Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

223. Memorandum From Secretary of Commerce Stans to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, January 16, 1970.

SUBJECT

• U.S. Policy Towards a Preferential Trading Arrangement Between the European Community and Spain

I am deeply concerned that the NSC, at its forthcoming meeting on NSSM 46,² may reach a decision on Spain’s proposed preferential trading arrangement with the European Community (EC) which will make it all but impossible for us to oppose successfully preferential arrangements between the EC and other countries.

In this connection, we sent Under Secretary of State Richardson a memorandum on January 6,³ urging that a decision on the Spain-EC Association Agreement be deferred until an overall assessment is made of our global policy towards preferential trading arrangements rather than solely in the context of NSSM 46. Under Secretary of State Johnson has now advised us that for pressing political reasons a decision can not be delayed and the issue will be considered by the NSC on January 16.⁴ He suggested, however, that we might wish to express our concern directly to you.

Commerce has reviewed the coverage of our trade with both Spain and the EC which would be affected by the proposed preferential agreement. We conclude that it would adversely affect a substantial part of our exports to Spain, and have some adverse impact on our trade with the EC. If this were the only damage to our trade that would result from acquiescing in the EC-Spanish arrangement, we could possibly balance it against the political gain. Unfortunately, the EC is already discussing preferential arrangements with Israel and Austria, and a number of other countries are seeking to negotiate with the EC in order to improve their terms of trade with the EC.

I am convinced that we cannot afford to have these preferential trading arrangements proliferate, and that it will not be possible to oppose proliferation successfully if we acquiesce in the EC-Spanish arrangement. It was for this reason that we proposed several weeks ago, through the interagency trade organization, that the European Community, Spain and Israel be notified that the United States strongly opposes preferential trade arrangements and, should they enter into such arrangements, the U.S. would take action to restore the balance of GATT benefits and tariff concessions with them (preferably by compensation, but by retaliation if necessary). While there was strong interagency support for some action to reverse the trend towards preferential trading arrangements, agreement has not yet been reached on the specific steps to be taken to that end. A current proposal, which we support, calls for a high-level meeting with the European Community to express our serious concern and seek a solution to the problem posed by the EC policy on preferential trading arrangements, such as the agreement with Spain, which fall well short of full scale association agreements.⁵

If the European Community concludes a preferential trade agreement with Spain, and with United States acquiescence or with only token U.S. opposition, the most-favored-nation principle of GATT—the cornerstone of our trade policy—will have suffered very significant and possibly irreparable damage. We can then look towards increasing numbers of preferential trade agreements, and the United States, in defense of its trade interests, will be forced to participate actively or seek alternatives in the trade field. One such alternative would be for the U.S. to discriminate on the import side against countries which discriminate against our exports. I would prefer that we not be faced with that alternative.

Thus I believe that our fundamental trade policy interests are at stake and urge that we oppose this arrangement. Acquiescence would tie our hands, and make far more difficult any effective resistance to the dangerous trend toward a preferential trading world. However, if the European Community elects to conclude a preferential arrangement in the face of clear United States opposition, damage to the MFN principle may be moderated and we will have done what we can to protect our legitimate trade interests.

Maurice H. Stans

1. Source: National Archives, Nixon Presidential Materials, NSC Agency Files, Box 213, Commerce, Volume I 1970. Secret. A January 16 transmittal memorandum from Bergsten to Kissinger highlighted the main points.
2. The NSC Review Group met on January 16; see Document 224.
3. Reference is to a memorandum from Acting Secretary of Commerce Siciliano on which Richardson highlighted: “Commerce believes that the U.S. decision about the specific Spanish-EC problem should be deferred until a general review of U.S. global policy toward preferential trading arrangements can be made.” (National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 46)
4. Johnson’s recommendation was not further identified.
5. In his transmittal memorandum to Kissinger, Bergsten wrote: “The Secretary also implies, however, that he could support ‘full scale association agreements’ between the EC and other countries. He could therefore presumably accept Option 5 in the NSSM 46 paper, under which we would indicate our opposition to the present proposal but our acquiescence in a more ambitious ‘free trade area’ approach which would be legal under GATT and thereby minimize the political costs with Spain of the complete (albeit justified) negativism of Option 3.” The options are set out in Document 222.