196. Information Memorandum From Richard N. Cooper of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1
- Tariff Preferences for Less Developed Countries
The tariff preferences issue will come to a head this year, and we do not want to be caught off guard. Earlier this week David Rockefeller came under heavy pressure on the question in Mexico.2 Secretary General Perez Guerrero of the United Nations Conference on Trade and Development has been circulating in Washington during the past week and saying that tariff preferences are at the top of UNCTAD priorities. [Page 513] Nelson Rockefeller will hear a lot about preferences during his trip to Latin America next month.3 At the NSC meeting on trade (April 9) the President indicated that he had an open mind on the question, and seemed sympathetic to tariff preferences as a gesture to the less developed countries—without, however, reaching a firm decision.4 We have instructed the agencies to study the question quickly and thoroughly via NSSM.
In the meantime, international discussions in the OECD have been stalled and everyone is waiting to see what the U.S. will do.5 The European Community and all other major industrialized countries have in specific proposals, and the burden for further delay falls on the United States for so far failing to put in its hypothetical list of “exceptions” not to be covered by a tariff preference scheme. Fred Bergsten and I agree that we should go ahead and submit some hypothetical exceptions list. But the further we discuss the question of tariff preferences in detail, the more difficult it will be to retreat.
I have two major objections to the granting of tariff preferences, and I thought you should be made aware of them, particularly in view of the President’s favorable disposition.
- First, the benefits accruing to the less developed countries in the best of circumstances will be both small and badly distributed among countries. Quantitative estimates are always difficult. But all of the reasonable ones show the stimulus to LDC exports at less than $1 billion. And most of this stimulus will go to Hong Kong, Mexico and a few other countries who are already in a position to market extensively.
- Second, we cannot achieve the best of circumstances at a time when the pressure is very strong to restrict textile imports, especially those from low-wage countries. I find it inconceivable that we will turn around and give preferred access of precisely those products, which are the ones where the LDCs could best utilize preferences, to the U.S. market. Other commodities in which the less developed countries have potential export capabilities are also of special sensitivity in the U.S. market, e.g., leather products, plywood, etc. Therefore, I believe that if any proposed scheme were to emerge from Congress at all in the next few years, it would be badly cut up and largely devoid of real value to the LDCs.
The State Department is inclined to respond favorably to what is admittedly a very strong desire by the less developed countries for tariff preferences. They are in the process of making it a symbol of true U.S. [Page 514] and European intentions regarding their welfare and State would like to make a sympathetic political gesture. My view, given the two points mentioned above, is that such a gesture will backfire very strongly. Because the actual efforts even of a broadly based scheme are likely to be small, it will result in disappointment and induce cause for further special treatment—especially for those many countries not benefiting from the scheme. Because a broadly based scheme is not likely to pass through Congress, we will be charged with cutting the whole idea, and the bitterness will be all the greater. In short, the political gains from granting the tariff preferences will be short lived at best.
These are negative comments and do not help, and do not offer objective ways to maintain or improve our relations with the LDCs. But there are other ways to do that than tariff preferences, not least a forward-looking foreign assistance program and assured market access for their growing volume of manufacturers even at existing tariff levels.