264. Paper Prepared in the Council on International Economic Policy1

BACKGROUND PAPER—1972 LEGISLATIVE STRATEGY ON

INTERNATIONAL ECONOMIC ISSUES

COUNCIL ON INTERNATIONAL ECONOMIC POLICY

MONDAY, JANUARY 3, 1972

We have several options available as regards a trade and investment legislative program in 1972. Broadly, these are:

1)
Defensive. No new Administration bill in 1972. Concentrate on heading off protectionist bills or amendments and continue international negotiations to decide the kind of bill to submit in 1973.
2)
Partial. Submit bills on certain high priority issues (e.g., generalized preferences, adjustment assistance, and amendments to existing legislation in order to stop-gap pressure for more radical, protectionist measures in an election year (such as antidumping; tax policy on foreign income of multilateral corporations; amendments to Section 806.30/807.00 on border manufacturing, etc.). Under this option, we would request no new trade liberalizing negotiating authorities at this time.
3)
Comprehensive. In addition to those in (2) above, submit a comprehensive bill which could include an export expansion program; a much broader adjustment assistance effort; “See America” tourism; generalized preferences; East-West trade; a comprehensive program to deal with issues involved in international investment and the multinational corporation; and new liberalizing negotiating authority on tariff and non-tariff barriers and agricultural trade in order to give ourselves international credibility and authority to try to open up the trading and investment world. It could be packaged with some of our other domestic initiatives to make America more competitive (e.g., technology incentives) and constructed around the themes of job creation and international prosperity in the ′70’s.

Under this last option, we can envisage two strategies: the first is to make it an essential part of the President’s total program for 1972 and [Page 673]send it forward when it is ready, regardless of whether or not there is any likelihood of a vote in the 1972 session. Some argue that the fact that the bill was out in the open would give both the Administration and liberal trade supporters something concrete to use in Congressional and public education and could help in preparing for a vote in 1973. Others argue that an Administration bill would just serve to galvanize the opposition to redouble its efforts to push its own bill … particularly in an Election Year with Presidential aspirants striving to get Labor’s support, and Labor, in turn, tying its support to reciprocal support for their protectionist Burke-Hartke Bill.

The second would be to prepare a comprehensive bill now, have the President outline his general intentions about its content in the State of the Union (and perhaps later statements). However, the decision to send it up would be made later as a function of progress on our other high priority domestic legislation, progress on our international trade negotiations, and, most important, only if it looked like hearings were about to begin on protectionist bills like the Burke-Hartke Labor Bill. In this event, we would consult with key Congressmen (including Wilbur Mills, who, it is assumed, prefers liberal trade policies rather than protectionism) to see if they would cooperate in introducing our bill (or something like it) as an alternative on which hearings would occur, and 2) the timing left to developments during the year, with the distant possibility that we not seek to have any bill reported out for a vote in 1972.

Both strategies have similar desirable public education aspects. However, the second makes introduction dependent mainly on the tactical situation on the Hill as it evolves during the year and puts a greater emphasis on close consultation with key legislators, recognizing the risks in an election year. It also retains a certain degree of flexibility vis-à-vis our foreign partners, in that it permits us to factor into our bill more specific ideas about what kinds of negotiation may be acceptable to them as we move forward with international consultations.

The above options have been formulated after discussion within the government (e.g., an informal session of the CIEP Review Group on December 10) and with outsiders. (On December 20, a meeting attended by White House Congressional liaison people and representatives from various Departments was held with a group of knowledgeable people outside government, virtually all of them sympathetic to liberal trade legislation.)

The attached memorandum summarizes the session with outsiders (Tab A)2 most of whom were supporters of liberal trade policies. The [Page 674]main issue, as they saw it, was whether to submit a bold new bill in 1972 or wait until early 1973. The majority (roughly 7 out of 12) favored a delay on the grounds that an election year risked politicizing the debate excessively and that we should have a better idea about what kind of negotiation our foreign partners would accept before asking for an authority which, in the end, may not fit negotiating realities. The minority favored an Administration bill this year on the grounds that a trade debate was inevitable in 1972, and it was both better substantively that it take place on Administration terrain (rather than on the Burke-Hartke Labor Bill) and tactically necessary for Congressional and public supporters of liberal trade to have something concrete around which to rally.

Our tentative soundings on the Hill produced mixed advice, some for and some against an Administration initiative in 1972. Many of those we consulted emphasized their strong belief that there is an enormous potential for disaster to liberal trade policies from Administration trade initiatives in 1972, unless these initiatives are carefully orchestrated and timed.

Some believe that, with both Ways and Means and the Senate Finance committees subject to such strong protectionist pressure, “housekeeping” type bills (such as the 1969 bill) run a strong risk of protectionist amendments. Mills has told me earlier that it might be very difficult to insulate isolated proposals (e.g., generalized preferences) from a Christmas Tree approach. Others feel that certain specific bills (absent a comprehensive bill), designed mainly to win back labor support (e.g., new adjustment assistance, guidelines on US investment abroad and foreign taxation) might have a chance. These specific terms could include:

a.
Generalized Preferences. If we submit only generalized preferences and/or do it at the wrong time, we could end up opening a political Pandora’s box without a positive alternative of our own to the Burke-Hartke Bill. Thus, the issue here is both one of timing and substance. When should we submit a request for generalized preferences?3 Should it be an independent bill, part of the gold-price request4 or part of a more comprehensive trade/investment package (or at least included with other “housekeeping” proposals)? Finally, what kind of preference legislation should we request? (We have two proposals in the mill: [Page 675]a modified version of the original idea and a preference arrangement with a tariff quota safeguard like that of the EC. Both need more staff work before a bill could be drafted and sent forward. We are having a CIEP Review Group session on January 7 on this particular subject.5
b.
Adjustment Assistance. Virtually everyone on the Hill and outside thinks we need to overhaul the present system. The rationale for an Adjustment Assistance priority is that it attempts to deal with the undesirable effects of import competition without introducing new trade restrictions—it is trade liberalizing, not trade restrictions. The options are:
(a)
Submit an independent bill modeled on our CIEP study (or combine it with generalized preferences). This risks the Christmas Tree problem noted above.
(b)
Work with key Congressmen to attach the more limited Mills Bill adjustment assistance reform to some other legislation, indicating our support but not proposing it outright. This may reduce the protectionist amendments risk, but precludes us from pushing a better bill. and reduces the political credit we might get from our own proposal.
(c)
Include our version in a new comprehensive Administration package.

Timing. The enormous staff work involved in drafting a comprehensive bill means that we could not, in any case, be ready to submit our own legislation before early spring at best. To head off the protectionists in the interim, and to begin constructive public education, we could propose a statement in the State of the Union message in which the President could develop a theme along the following lines:

He could recount the recent international economic accomplishments, showing why we are now in a new ball game. Then, capitalizing on the momentum of the monetary settlement (and, perhaps by then, progress toward a settlement of short-term trade issues), the President could present the broad outlines of a comprehensive and outward-looking foreign economic legislative program that would be submitted in the future. Also included would be domestic initiatives to stimulate productivity and competitiveness (technology programs, etc.) and, of course, more and better-paying jobs. In short, a New America in a New World.

The issue here is: should the reference to submission of a new trade legislation be specific (e.g., “later this year”) or vague (“in the future”)? The former, while not absolute, is at least an indication of intent to do something this year; the latter preserves the option of waiting until 1973 (or at least until after the November election).

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Content. Regardless of when we decide to send new legislation forward, virtually everyone we have consulted believes that, to preserve all our options—including that of submitting new legislation next spring—it is essential that we have a bill ready soon. To do this, a very high priority on staff time within the concerned agencies will have to be assigned to the definition of issues involved in new proposals for decision and to the drafting of legislative proposals. Unless the Council believes it would be better to recommend to the President no legislative requests of any kind in 1972, it should, it seems to me, agree to communicate this sense of priority to staff personnel involved in his work.

Burke-Hartke Bill. Given the significant pressure on Congress to pass something like this bill, we would be well advised to study it carefully to see whether it contains some elements which we could incorporate in an alternative administration package. Tab B contains specific provisions and rationale as written by the Industrial Union Department of the AFL-CIO.6 The principal features are:

1)
New rules regarding the taxation of foreign income of US firms and the income from technology transfers to “remove special advantages.” (In essence some of these are double taxation proposals.)
2)
New controls on the outflow of foreign investment capital and technology transfers.
3)
The imposition of mandatory quantitative restrictions on all imports at 1965-1969 average levels with certain specified exceptions.
4)
Amendments to the Anti-dumping and Countervailing Duty Acts, setting time limits for making determinations and making these subject to the Administrative Procedures Act.
5)
Organizational changes (mainly the creation of a tripartite “U.S. Foreign Trade and Investment Commission,” made up of representatives from the public, industry and labor groups, abolishing the Tariff Commission and transferring from the President to the new Commission authority over most aspects of US trade policy.
6)
Provisions to require that all products containing imported components be clearly labeled as the components and country of origin.
7)
Repeals sections 806.30 and 807.00 of the Trade Expansion Act (which reduces the duty on imports if some of the components were made in the United States).

Though most of these would presumably, from the Administration’s point of view, be undesirable, elements of some of them need further study. We should decide which of them will require specific counter proposals from the Administration and which we can (perhaps with minor adjustment) accept or build upon.

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Relationship of Trade-Investment Legislation to Other Legislation. Assuming settlement of short-term trade negotiations in the reasonably near future, we are committed to submission of a bill to change the dollar price of gold. Though this bill need not include any trade issues as such, we should consider whether it should be coupled with any (e.g., generalized preferences). Some argue strongly that we are better able to fend off any trade amendments to this gold price legislation if we ourselves have a “clean bill,” i.e., have not proposed any trade matters and indicate that we will propose such legislation later. Regardless of whether we decide to include such issues, it is virtually inevitable that some in Congress will try to add trade matters to it. We need to devise a strategy for dealing with this contingency, and to consider the relationship between this strategy and the timing and content aspects of a comprehensive Administration trade/investment initiative.

Another relationship we need to consider is that between the “external” package (trade, investment, et al.) and our new domestic initiatives (technology incentives, possible new tax proposals, etc.). It would, of course, be best if both programs could be presented as parts of a coherent whole, even if specific legislative proposals to implement them were sent up at different times. Finally, we need to set a system of priorities among any new initiatives and parts of the President’s program still pending in Congress (e.g., revenue sharing, health, welfare reform, pension legislation, environment, etc.) which require Ways and Means Committee consideration. This Committee obviously has a very full plate of other domestic legislation.

  1. Source: Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 A 15, National Advisory Committee. Confidential. No drafting information appears on the paper, which is attached to a December 29 memorandum from Peterson to members of the CIEP informing them it was background for the CIEP meeting on January 3, 1972.
  2. Entitled “Meeting with Outside Advisers on Trade Legislation,” December 20, 1971; not printed.
  3. During the Summit with Prime Minister Heath in Bermuda on December 20, 1971, Secretary Rogers announced that the President had decided to submit to Congress after it reconvened in January legislation to provide preferences to developing countries. See Department of State Bulletin, January 17, 1972, pp. 64-66.
  4. Reference is to a request to raise the official price of gold, devaluing the dollar, as agreed in the ongoing international monetary negotiations.
  5. See Document 265 and footnote 1 thereto.
  6. Entitled “Summary Fact Sheet of Foreign Trade and Investment Act of 1972, S-2592; HR-10914,” dated October 4, 1971; not printed.