190. Briefing Memorandum From the Assistant Secretary of State for Economic Affairs (Greenwald) to Secretary of State Rogers and the Under Secretary of State (Richardson)1

SUBJECT

  • NSSM 16, Trade Policy Issues

The documents for the National Security Council meeting April 9 on trade policy issues are a summary of major issues for decision (Tab A), and a basic paper (Tab B).2 The study covers the immediate issues more fully and discusses several other issues which are not yet ready for decision.

Recommendation

That you seek the following decisions:

1.
To move ahead with a modest trade bill this year. The legislation would include repeal of the American Selling Price (ASP) valuation system, “housekeeping” tariff cutting authority of 25%, relaxation of the escape clause and adjustment assistance criteria.
2.
To ensure that our approach on textiles at the present time (Secretary Stans’ trips) be cast in terms of exploration and consultation.
3.
To continue working toward a generalized preference scheme with submission of our illustrative lists to the OECD as soon as possible.

To have a prompt Presidential announcement of our intention to engage in early trade liberalization talks with other countries at the same time as a “blue ribbon” commission is studying ways to expand world trade.

Discussion

1. New Trade Legislation

In the review group there seemed to be agreement that modest trade legislation (including ASP) was a must for this year. In the face of our textile initiative, we need action to convince our trading partners we mean what we say about moving toward freer trade. Only a serious [Page 494]attempt to repeal ASP will convince the Europeans. Also, we need authority to cut some of our tariffs to pay for the unavoidable increases in our tariffs. For example, we already have a case where compensation may be required because of legislation which raised duties on wool textiles. If we can’t compensate, others are allowed to retaliate against our export interests.

The adjustment assistance and escape clause provisions in the Trade Expansion Act are inoperative as now written. They should be liberalized. Domestic industries must have a chance to obtain relief if they demonstrate injury.

There may be proposals to add other items to the proposed legislative package. The job of considering the details of a bill should be done by an inter-agency task force, not by the NSC.

2. Textiles and Secretary Stans’ Trips

The textile issue was included by Kissinger. He is nervous about the whole project and particularly about how Stans will handle it. He said in the review group that the President has tended to pull back each time he gets close to the textile question. Except for Commerce and Labor (who have been pushing for wider textile restraints for years), everyone is uneasy about the new Administration’s first move in the trade policy field being a restrictive one.

The purpose in having a textile discussion at the NSC is to give Stans some guidance for his European and Asian trips.3 He should be made aware of the possible costs and risks in pressing for a textile agreement on woolens and synthetics. To the greatest extent possible, Stans’ discussions should be exploratory and consultative, with no effort at this stage to sell any specific solution. Stans will probably resist this approach because he feels the President is already committed and because Stans is already on record with the objective of his trips being to convene a GATT meeting to negotiate a new multilateral agreement covering woolens and synthetics.

3. The Generalized Preference Scheme

You will find opposition to preferences on three grounds:

  • —fear of increased imports from LDCs (particularly Commerce and Agriculture),
  • —concern over Congressional and industry reaction, and
  • —dislike of departure from our traditional MFN policy.

The answer to the first argument is that any scheme will have safeguards to protect domestic industry from injury (other developed countries [Page 495]will take the same position). Secondly, Congressional and industry resistance is present in any attempt to reduce protection. On the third point, a generalized preference scheme is designed to get us back closer to a true MFN world by stopping the proliferation of special arrangements, particularly with the European Communities.

The real risks and objections are:

  • —The Congress may look upon preferences as a substitute for, instead of a supplement to, aid;
  • —The safeguards (and exceptions) may be so broad as to make the preference scheme meaningless in trade terms and leave the LDCs sourer than ever; and
  • —The preference scheme may result in additional administrative complications (e.g. certificates of origin) contrary to our drive toward removal of such encumbrances.

Against these risks, we must weigh the political costs of being the only industrial country not willing to go alone with generalized preferences. Also, the LDCs will be extremely unhappy about our textile initiative and our agreement to preferences (even if not as liberal as they might want) would help to offset the restrictive move.

The opponents may press for a decision against preferences as a matter of policy. Or they may settle for the delaying option involving an assessment of costs and Congressional sentiment before any further steps forward are taken. Our recommendation is that we continue to participate in the international discussions while we also proceed internally. This will avoid our taking the onus for holding things up internationally and still not leave us any more committed to an eventual scheme than we already are. Also, we need to get down to specifics of lists both internally and internationally in order to make any useful cost/benefit analyses or have intelligent consultations with the Congress.

4. The President’s Announcement and the Blue Ribbon Commission

In the review committee there was general agreement that the modest trade legislation package should be coupled with a bolder, more forward-looking move toward freer trade. This becomes even more important if we decide to go ahead with the negotiation of the textile agreement. There should be an announcement of our intention to engage in early talks with our trading partners coupled with the creation of a blue ribbon Presidential Commission to look into ways to expand world trade. There may be a tendency, particularly on the part of the NSC staff, to argue for fairly “neutral” terms of reference for such a commission. We would not want to give the impression that the U.S. is embarking on another broad “pro and con” study of trade policy. This would more likely alarm people than reassure them. The mandate for the commission [Page 496]should be in terms of the best way to get ahead with trade liberalization. There is a question whether this commission should include Congressional representatives. We think it should not, particularly if it is going to recommend legislation.

  1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 16. Limited Official Use. Sent through Pedersen and Samuels. Drafted by H.L. Worthington (E/OT) on April 7 and concurred in by A. Katz (EUR/RPE) and Schnee (H).
  2. See Document 189 and footnote 2 thereto.
  3. See Documents 187, 201, and 203.