265. Memorandum From the Chairman of the Council on International Economic Policy Operations Group (Samuels) to the Executive Director of the Council (Peterson)1

SUBJECT

  • Generalized Tariff Preferences for Developing Countries

The attached paper is in response to CIEP SM No. 8 of August 9, 1971.2 It requests decisions on the two issues outlined below. We will also need decisions on the issues covered by the Operations Group’s paper of May 17, 1971,3 before we can finish preparation of our legislative submission.

Williams Commission Recommendations

Particular consideration is given in the study to the conditions specified by the Williams Commission when it recommended that the President “request from Congress legislative authority to initiate a system of generalized preferences along the lines of the current U.S. proposal.” The two conditions in brief are:

(1)
developing countries which demonstrate competitiveness in particular products should not receive preferences on those products, and
(2)
the responsibility for providing improved markets for LDCs should be shared equitably—both with respect to individual products and in overall terms—among the developed countries, especially the European Community and Japan.

In the course of considering how best to take account of the Williams Commission recommendations, two different approaches evolved. Guidance is needed on which of these will best serve our interests.

  • Option 1: Preserve the open system of generalized preferences without quotas as previously decided, but with the inclusion of legislative [Page 679]provisions to clarify the President’s discretionary authority to take account of burden sharing, competitive need, and possible market disruption (supported by State, OMB, CEA, DOD, and AID; STR supports preserving the open system and would prefer to submit to Congress the proposal already announced internationally without the specific discretionary authority); or
  • Option 2: Adopt a tariff quota system which would permit limitations to be placed on the volume of preferential imports of individual commodities in any year at levels predetermined under provisions in the authorizing legislation (supported by Commerce, Treasury, Interior, Agriculture, and Labor).

Expropriation

In considering the possibility of using generalized preferences as leverage in expropriation cases as requested by CIEP SM No. 8, all agencies agreed that the general authority now in the bill to withdraw or suspend preferences would be sufficient for our purposes. However, Treasury and Commerce believe the bill would be improved if the authority were made explicit. Thus there are two options:

  • Option 1: Retain broad authority for the President to suspend or limit preferences for countries which expropriate American investments without compensation, but omit specific reference to this in the bill (supported by State, STR, OMB, CEA, DOD, AID, Interior, Agriculture, and Labor); or
  • Option 2: Make explicit the President’s authority to suspend or limit preferences in expropriation cases (supported by Treasury and Commerce).

Nathaniel Samuels
  1. Source: Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 A 15, CIEP Meetings. Confidential. Circulated to members of the CIEP Review Group under cover of a January 6 memorandum from Peterson informing them it would be the basis for the Review Group discussion on January 7. Peterson indicated he planned to focus the discussion on the substantive issues and options rather than on questions of legislative timing and packaging. See Document 264.
  2. Document 257. The attached paper is not printed.
  3. See Document 254.