194. Information Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • CEA Views on Trade Policy

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.

[Page 508]

Attachment

Memorandum From the Chairman of the Council of Economic Advisers (McCracken) to President Nixon 3

SUBJECT

  • Trade Policy (NSSM 16)

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.

Paul W. McCracken 4
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 215, CEA. No classification marking. The date is handwritten.
  2. The President underscored “favor seeking repeal of ASP” and wrote “1” in the left margin. He also underscored “the less developed countries” and wrote “2” in the left margin. He drew a line to the bottom of the page and wrote: “I agree on 1—except I want more urgency on 2. N.R. will certainly press on it on his return from S.A.” Reference is to Nelson Rockefeller’s forthcoming mission to Latin America; see Document 122.
  3. No classification marking.
  4. Houthakker signed for McCracken.