189. Paper Prepared in the National Security Council Staff1

NSC MEETING

9 April 1969

Trade

Summary Paper on Major Issues for Decision in Trade Policy

Several decisions in the area of trade policy must be taken in the near future. These concern new legislation for 1969, the American Selling Price (ASP) method of customs valuation, textiles, and tariff preferences toward less developed countries. In all these cases domestic and foreign audiences are looking for indications of the Administration’s tone in trade policy for both the short and longer runs, matters about which there is considerable speculation.

In addition, agricultural exports to Europe may well face serious difficulties as a result of forthcoming European decisions, and the question of border tax adjustments and non-tariff barriers continues to plague U.S. trading relations with other countries. Neither of these issues requires a Presidential decision at this time, and an interim report on our agricultural trade policy with Europe is on the agenda of the Cabinet Committee on Economic Policy for April 10. This summary therefore addresses only the four major issues for decision (page references are to pros and cons in the basic NSC paper).2

New Legislation (pp. 7-10)

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Whether to introduce trade legislation in 1969 depends in part on the substantive decisions on ASP and textiles (see below). The Administration now lacks even modest tariff-reducing authority, such as would be necessary to compensate countries for any restrictions imposed on their textile exports by U.S. legislation or for other escape clause action. A modest trade bill for 1969 might include: (1) limited tariff-reducing authority for “housekeeping” purposes, (2) relaxation of the unduly stringent requirements for escape clause action and adjustment assistance presently in force, and (3) elimination of ASP.

The risk of even a modest Administration trade bill is that it may be laden with restrictive amendments by a protectionist-minded Congress. On the other hand, failure to attempt to remove ASP will be interpreted by our trading partners as lack of serious willingness to reduce “non-tariff barriers” to trade.

Thus the realistic options this year are:

  • —introduce new trade legislation with modest objectives;
  • —introduce no new legislation.

In the longer run, of course, more efforts are possible.

ASP (pp. 8-9)

The ASP technique of valuation requires U.S. market prices to be used as the basis for calculating import tariffs, and by so doing greatly increases the protection provided by tariffs on the limited range of goods, mostly benzenoid chemicals, to which ASP applies. The Europeans regard it as the most egregious symbol of U.S. “non-tariff barrier” to trade, and as such it has taken on in foreign eyes a symbolic importance with respect to U.S. willingness to negotiate seriously on non-tariff barriers to trade. Under the last round of trade negotiations, the U.S. Administration agreed to attempt to eliminate the ASP method of valuing imports in exchange for tariff cuts and reductions in non-tariff barriers by other major nations. A bill to that end was introduced but failed to pass Congress, partly because of protectionist opposition by the chemical industry and partly because the bill was introduced late in the session.

The options are:

  • —make no effort to repeal ASP;
  • —exert Presidential leadership to repeal the ASP method of valuation.

Textiles (pp. 12-13)

Here the question is how best to restrain the growth in imports of woolen and synthetic textiles into the United States, within the framework [Page 491]of a liberal trade policy and in accordance with previous Administration statements on the subject.

The options are:

  • —secure an agreement similar to the Long-Term Cotton Textile Arrangement, providing a multilateral framework under which restraints are negotiated bilaterally with exporting countries. This is the approach Secretary Stans proposes to take in his forthcoming trip.
  • —negotiate bilateral restraints with exporting countries without a multilateral framework.
  • —take administrative action on grounds of injury to domestic industry, and negotiate compensation bilaterally with the countries injured by U.S. action. To be effective in restraining textile imports, this would require some statutory relaxation of the present criteria for escape clause action and further tariff-cutting authority.
  • —take no Administration action on this issue at the present time.

Tariff Preferences (pp. 11-12, 31-34)

The less developed countries are pressing hard for improved access to the markets of the developed countries, and in particular for preferential tariff treatment for their semi-manufactured and manufactured products. The Johnson Administration agreed to explore generalized tariff preference arrangements sympathetically, subject to their being temporary (up to ten years) and to the elimination of preferred access of certain developed countries (e.g. Britain, France) to the markets of some less developed countries, mostly former colonies. Exploration by the major developed countries in the OECD has now reached an advanced state. The Administration must decide soon whether to continue in these discussions, and with what degree of implied willingness to adopt a tariff preference system. International work has been delayed six weeks, pending completion of the U.S. policy review.

The less developed countries have elevated the preference question to a major political issue between them and the developed countries, although they have not carefully examined the merits of any particular scheme. The U.S. has encouraged poor countries to industrialize, and this process will result in increasing efforts by developing countries to export their manufactured products. Most other developed countries seem willing to grant some form of trade preferences, and if the United States withdrew from the current discussions it would bear considerable political onus, at least in the short run. On the other hand, little is now known about the magnitude or distribution of benefits to the less developed countries arising from particular preference arrangements; and because the products of greatest interest to the less developed countries are among the most sensitive in terms of foreign competition, considerable domestic political resistance to a broadly based arrangement [Page 492]can be expected. Little consultation has been done with Congress on this issue.

Thus the options are:

  • —delay the ongoing international discussions for several months to provide the Administration time to (1) assess the real costs and benefits of alternative preference arrangements, and (2) sound out key Congressmen on the feasibility of such arrangements.
  • —continue participating in the present international discussions while at the same time (1) assessing the real costs and benefits of alternative schemes, and (2) sounding out key Congressmen. This option would require the early submission of an illustrative list (or lists) of commodities on which we could not give tariff preferences, thereby implying the particular products on which we would be willing to give preferences and a reaffirmation of our commitment which might prove difficult to abandon.
  • —decide that we are willing to grant tariff preferences and announce this, subject to the removal of reverse preferences and to satisfactory Congressional consultations.
  • —announce its rejection of a tariff preference as a matter of policy, perhaps coupling with the rejection an announcement of efforts to seek other trade measures of value to the developing countries.

The Future of Trade Policy (pp. 10-11)

Foreign and U.S. observers alike are watching for signals about the nature and tone of the Administration’s trade policy. Every move will be read as a trend toward trade liberalization or protectionism. The Administration might forestall over-interpretation of its modest moves this year by announcing its intention to engage in early discussions with its major trading partners on future trade liberalization moves. Alternatively or in addition, it could form a blue-ribbon Presidential commission, with or without Congressional representation, to undertake a broad review of ways to expand world trade in the future and the types of negotiation and new trade legislation required to achieve this objective, postponing any major new initiative to a later date but simultaneously signaling its intent to move forward decisively toward freer trade.

  1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 16. Limited Official Use. Attached to an April 5 covering memorandum from Jeanne W. Davis of the NSC Secretariat to the Offices of the Vice President, Secretaries of State and Defense, and the Director of Emergency Preparedness indicating that the paper would be distributed on April 7 for discussion at the April 9 NSC meeting. Davis sent an earlier version of the summary on April 5 to the Departments of State and Defense, the Central Intelligence Agency, JCS, and the Office of Emergency Preparedness, noting that the summary reflected the discussion at the NSC Review Group meeting on April 4. (Ibid.)
  2. Reference is to an undated, 41-page paper entitled “NSSM-16 Trade Policy Issues,” which was forwarded to Kissinger under cover of an April 7 memorandum from Greenwald that informed him the paper incorporated the comments at the April 4 NSC Review Group meeting. (Ibid.) An earlier, 36-page version had been sent to Kissinger under cover of a March 28 memorandum from Greenwald in his capacity as Chairman of the NSC Ad Hoc Group on U.S. Trade Policy, pursuant to the request in NSSM 16 ( Document 182). (National Security Council, Secretariat, Box 90, 4/4/69 Review Group Meeting-NSSM 16-Trade Policy)