Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

191. Memorandum From the Director of the Office of International Economics, Department of the Treasury (Pelikan) to the Under Secretary of the Treasury for Monetary Affairs (Volcker)¹

Washington, April 8, 1969.

SUBJECT

• Briefing for NSC Meeting on NSSM-16: U.S. Trade Policy
• Date and Time: April 9, 1969; 10:30 a.m.
• Place: Cabinet Room

On February 15 [5] the President directed the preparation of a paper on U.S. trade policy for consideration by the National Security Council.² The attached response to that request deals with: overall U.S. trade policy, including the need for new legislation this year; and specific issues, such as preferences for less-developed countries, border tax adjustments, liberalization of agricultural trade, non-tariff barriers, and safeguards for domestic industry.³

The NSC meeting of April 9 will be to review the trade policy paper. The group will, however, concentrate on the attached summary of the paper which reviews issues which require urgent decisions.⁴ These are: (a) should the U.S. introduce a trade legislation package in 1969, if so, what kind and what should be included; (b) should the U.S. join in a multilateral scheme to grant trade preferences to the less-developed countries; and (c) how should we deal with the textile problem?

New Trade Legislation—Secretary Kennedy has already informed the President that he favors a limited trade legislation package for 1969 which would: grant authority to the President for modest housekeeping tariff reductions; eliminate the American selling price valuation technique for certain imports; relax the criteria for adjustments assistance and escape clause action.⁵

All agencies appear to believe that if legislation is put forward it should be of the limited nature which Secretary Kennedy has advocated. The question is therefore not what kind of legislation but whether or not the political risks of fighting for new legislation in the trade field are too great. There are two dangers: (1) that the Congress would defeat any legislation of a liberal nature and (2) that it might tack on to such legislation restrictive measures which we would find unacceptable. Inclusion of easier criteria for adjustment assistance and escape clause relief should make the Congressional route much easier.

Preferences—The key question for NSC decision is whether or not the United States should, in concert with the other developed countries, grant temporary tariff preferences to the less-developed countries. The State Department is the outspoken and major advocate of such preferences. Treasury, Commerce, Agriculture and STR have not been enthusiastic supporters of the concept of preferences. We have gone along with the State Department as constructive critics with the aim of assuring that U.S. economic interests are kept in mind.

The State Department will argue that failure to go forward with preferences would be disastrous to the foreign policy of the United States; we would be isolated and the other developed countries would go forward without us. We believe these arguments are overdrawn, although we can expect that initially the LDC’s will make very loud noises. If there is as little benefit from preferences as we suspect, the LDC’s will be upset in any event. This disillusionment may be more disastrous for U.S. foreign policy in the long run than their short-term reaction.

We suggest that you take an initial position opposing preferences but agree to delaying definitive action until the fall, to allow time for an interagency study on the impact of preferences on the U.S. and the LDC’s. There would also have to be an assessment of: Congressional reaction; and European willingness to give up existing selective preferential arrangements and reverse preferences. If there is a delay, you should oppose submission of lists since such action, even though labeled tentative or preliminary, raises the expectations of the LDC’s and makes it more difficult to decide not to grant preferences.

Textiles—The President has publicly announced his intention to seek a multilateral agreement to restrain exports of wool and man-made fibers. Secretary Kennedy has advocated that we settle this issue quickly and effectively in order to proceed with other trade negotiations. He warned however against “paying a price in trade terms for a textile agreement.”

Border Tax Adjustments—There is interagency agreement at the staff level that a change in the GATT rules concerning border tax adjustment should be pursued by the U.S. Government. There is disagreement on the nature of the change which will be necessary. The State Department is backing a soft approach which would cause the least problems for the EEC. They advocate a change in the GATT rules which would allow temporary border tax adjustments during times of balance of payments difficulties, i.e., the use of BTA’s to assist the adjustment process. They do not want to push for substantive change in the GATT rules which would eliminate the discrimination against countries which rely more heavily on direct taxes than indirect taxes. The Treasury Department has been the major force within the U.S. Government advocating substantial changes in the GATT rules on border tax adjustments.

As no decision is being requested of the President at this time, the border tax adjustment problem may not be discussed.

Non-Tariff Barriers and EEC Protectionism for Agriculture—Both these issues are treated in the basic paper but as there are no pending decisions by the President they may not be taken up during the meeting.

Attached is: a talking point paper for your use during the meeting,⁶ a copy of the trade policy study, and the summary of that study which will be discussed at the NSC meeting.

1. Source: Washington National Records Center, Department of the Treasury, Secretary’s Memos/Correspondence: FRC 56 74 A 7, Memo to the Secretary March-April 1969. Limited Official Use. Drafted by Pelikan on April 8.
2. See Document 182.
3. The paper was not attached, but see footnote 2, Document 189.
4. The summary is printed as Document 189.
5. Secretary Kennedy’s communication has not been identified.
6. Not printed.