Attached are recommendations from Paul McCracken on U.S. Trade Policy,
keyed to the paper prepared for yesterday’s NSC discussion of the subject. His strongest views are in
favor of seeking repeal of ASP this year
and to delay making a final decision on tariff preferences for the less
developed countries until we can take Congressional soundings and
explore the possible alternative approaches in greater detail.2
I share Dr. McCracken’s views on
both subjects. In general his views closely parallel my own, which I
conveyed to you prior to the NSC
meeting.
Attachment
Washington, April 8, 1969.
Memorandum From the Chairman of the Council of
Economic Advisers (McCracken) to President Nixon
3
SUBJECT
The basic issue before you is how strongly to push for further trade
liberalization at this time. The strong protectionist sentiment in
Congress indicates that a strong new legislative program for trade
liberalization would face extremely tough going. On the other hand,
it is extremely important to preserve the present forward momentum
in trade liberalization around the world. This suggests that the
best move may be to introduce limited trade liberalization
legislation at the pres-ent time, coupled with an announcement of
intention to engage in early discussion with our trading partners on
future trade liberalization. This might be combined with the
formation of a Presidential commission on this subject.
Two important decisions affecting the future of U.S. trade policy
which must be made soon, and which are of considerable interest
abroad, concern the American Selling Price (ASP) method of customs valuation and tariff preferences
toward less developed countries. Each has taken on symbolic value to
our trading partners which exceeds its actual economic
importance.
During the Kennedy Round
conditional agreement was reached that if the United States
eliminated the American Selling Price provision, further reduction
in the tariff on chemicals and in certain nontariff barriers would
be undertaken by our trading partners. Failure to eliminate the
ASP provision would not only
kill these already negotiated benefits, but would also seriously
dampen foreign willingness to seriously explore avenues for further
reduction in tariff and nontariff barriers.
Thus, I strongly feel that repeal of the ASP provision should be an important component of any
proposed legislative program for limited trade liberalization. This
could well be combined with relaxation of the unduly stringent
requirements for adjustment assistance which exist under our present
legislation and, if Congressional opposition does not appear too
great, with limited authority for tariff reduction
[Page 509]
to allow some maneuvering room for
minor negotiations and compensatory tariff reductions in cases where
U.S. actions impair our concessions to foreigners. It would be good
to announce a positive decision on ASP legislation in time for Secretary Stans’ trip to Europe, where it
would add considerably to the credibility of his free trade
posture.
On the second question, the less developed countries attach major
political importance to obtaining access for their exports,
particularly of semi-manufactured and manufactured products, in the
markets of the developed countries. While it is not clear that the
less developed countries would achieve as much benefit from trade
preferences as they apparently believe, most other developed
countries seem willing to grant some type of preferential treatment.
International exploration of the question has progressed to an
advanced state and has now paused, pending completion of the U.S.
policy review. While the United States does have the option of
announcing its rejection of tariff preferences as a matter of
policy, such action would bear a considerable political stigma
unless coupled with the announcement of important alternative
measures to aid the less developed countries. On the other hand,
there is almost certain to be strong domestic resistance to
preferences and it is likely that preferences would prove a source
of long-run disappointment to the less developed countries. If it
can be done without making the U.S. stand out as a foot dragger in
the eyes of other countries, we should delay the ongoing
international discussions for a short period to sound out the
feelings of key Congressmen and to explore the possibilities of
various programs of market access for LDC’s. It has long been our policy to aid the
industrialization of the less developed countries, and they will
feel cheated if we now deny them access to our markets. But we
should not grant them something that may turn out to be of no
value.
