main lines of a previous administration’s policy. Sometimes this fresh start makes it possible to pursue the goal more effectively because one can get rid of the mortgages and barnacles that any administration or policy accumulates. A “fresh approach” sounds better than “no change in policy.” Unfortunately, a “fresh” approach in trade policy is likely to suggest to the rest of the world an abandonment of, or at least substantial departure from, the policy of trade liberalization. In spite of the fact that the United States has led the world in the reduction of trade barriers for a third of a century, there is still a tendency to regard us as a protectionist country. The post-Kennedy Round wave of proposals for quotas, plus our performance in certain fields, lends support to the stereotype. It is, therefore, very important to make clear that the main lines of policy have not changed. This is doubly important if there is to be some initial emphasis on exceptions to liberalization as in textiles and steel. The new administration will have to give close attention to how it conveys the essence of its policy and the combination of continuity and change. This is true not only of the initial statements by the President but of the way specific measures are explained and of the maintenance of a uniform tone in pronouncements by all members of the new administration.
The new administration will, of course, want to re-examine all, or many, aspects of foreign economic policy. It would be a mistake, though, to do this in a way that seriously delays the statement of policy, formulation of new approaches, or taking of action on matters that require it. Not the least of the disadvantages in mounting a large-scale formal re-examination is that the results will seem disappointing if they do not amount to [Page 464] a “grand design” of foreign economic policy (and therefore of the world economy), and it seems unlikely that a great new pattern is going to be found in the next year or so. Moreover, it is not a good idea for the United States to get up steam for a complex series of proposals and make the necessary domestic compromises to support them without having explored the field with other countries. We have done that often in the past, but that time is over. What is really called for is a continuing re-examination of foreign economic policy inside the government.
We have to recognize that this is a difficult period for further reducing impediments to trade and capital movement. This is partly because we lack a great new goal at the same time that domestic pressures for protection are strong. The balance of payments makes it difficult to be as liberal as would be desirable in the treatment of imports. Inflation here and in other countries builds up resistance to the removal of trade barriers. Domestic preoccupations all over the world lead to a lack of interest in foreign economic policy. At the same time, the problems with which trade policy has to deal are becoming more complex and difficult. As this report points out below, new issues confront us that cannot be dealt with by familiar techniques and trade policy has to be more closely linked than before with financial, monetary, and investment policy.
The combination of these factors results in not just a lack of drive to do great deeds but also the danger that short-run steps will be done in ways that create long-run damage. We have never known a world in which the United States was not taking a fairly strong lead in trade policy, and it may turn out to be a rather dangerous kind of world in which it is even difficult to retain the gains already made. It is not a bad thing to ask for European initiative in these matters, but that is no substitute for developing policies of our own.
Main Lines of Approach
In spite of these difficulties, there are opportunities to assert American leadership, take concrete initiatives, and pursue an active and constructive trade policy. But it will not be easy.
The five numbered points that follow give the main lines of a trade policy through which the new administration can actively pursue the aim of further removing barriers to international trade. A comment on some of their implications follows and then recommendations on specific issues.
- The need for an attack on nontariff barriers is widely accepted and gives a good base for both a general initiative and specific proposals. To embark on this road, one must understand that results are not likely to be rapid, many of them will be piecemeal, sooner or later awkward questions about “domestic” policy and behavior will arise, and we cannot get without giving.
- The tariffs that remain in this and other countries are not negligible and for some products constitute the chief barriers to trade. The application by stages of the reductions agreed on in the Kennedy Round gives time to consider how best to deal with tariffs in the future. Careful thought should be given to new approaches including further broad reductions by stages, the harmonization of tariff levels among countries, and concentration on specific industries. In many cases tariff reductions will have to be linked with the removal of nontariff barriers.
- In spite of the importance of the tariffs and other trade barriers that remain, a good case can be made for the view that the problems of trade among industrial countries are no longer those that we were used to in the past. National economies are more open to one another and more intermingled so that new kinds of trade policy problems arise and issues not normally thought of as falling into trade policy have to be considered part of it. National economies are involved in complex processes of adjustment to the new situation. Each must consider its own balance of payments, but they have to work together to find a satisfactory pattern of international adjustment, a process that involves trade as well as monetary and financial matters. Industries, too are involved in domestic adjustment and also a kind of international readjustment of their own. Specialization increasingly takes place within industries. The relation of investment to trade, the development of the multinational corporation, the impact of tax systems, and in general the problems of the coordination (or lack of it) between national economic policies are all further examples of issues that have to be looked at together under this approach.
- Trade policy toward the less developed countries is more talked about than acted on. If we are not seriously prepared to do something, we had better mind what we say. If we are prepared to do something, one line of approach would be to circumvent the crabbed discussion of preferences and look instead at products for which we and other developed countries could encourage larger imports from the LDCs by simply giving them freer access to our markets. This will sometimes require domestic adjustment which will not be easy to accept, though experience has shown that the United States can absorb increasing amounts of manufactured goods from LDCs without major domestic disturbance, for example, components for finished products made in this country. Special attention should be given to the removal of import barriers that hamper efforts by the LDCs to process their own raw materials and agricultural products. Although there are advantages in common action by the developed countries to help the less developed ones, a good bit of past stagnation has been related to the belief that developed countries all have to act together. Therefore, it would be desirable to devise ways of putting the United States in the position to remove barriers to imports from LDCs [Page 466] independently of what Europe or Japan does. Fuller consideration of trade policy toward the LDCs should be combined with an examination of policies affecting aid and private investment which are outside this task force’s terms of reference.
- American trade policy should recognize the value of keeping GATT strong and effective. While changing conditions make revision of some GATT provisions desirable, support for its basic principles and procedures is advantageous to the United States and important to the building of open and orderly international trade relations.
By adopting the approach summarized above, the new administration can pursue an active policy concerning foreign trade barriers that stand in the way of American exports and foreign export practices that put imported goods in the American market on unfair terms. There is no need to have an international agreement on nontariff barriers to object to foreign barriers or other practices that impede American sales. One can even move without being sure that the practices involved are true trade barriers, for example, border taxes. On the import side the threat of countervailing duties can be used to raise questions about foreign export subsidies and tax practices that are in some respects the equivalent of subsidies. The new international antidumping code gives the opportunity to ventilate pricing practices that bring goods into this market at artificially low prices. All these things are examples of the problems of open societies living more closely together with lower trade barriers. While one must be careful about the use of the words “fair competition,” the fact is we have to be more concerned than in the past with the conditions of competition. Activity of this sort would constitute government support for legitimate complaints and aspirations of American business and would have as a motif giving true competitiveness a chance to make itself felt.
It is hard to say how effective an approach of this sort would be in removing foreign trade barriers. It could curb imports and on that score one would have to be careful not to act in ways that would lead to foreign retaliation. Raising questions about foreign trade practices, pricing, taxes, export credit policies, etc., is bound to lead to extensive international discussions and negotiations. We should welcome this and press for such discussions and the understandings they can lead to on even rough rules of equity. It will often be a matter of nice judgment whether to postpone national protective action to see what the results of the international discussions are or to take the action in the expectation that it will improve the results of the discussion. We will have to be prepared to make changes in our own practices and remove some of our own nontariff barriers if useful agreements are to be reached. There is occasion here for American leadership of a very responsible sort.
In short, even without a grand design for a new trade policy, we can have a very active period during which some things might well be [Page 467] accomplished and certainly the groundwork would be laid for future international cooperation on a range of difficult and complicated problems. Among the advantages of this approach are: (a) It deals with real problems. (b) It gives time to think about how to deal with complicated issues. (c) The process of negotiating will itself be educational since the fact of the matter is that we are short of good workable ideas about how to deal with any number of nontariff barriers or practices that in one way or another distort trade. (d) It provides a basis for holding off domestic pressures for protection since the administration would manifestly be pursuing lines of action advantageous to American business which would be jeopardized by unilateral restraints. (e) The demonstrations of other peoples’ iniquities may provide a temporary cover for some less than admirable measures of our own which may be forced on the administration by Congressional or business pressures. This last remark is, of course, also a warning of the danger that the kind of course we are suggesting can be abused.
The task force also considered one proposal for a “grand design” in trade policy that has been widely discussed, that for a North Atlantic Free Trade Association (NAFTA) or some variant of it. We recommend against making NAFTA an objective of American policy, at least at present. Affecting as it does American relations with Europe, Canada, and Japan, as well as Britain’s relation to the Continent, NAFTA has to be judged basically in terms of foreign policy as a whole, not trade policy. On trade policy grounds alone it falls short of being the most desirable objective and entails a large number of difficulties—not least in relation to the less developed countries—which may be better dealt with by other means or which would not even arise if alternative courses of action are followed.
We are concerned here with a number of concrete issues that will arise—or ought to be acted on—in the first six or eight months of the new administration.
- The President should soon make a strong statement of his determination to pursue a policy of removing barriers to international trade. This is a prerequisite for the other things we are recommending. It might well be accompanied by a general statement of some of the points made above about the growing scope and complexity of trade policy, the problems of managing adjustment, and the need to relate trade policy to other parts of foreign economic policy. In particular, there could be a recognition of the links between trade and investment and the desirability of freeing the international movement of capital as well as of goods; what can be said specifically on the latter point depends, of course, on what decisions are made about the future of existing American controls on investment as part of balance of payments policy.
- The administration should vigorously oppose the quota bills and similar proposals for trade restriction that will be put forward in the new Congress. Their enactment would result in prompt retaliation by our major trading partners to the detriment of our own exports and could lead to a spiraling of trade restrictions with serious consequences for world economic stability.
- The administration should press strongly for Congressional action to eliminate the American Selling Price method of customs valuations (ASP). Already agreed-on European reductions of barriers to American exports would follow. More important, elimination of ASP is an essential precondition to any meaningful negotiation for the further removal of nontariff barriers. ASP has become a symbol in European eyes of American protectionism going far beyond the real importance of the practice in trade terms. To the extent that any serious problems result for sections of the American economy, they should be dealt with by measures aimed at specific situations and not by trade restrictions.
- The President should have housekeeping authority to adjust tariffs; this could be obtained by extending the unused authority of the Trade Expansion Act for two years on the understanding that it would not be used for major new tariff reduction. Without such power it will be difficult to make adjustments except by increasing barriers. For example, if the United States had to raise a duty as a result of escape clause action and was not able to compensate foreign countries with some other kind of concession, the result would be an increase in foreign barriers to American exports. Without this authority it might also prove impossible to make bargains on some nontariff matters.
- To assist firms and workers in adjusting to changing competitive conditions, the Adjustment Assistance Act should be broadened so that its provisions are more readily applicable in cases of real injury. Failure to do this may increase the number of appeals for the use of the escape clause and reduce the administration’s ability to prepare constructive alternatives. Although existing adjustment assistance legislation has proved unusable it rests on a sound principle. We should not go back to the earlier idea that tariffs should not be reduced if that might threaten to injure domestic producers; instead administrative changes in the adjustment law should be made that will give meaning to the principle that the burden of adjustment to new circumstances should be shared by the economy as a whole. The principle is particularly important since a liberalization of the terms of adjustment assistance is almost certain to be accompanied by a loosening of the definition of “injury” in the escape clause which might lead to its being revived as a serious impediment to imports and a source of uncertainty among foreigners about American intentions in trade policy. If any use is made of the escape clause [Page 469] it should be for a limited period during which adjustment takes place.
- While any important steps in East-West trade depend on foreign policy decisions, it would be desirable to have legislation giving the President more flexibility than he now has. Such a step would also help to resist Congressional efforts to manipulate trade with the Communist countries for political purposes in ways that would damage our long-run interests and policies.
- The United States should continue to discuss with European countries their border taxes and to take part in the re-examination of GATT rules about these matters. Decisions about a value-added tax in the United States should be made in terms of domestic economic requirements, not those of trade policy. The majority of the task force is not favorably disposed to the use of border taxes or comparable import surcharges for balance of payments purposes when compensation for domestic taxes is not involved, but some members felt that the subject merits more detailed exploration.
- There should be a vigorous attack on freight rate disparities which in effect serve as additional tariff barriers to the export of American goods.
The task force discussed the future of the Office of the Special Representative for Trade Negotiations but makes no recommendation about it on the ground that a decision should be based on a more general consideration of governmental arrangements for the handling of foreign economic policy.
Some members of the task force favor strong steps for improving American export credit arrangements, but the group as a whole makes no recommendation on this matter because time did not permit a thorough discussion and some members have reservations on a number of points. There is no doubt that the subject should be thoroughly examined.
Although the task force spent some time discussing oil, steel, textiles, and agriculture, it has decided to refrain from including in this report any recommendations on specific industries. It did not have adequate data before it to make a full appraisal of complex situations. It believes, however, that whenever possible adjustments should be made without the restriction of imports. If it is judged necessary to restrict imports in some fashion—either for political reasons or because there is real economic difficulty in an industry—the restriction should be temporary and should be accompanied by measures of adjustment in the industry that will make protection unnecessary in the future. Serious [Page 470] dangers to the long-run trade policy objectives of the United States are inherent in resort to such measures; within limits they can be reduced by international agreement, which is generally preferable to unilateral action. The prospect that some restrictions will be sought adds to the importance of an early strong and clear statement of the administration’s trade policy aims. If, however, the only concrete action that accompanies the statement is restrictive, it will be difficult to get widespread acceptance of the administration’s good faith. Consequently, action on a series of issues, all moving in a trade-liberalizing direction, may prove to be of decisive importance.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General Volume I. No classification marking. Attached to a February 7 memorandum from Arthur F. Burns to Kissinger informing him that the report of the Task Force, chaired by Alan Greenspan, should be treated on a confidential basis. The Task Force has not been further identified, but it was presumably part of the Nixon transition team; see footnote 2, Document 185.↩