248. Information Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Need for Position on Trade Legislation for 1971

We must develop a position on trade legislation for 1971 by the time the Congress reconvenes, and earlier if possible because of the textile negotiations.

I have therefore prepared an options paper (Tab A) and circulated it to interested parties in the White House (Shultz, Flanigan and McCracken) with a recommendation that it be the first order of business of the new International Economic Policy Council,2 or be discussed at an ad hoc meeting called by one of them.

Procedurally, foreign economic policy is now a total mess—and this very important issue may suffer as a result. Our original trade legislation decisions were made via the NSC,3 and it remains the only mechanism now in place through which such decisions can be made in an orderly way. For all its shortcomings, our mechanism was reasonably effective in obtaining and implementing decisions during the first 18 months of the Administration.

Now, however, everybody is sitting around waiting for the new Council to start operating—while the months drag by and nothing happens. As a result, everybody is in the act to some extent, but nobody at a senior level is in charge. And I fear that, without an Executive Director or its own staff, the new Council is not going to solve the problem—it may even make things worse, by simply getting in the way.

As noted above, I continue to hope that the new Council will start in time to handle this issue. If not, I hope that Shultz or Flanigan will seize leadership on it. If they do not, I will have to recommend that you call a meeting in early January to get a decision.

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Tab A

TRADE LEGISLATION OPTIONS FOR 1971

We must make a decision on our trade legislation strategy for 1971 by the time that the Congress reconvenes, and earlier if possible in view of the continuing textile negotiations. That decision would be made in the context of our decision on where we want U.S. trade policy to go over the next several years, the options for which were outlined in my paper of December 8, but time may not permit us to do so. The immediate decisions should finally be made only after close consultations with the Congressional leadership, however, though we should of course decide first on what approach we prefer. This paper outlines the options for 1971 which appear feasible at this time, assuming:

  • —No negotiated solution to the textile problem;
  • —An effort to fulfill our international commitment to implement generalized tariff preferences “as early as possible in 1971”;
  • —Receipt of the Williams Commission report on June 1, with legislative proposals based on it impossible before September 1 due to the time needed for internal staffing;
  • —No major trade liberalizing initiative is possible now, due both to domestic reasons (the unresolved textile problem; the need to first establish a tough Administration policy toward foreign restrictions; the need to establish an authoritative Administration spokesman on trade policy; the need to develop new constituencies to support a U.S. free trade policy) and international reasons (the preoccupation of the EC with its expansion negotiations; the continuing adverse impact of the textile problem on our economic relations with Japan).

Option 1: Submit a bill including only a textile quotas and tariff compensation authority early in the year, leaving all other trade proposals until we have the recommendations of the Williams Commission.

Pros:

  • —The President’s commitment stands and will have to be met; a textiles-only bill might have the best chance to do so.
  • —A textile solution is necessary to clear the way for any major trade legislation; a textiles-only bill could logically be presented as the first step in a two-step package, the second of which will be general trade legislation based on the Williams Commission proposals.
  • —Provides the best international justification for deferring submission of generalized preferences legislation.
  • —Inclusion of compensation authority would enhance the respectability of the legislation in some domestic and foreign eyes, since it would enable us to pay for the textile quotas; it would avoid retaliation in this case, and also increase our flexibility in taking escape clause actions.

Cons:

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  • —Such a bill would not have a high probability of success. The textile and shoe alliance is unlikely to be broken (though we might defuse the shoe pressure by taking restrictive action ourselves in response to the Tariff Commission finding, which will be in shortly). Byrnes is likely to insist upon his basket clause for “equity” reasons. Introduction of textile quotas alone may thus simply bring back the same battle we faced in 1970.
  • —An Administration quota bill with no free trade features, such as ASP repeal, will be seen at home and abroad as a major protectionist move. Characterizing it as the first of a two-step series, as mentioned above, would mitigate this effect to some extent; so would a strong statement that we would veto any protectionist additions to the bill.
  • —Holding off all other trade proposals until late this year would probably mean their consideration in the President’s election year, which we may wish to avoid. But this would mean no new trade legislation at least until 1973, and (a) the longer we remain without adequate escape clause and adjustment assistance authority, the worse the legislative situation will become; and (b) the ASP deal will certainly expire if we do not even propose its repeal in 1971.

Option 2: Resubmit early in the session our modest November 1969 proposals (20% tariff-cutting authority; liberalization of the escape clause and adjustment assistance requirements; ASP repeal and possibly DISC plus textile quotas). Omit preferences at this time, holding it for the broader package which will result from the Williams Commission recommendations.

Pros:

  • —All of the proposals would still be helpful in improving our trade policy and making it more flexible.
  • —Would provide a free-trade fig leaf for our textile quotas.
  • —It would be illogical to propose anything grander while we are still waiting for the Williams Commission report.

Cons:

  • —As a resubmission of our current proposal, it would have no dramatic appeal and is likely to draw us into precisely the same committee legislation as in 1970—except that time would not kill it in 1971.
  • —Submission of modest legislation now could undermine the more substantial proposals which we might wish to base on the Williams Commission recommendations, since Congress is unlikely [Page 636]to act on two trade bills in one session and since it might not even act on the first proposals by the time we would be ready to submit the second set.
  • —Failure to include preferences would violate our international commitment on that issue, undermining both our credibility with the other industrialized countries (which will all implement their generalized preferences by mid-1971) and the major foreign policy initiative of this Administration toward the lower income countries.

Option 3: Add preferences to the Option 2 package, perhaps submitting the package in parallel with the President’s legislative proposals for aid reform of which preferences are a key component.

Pros (in addition to those of Option 2):

  • —We are committed to submit preference legislation in 1971, and Mills has said in the past that he wished to consider all trade measures together.
  • —If Congress turns the general trade legislation in a protectionist direction, it may give us closer to what we want on preferences.

Cons:

  • —Inclusion of preferences would give extra leverage to the Congress in avoiding a Presidential veto of the bill if it emerged as essentially protectionist. (However, a veto of such a bill would probably be justifiable to the countries which would benefit from preferences, and might even be the only way to avoid preferences without a serious foreign policy cost.)
  • —Tying preferences to general trade legislation will heighten awareness of their non-reciprocal nature, flying in the face of Congressional attitudes and thereby reducing our likelihood of getting preferences (or, perhaps worse, badly distorting their form) or of getting the overall trade legislation which we want.

Option 4: Submit no trade legislation now, announcing that we will await the report of the Williams Commission before doing so.

Pros:

  • —This would give us time to launch a tough program of defending U.S. trade interests abroad and start developing some new constituencies to support free trade, thereby improving our chances of getting desirable legislation later.
  • —Unemployment should begin to decline by mid-year and the trade balance is likely to be better, reducing protectionist pressures to some extent.
  • —Gives us maximum flexibility. If the Williams report is too grandiose to submit immediately, we could still submit modest and/or preferences proposals in the early summer.
  • —If the Williams Commission recommendations are dramatic, they will lose some of their force if we had first submitted modest trade legislation and gone through a fight on it—especially if they were still pending before the Congress. (Against this lies the probability that, because of the 1972 elections, we may not wish to submit dramatic Williams recommendations to Congress immediately under any circumstances.)

Cons:

  • —Might reduce the likelihood of reaching a negotiated settlement on textiles, thus further delaying fulfillment of the President’s commitment—or letting someone else get the credit for doing so.
  • —The overhang of protectionist pressures in textile and other products is so heavy that someone else might seize the legislative initiative, and the Administration would have nothing on the table with which to counter.
  • —Even if the outlook for preferences legislation is not too good, it would look better abroad if the Administration submits them early and fails than if it submits them late and fails.

Recommendations:

1.
That an authoritative Administration spokesman shortly propose the following to Mills and the other leaders, and that we then pursue the following course if they agree with it.
2.
That we submit a bill including only textile quotas and tariff compensation authority early in the session, provided that the leaders believe the legislative chances of passing such a bill are strong.
3.
That we characterize this step as the first of a two-part program, indicating that we plan to submit major trade legislation (including preferences) after we get the Williams Commission report.
4.
That we make it clear that the President will veto protectionist legislation affecting any products other than textiles in the interim.
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume III 12/70-6/71. No classification marking. Haig wrote: “Agree” at the top of the page and Kissinger wrote: “Fred: Talk to me soon” at the bottom.
  2. The Council on International Economic Policy (CIEP) was established on January 18, 1971; see Foreign Relations, 1969-1976, vol. III, Documents 49, 53, and 55.
  3. Reference is to the decisions at the NSC meeting on April 9, 1969; see Documents 192 and 195.