267. Memorandum From the Assistant Special Representative for Industry and Labor, Office of the Special Representative for Trade Negotiations (Gates) to the Special Representative for Trade Negotiations (Eberle)1

SUBJECT

  • Status and Background on Footwear Issue

1. The key points in the chronology are the following:

June, 1970. Following receipt of a Task Force report organized and chaired by STR at White House direction (Tab A),2 the President requested an escape clause investigation for the first time. He also announced a domestic program to aid this industry from which literally nothing ever came.

January, 1971. Tariff Commission report received.3 Two Commissioners found a threat of injury existed for certain types of footwear, while two found that the statutory causation factors did not exist.

April, 1971. In accord with TEA procedures, the Special Representative submitted his recommendations to the President (Tab B).4 They were at least implicitly premised on the assumption that there would be a White House political decision that it was necessary to do something. If so, STR favored the tariff quota device as standing the best chances of minimizing international consequences, including compensation, and of permitting liberal treatment. Tab B, in effect, asked for a [Page 682]decision in principle, with the detailed, time-consuming work elaborating such a scheme and balancing all interests to follow.

May, 1971. The President designated David Kennedy as his personal envoy to seek mutually satisfactory solutions for both textiles and shoes. Kennedy went to both Spain and Italy, but did not go to Brazil, the third country indicated in the initial announcement.

June, 1971. Don Webster 5 and I followed up with more detailed discussion in Spain and Italy. Italy agreed to set up a visa system. Spain promised to be forthcoming soon.

August, 1971. The Spanish answer was negative.

October, 1971. I convened the ad hoc interagency group on footwear to review agency positions and re-appraise the situation in light of developments since the Spring. I then prepared a report, Tab C, which while it was not forwarded to CIEP is worth reading for its other contents. We generally agreed that during the surcharge no restrictive alternative should be pursued.6

November, 1971. David Kennedy returned to Spain and generously sweetened the suggested terms of a voluntary restraint. He was subsequently told that Spain did not consider what the Italians were doing to constitute restraint and that they could not consider any agreement unless it includes other suppliers. Spain has never specified who else must be included. During my discussions there in June, only Brazil was mentioned. In November, they referred to virtually all other low-cost suppliers.

December, 1971. Commerce became restive. Nehmer7 was after me to re-convene the interagency group, and, it seemed apparent, was also stirring up the footwear industry. I held several meetings, largely to assert continued control over the issue and also to give Commerce and its Labor satellite a day in court. Kennedy’s office and Treasury agreed with me that nothing should be pushed until the monetary negotiations were settled. Nehmer wanted to push ahead, develop the details of a tariff quota based on 1970 trade or, alternatively, develop the plans and strategy for a textile-type operation under the thin guise of a section 204 case.8

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I have heard nothing from Commerce in recent weeks and, in the absence of an opportunity to discuss it with you, have felt that my answer to any further pressure would necessarily be that until the bilateral trade negotiations were completed, it would remain inadvisable to begin active work (with the inevitable risk of leaks and rumors) on restrictive alternatives.

2. The Present Status.

A.
I do not believe an adequate voluntary agreement is negotiable, certainly not without a great expenditure of further time and negotiating chips. Italy would have the looming problem of EC acceptance, there being a clear Council policy against both unilateral trade agreements by individual members as well as one against export quotas. Spain’s terms would be exorbitant and any deal would take a long time to pin down. Although none of us have been to Brazil, our judgment is that it would be as difficult and as painful as Spain—and its present trade is a drop in the bucket. Imports from Japan and Taiwan are really not competitive with American production, and voluntary restraints coming on top of textiles seem to most of us out of the question.
B.
If we have to take restrictive action, largely for political reasons, our only reasonable prospect continues to be some form of tariff quota. Since virtually everyone but Italy capitalized on our year of consulting, the base is now much higher. I stated at the last interagency meeting the personal view that our only realistic choice now was a 1971 base with a growth factor to be determined annually in the light of events. Most agencies seemed to agree. Commerce, or Nehmer, holds out for a rollback and restrictive other terms which undoubtedly involve real foreign problems. State believes the industry is not injured by imports and no action is required.
C.
The real pending issue, which is the one on which I adjourned the last meeting, is whether in the context of the Administration’s overall plans and problems for 1972, and especially in the context of meeting the Burke-Hartke menace, there is a political need to do something. Kennedy’s man on my informal committee undertook to start this inquiry. His interim report from conversations with Harry Dent, Timmons, Colson, et al., is that there seem to be some areas where footwear could be an issue in 1972. He agrees, however, that we need more than generalities, and has gone back for more. Taking across-the-board action because of a few districts or States would be on the overkill side.
D.
I still believe a non-restrictive, constructive solution could be developed. Politically, it may be risky. But from a trade policy and economic policy point of view, this is the only sensible thing to do. We should (1) somehow threaten the Commerce Department into putting [Page 684]life into the President’s footwear program we so carefully worked out 18 months ago, (2) make the full case and stress the beneficial effects of currency adjustment (greater in significant instances than both present footwear tariff rates and the increases we could statutorily add on), (3) a serious effort to make adjustment assistance work, and (4) really coming to grips with the potentials that seem possible in the USM, high-technology approach (now being downgraded by Commerce from the requested meeting between USM’s chairman and Stans to one with Nehmer!). Politically, we could also dig up things to do on a pin-point basis in those districts and States where the White House political experts foresee, but have yet to specify, trouble in 1972.
E.
The final point that should trouble us is the possible consequences of continued delay and procrastination. Next Saturday the footwear decision will have been before the President for one full year. The decision last Spring was to try for an amicable solution. We cannot seem to obtain one.

Legally speaking, our lawyers are somewhat concerned that if the President does not act within one year of receiving a Tariff Commission report, his case for acting becomes progressively weaker—largely under the general principle of timeliness and due diligence. Politically, we are vulnerable for initiating an escape clause, then never deciding what to do about it while, as the attached statistics indicate, the situation has continued to deteriorate, at least on the surface.

However, politically we have always faced an undefined problem: most of us who have lived long with the problem are dubious that there is any substantial political force dedicated to footwear. Yet, in conjunction with other protectionist pressures, it is a further element and one we could take care of in non-restrictive ways.

The attachments have been hastily assembled and, unfortunately, time has not permitted any summary of their contents.

Ted
  1. Source: National Archives, RG 364, Office of the Special Representative for Trade Negotiations: Lot 78 B 1, STR Reading: January/February 1972, Box 44. Confidential.
  2. Regarding this report, see footnote 3, Document 236. No tabs to this memorandum were found.
  3. See Document 251.
  4. Document 252.
  5. Donald A. Webster, Deputy Assistant Secretary of the Treasury for Trade and Investment Policy.
  6. Reference is to the 10 percent import surcharge the President announced on August 15, which was lifted following the successful conclusion of monetary negotiations in late December 1971.
  7. Stanley Nehmer, Deputy Assistant Secretary of Commerce for Resources.
  8. Reference is presumably to Section 204 of the Agricultural Adjustment Act of 1956.