205. Memorandum From Secretary of State Rogers to President Nixon 1

SUBJECT

  • Request for Recommendations on Carl Gilbert’s Memorandum of June 5, 1969—Minimum Trade Legislation Package

Recommendation:

That the Administration submit promptly a message requesting minimum foreign trade legislation for “housekeeping” purposes and establishing a “blue ribbon” commission to make recommendations with respect to longer-term policies and legislation.2

Discussion:

Carl Gilbert has suggested that the minimum foreign trade legislation package be modified to include (1) non-tariff barrier negotiating authority, (2) permission to cut tariffs for other than “housekeeping” purposes, and (3) authority to withhold most favored nation (MFN) treatment from countries which fail to participate fully in reciprocal negotiations.3

In my view, the best course of action is to proceed expeditiously with the package agreed in the NSC: minimum tariff authority to pay compensation for increases in our duties; relaxation of the escape [Page 530]clause and adjustment assistance provisions of the present Trade Expansion Act; authority to eliminate the American Selling Price system of valuation; and establishment of a “blue ribbon” commission to study foreign trade policy including non-tariff barriers and the relation of trade to production and investment.4 I believe that this program will demonstrate, both at home and abroad, your commitment to move toward freer trade with a modest short-term program and a longer-term, broad examination of foreign trade policy.

For the following reasons, I believe the proposals put forward by Carl Gilbert are neither necessary nor desirable:

1. Authorization for Negotiations on Non-Tariff Barriers

Everyone agrees that non-tariff barriers can be a significant impediment to trade and that they have not been adequately covered in previous negotiations. But these trade barriers are much more difficult to deal with than tariffs and we do not yet know enough about them to tell the Congress exactly what kind of negotiating authority we need. The study of non-tariff barriers is going forward within the U.S. Government as well as internationally. Stimulated by Secretary Stans’ visit to Europe, the General Agreement on Tariffs and Trade (GATT) is currently accelerating its preparation for serious international discussion of non-tariff barriers. In Washington this week, Olivier Long, GATT Director General, estimated that the proper preparation for the next round of trade negotiations, including non-tariff barriers, will not be completed until the end of 1970. In these circumstances, it seems premature to be asking the Congress for negotiating authority.

At the same time, I do not think we can or should play down the non-tariff barrier issue. I would urge the inclusion in the message transmitting the proposed “housekeeping” legislation of a major section on the work being done to clarify the non-tariff barrier question and to lay a sound foundation for future negotiations in this field. I would hope that the importance of negotiating successfully on non-tariff barriers would also be reflected in the Congressional Committee reports. But at this stage, I do not think we are in a position to present a non-tariff barrier negotiating program to the Congress and, in the present state of knowledge and understanding, [Page 531]there is a real risk that the legislation itself or the legislative history will lay down requirements for non-tariff barrier negotiations which we will find we cannot comply with when the domestic and international studies have been completed. We have run into difficulty in the past by obtaining Congressional authority before having adequate consultations with our trading partners. Moreover the President has broad constitutional authority to conduct negotiations, as distinguished from his general inability to put into effect agreements modifying United States law, and any discussions with the Congress should be careful not to imply that Congressional authorization is legally necessary for the negotiation of agreements relating to non-tariff barriers.

As far as our international posture is concerned, the best evidence of our desire to move ahead in the non-tariff barrier field will be Congressional authority to carry out the chemical agreement left over from the Kennedy Round by eliminating the American Selling Price system. The Europeans in particular look upon American Selling Price as the test of our good will with respect to non-tariff barriers.

2. Use of Proposed Tariff Cutting Authority

When presenting our request for a modest extension of authority to reduce tariffs, the Administration should, in my view, commit itself to use that authority only to pay compensation or make minor adjustments in cases involving escape clause actions or other tariff modifications. We should also make clear that the authority will not be used for any broader negotiations.

Carl Gilbert’s suggestion that we not foreclose the possibility of using the tariff reducing authority in non-tariff barrier negotiations seems to me likely to be unacceptable to the Congress. I am sure the present view on the Hill is that other people have more non-tariff barriers than we do. In these circumstances, they are certain to ask why we would have to be paying tariff concessions for the reduction or elimination of other people’s non-tariff barriers.

The reasoning behind this suggestion is probably right: that we will not be able to mount a successful negotiation limited only to non-tariff barriers. But the conclusion I draw is that the entire question of non-tariff barrier negotiating authority and the broader use of tariff cutting authority should be left over for the next major trade negotiation which will follow the “blue ribbon” commission report and international preparation, both of which should be finished in the course of 1970. This timetable would envisage our major trade legislation request being presented to the Congress in 1971.

3. Authority to Withhold Most Favored Nation Treatment 5

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This recommendation appears to be relevant only in the context of a major trade negotiation. And Carl Gilbert himself does not propose such a negotiation at this time. Since 1778 most-favored-nation treatment has been the cornerstone of our trade policy, particularly since 1923 in its unconditional form, and it is a basic principle of the GATT. Furthermore, MFN has been one of the fundamental rules of all the post-war negotiations. I do not think we should abandon this policy of non-discrimination without very careful consideration. Therefore, I believe that Carl Gilbert’s third suggestion should be put on the agenda of the “blue ribbon” commission. Another factor which should be taken into account is that the granting of this authority would place us under substantial additional pressure from the Congress to use it in a wide variety of circumstances and that the net effect might be the providing of the restrictionist forces with another weapon.

WPR
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume I. No classification marking.
  2. Neither the Approve nor Disapprove options is checked or initialed.
  3. See Document 204.
  4. After the April 9 NSC meeting when this package was agreed, Greenwald on April 18 sent a memorandum to Samuels informing him that he had discussed the Presidential Commission with Bergsten and Cooper. Greenwald set out proposed terms of reference for the Commission and made suggestions regarding its membership. (National Archives, RG 59, S/S Files: Lot 73 D 288, NSC/Misc.) No other record of the April 18 meeting was found.
  5. Attached to this memorandum are a June 11 letter to the President from Donald M. Kendall, President and CEO of Pepsico, and a May 19 memorandum to the President that Kendall had signed in his capacity as Chairman of the Emergency Committee for American Trade. The ECAT proposed that the Trade Expansion Act of 1962 be amended to extend authority to retaliate against discriminatory treatment of U.S. agricultural exports to all classes of exports, and to deny or withhold trade concessions from countries that restricted U.S. investments with the effect of impairing or nullifying trade concessions accorded to American products. On June 20 Secretary Stans sent a memorandum to the President concurring with the objectives of the ECAT proposal but advising caution on the proposal concerning investment. In a June 20 memorandum to the President, McCracken commented that the Trade Executive Committee had already agreed to recommend ECAT’s first proposal but opposed the second because “to broaden our use of retaliatory trade restrictions could prove the opening wedge for pressures to use trade restrictions as retaliation against a variety of economic and political actions by other countries. A major achievement of international cooperation in the postwar period has been to move trade matters out of politics.” (Ibid., Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume I) In a June 25 memorandum for the NSC Staff Secretary, Arthur Burns expressed his belief that Kendall’s memorandum made “good sense” but cautioned that “a major change in our philosophy of trade is involved, and we should therefore proceed very carefully.” (Ibid.)