207. Memorandum From the Acting Executive Secretary of the Department of State (Walsh) to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Request for Recommendations on Emergency Committee for American Trade Memorandum of May 19, 1969—Amendment of Section 252 of Trade Expansion Act

The following are the Department’s comments on the ECAT proposal that the President seek authority to impose discriminatory restrictions against imports from a country which restricts foreign direct investment:2

1.
While we agree that restrictions on foreign investment affect the flow of trade and that we should seek to reduce barriers confronting both trade and investment, we believe that the relationship between investment abroad and U.S. imports and exports varies greatly from country to country and industry to industry. We think the entire investment-trade relationship is an important matter for careful study by the “blue ribbon” commission being established to make recommendations on our long-range policy and trade legislation.
2.
We do not believe enough is yet known to justify proposing at this time such a highly controversial and important amendment of the Trade Expansion Act. Labor and agriculture are particularly sensitive to U.S. investment abroad which sometimes directly results in increased imports into this country. For example, Mexico has given incentives for establishing assembly plants along the border to take advantage of a special provision of our tariff. The AFL/CIO has attacked such industrialization as constituting an export of American jobs.3 Similarly, melons, tomatoes and strawberries grown on U.S.-[Page 537]financed farms in Mexico have been protested by agricultural interests in California, Florida, and Oregon. The Automotive Products Agreement with Canada contains measures which encouraged expansion of Canadian operations. Our automotive exports to Canada have increased since 1965 but imports are up even more sharply resulting in a diminution of our net favorable auto trade surplus with Canada. Europe has been generally open to American investment for many years. In the case of the automotive industry, an example cited in the ECAT memorandum, imports from Europe of automotive products in 1968 totaled over $1.3 billion compared with U.S. exports of only $160 million. A fair amount of our current textile import problem stems from investments abroad by U.S. interests. These examples suggest, we believe, that a proposal to use trade retaliation as a club to secure liberalization of investment restrictions by others would be a source of intense conflict in the Congress.
3.
Furthermore, other countries’ attitude toward U.S. investment is ambivalent. While the need for and usefulness of U.S. investment is widely recognized, there is also resentment of the economic control that supposedly results from heavy U.S. investment in a country. Fear of the “American challenge” would increase if the U.S. Government were to sponsor and protect U.S. foreign investment in the way proposed by the ECAT memorandum.
4.
There would also be serious problems with such a provision in terms of international agreements. The GATT deals almost exclusively with the treatment to be accorded to goods rather than persons. When tariff concessions are negotiated under its provisions there is no guarantee, implicit or otherwise, that nationals or companies of the country concerned will be permitted to establish themselves inside a foreign market. We consider it extremely doubtful that the GATT Contracting Parties would agree with ECAT’s rationale on GATT Article XXIII and that it would be virtually impossible to win a case on that basis.
5.
The proposal if adopted could also probably have the effect of inhibiting further U.S. trade negotiations. Before negotiating with us on trade matters foreign countries might want some kind of guarantee that the proposed amendment would not be invoked against them to force changes in their domestic laws regarding investment and the right generally of aliens to do business in their country. Alternatively, they could quite properly take the position that they are willing to negotiate only on trade matters.
6.
We agree with the ECAT proposal to delete the limiting references to agriculture from Section 252(a) thereby permitting use of its provisions in the case of unjustified foreign restrictions against either [Page 538]U.S. agricultural or industrial products. However, this amendment is already included in the draft trade bill now under interagency consideration.

Dirk Gleysteen 4
  1. Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 49. No classification marking. Drafted by Ewing (E/OT/TA) on July 7 and cleared by Hollis (L/E), Trezise (E), and Howard L. Worthington (E/OT).
  2. See footnote 5, Document 205.
  3. On July 28 Bergsten sent a memorandum to Kissinger recommending he forward to the President a recommendation from the Acting Secretary of State for a Tariff Commission study of the tariff law that allegedly encouraged companies to move assembly operations to Mexico. Bergsten noted that Stans, Shultz, Kennedy, and Gilbert had agreed to the request. On Bergsten’s memorandum is a notation that the President had asked the Tariff Commission for such a study. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 401, Trade General, Volume I)
  4. Dirk Gleysteen signed for Walsh above Walsh’s typed signature.