226. Memorandum From the Under Secretary of State (Richardson) to the President’s Assistant for National Security Affairs (Kissinger)1
SUBJECT
- EC Preferential Trade Arrangements
The European Community is on the verge of concluding preferential trade arrangements with Israel and Spain. It has completed agreements with Morocco and Tunisia and it will soon be discussing an agreement with Austria. It also intends to negotiate trade deals with Lebanon, the United Arab Republic, and Malta. With the possible exception of Austria none of these agreements is in accordance with GATT rules and, in the aggregate, they would have a significant adverse impact on our trade.
We limited ourselves to opposing in principle the Community’s earlier preferential trade agreements—the Yaounde Convention, signed with 18 former French and Belgian African colonies, and the association agreements with Greece and Turkey—because of political considerations. Where we tried to oppose such arrangements more actively, as in the case of the EC-Nigerian agreement, we were unsuccessful in marshaling support (the Nigerian and East African agreements were never ratified for other reasons). The current crop of Community arrangements is more clearly in violation of the GATT than these earlier arrangements and several of them are much more important in trade terms.
It is disturbing that the Community appears to have no clear overall idea on what it wants to achieve. Each agreement is negotiated for its own political/economic reasons and represents a compromise among the member countries at the expense of the world trading rules. We expect that once the Community is enlarged to include the UK, then the African and possibly the Caribbean Commonwealth countries and dependencies will most likely come in under the enlarged Community’s association scheme. And if Israel and the UAR, why not Iraq, Iran and all of the countries of the Middle East and South Asia?
Our concern with these preferential arrangements is twofold. If, as is true in most cases, these arrangements do not qualify under Article XXIV of the GATT as legitimate customs unions or free trade areas, the [Page 583] principle of non-discrimination, which is fundamental to the GATT system, is further eroded.
Secondly, our trade interests may be adversely affected by these preferential arrangements. While there is no way to measure the trade impact accurately, it is clear that preferences cause some diversion of trade at the expense of third parties and that, as the volume and variety of goods available within the preferential trading bloc increases, the diversion also increases. In the case of the Israel-EC arrangement, for example, the preference to be given to Israeli citrus will almost certainly cause some reduction in our citrus sales to the Community. The same is true of the Spanish arrangement.
You will recall that as part of NSSM 46, we submitted to the President a number of policy options dealing with Spain’s impending agreement with the European Community. Israel-EC relations are touched on in the study on U.S. Economic Assistance Policy toward Israel (NSSM 82).2 Israel-EC relations pose for U.S. policy the same dilemmas which Spain-EC relations pose, i.e., a conflict between our political interests and our trade and commercial policy. The two agreements are also linked economically since Spain and Israel are competitors in providing citrus to the EC. For both countries citrus exports are the largest single export commodity to the EC.
Ambassador Schaetzel has suggested that both France and The Netherlands, for differing reasons, consider the Spain and Israel agreements linked.
A decision on Spain, therefore, undoubtedly has implications for Israel and vice versa. It is therefore important that our posture towards both be roughly comparable. We must also take into account the agreements with Morocco and Tunisia which are in effect and to which we have objected in the GATT. Both these countries as well as France have resented our stand. The Tunisian Foreign Minister complained to the Secretary about our position. The Community has also begun negotiations with Lebanon, and intends to begin talking to the UAR.
We are not sanguine about getting the Community at this stage in their negotiations with the various countries to disown their agreements. This could only be done by threatening massive trade retaliation which is politically undesirable and economically difficult. It seems to us the only practical course we have is quietly to explore the possibilities of making these agreements somewhat more palatable to us by suggesting a variety of alternatives as set forth below.
EC Commissioner Deniau will be here on March 2 and 3. Shortly after this visit, we propose to send Deputy Under Secretary Samuels to Western [Page 584] Europe, possibly accompanied by Ambassador Gilbert, to discuss this problem with senior officials of the Commission and EC governments.3 During the Deniau visit and in the course of Mr. Samuels’ tour he would like to explore the following possibilities for dealing with the problem:
- —by bringing the agreements into accord with the GATT, i.e., by providing a plan and schedule leading to free trade areas or customs unions;
- —by agreeing on an interim basis to treat the countries as beneficiaries under the generalized preference scheme and not demand reverse preferences from them;
- —by obtaining adjustments or compensation in those sectors where our trade interests would be significantly affected.
He would explore with the Community their intentions with respect to future agreements in the hope of getting them to impose a limit on their proliferation.
In the course of Mr. Samuels’ visit on the above subject, he will also carry out his original intention in visiting Europe at this time; namely, to discuss the U.S. generalized preference proposal for the less developed countries with the EC Commission and the member governments. His intention is to explore fully various possible ways of bridging the differences between the U.S. and the EC on the generalized preference question.
- Source: National Archives, RG 59, S/S Files: Lot 80 D 212, NSSM 48. Confidential. A typed note on the memorandum reads: “UnSec handed original to WH/Kissinger at luncheon 2/26/70 per Mel Levitsky.” It was forwarded to Richardson under cover of a February 25 memorandum from Trezise, Hillenbrand, and Sisco. (Ibid.)↩
- Regarding NSSM 46, see Document 224. NSSM 82 is dated November 6, 1969.↩
- In a March 27 memorandum Kissinger responded to Richardson’s memorandum. Referring to the proposed travel of Samuels and Gilbert to Europe, Kissinger indicated he had discussed the matter with the President, who fully shared Richardson’s concerns but did not want any such travel until the administration had adopted a position on the proposed preferential arrangements. (Ibid., S/S Files: Lot 83 D 305, NSDM 29)↩
- Printed from a copy that bears this typed signature.↩