270. Paper Prepared in the Council on International Economic Policy1

ISSUES FOR CONSIDERATION REGARDING THE OECD HIGH LEVEL GROUP

The paper circulated by Jean Rey has several shortcomings.2 However, it is most deficient in its treatment of tariff dismantlement (and the related issues of preferences and safeguard arrangements), agriculture and non-tariff barriers. To prepare for our further work in the Group, it would be helpful if we could discuss and agree upon the substance of what we would want to see in the final report and our strategy for achieving it over the next two months.

I. Substance.

There is a theme in the Eberle paper of December3 which it would be highly desirable to see adopted as the unifying concept of the HLG report. This is the idea that the future world trading system should be based on the principle that the costs, damages or other trade distorting effects of agricultural, industrial or commercial policies should be borne, to the maximum extent possible, by those nations (or economic groupings) which determine such policies and should not be transferred to other countries except on terms and to an extent mutually agreed by the interested parties.

Implementation of this principle should be the ultimate objective for far reaching, long-range reform of the trading system. The report of the HLG to be of value should define the specific ultimate objectives and suggest, in general terms, the process by which the world can arrive at the goal of “fair trade.”

In terms of the issues which are of key concern to us, the principle translates into policy objectives as follows:

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1)

Tariffs and Preferences. As outlined in the Eberle paper, our objective should be elimination of all industrial tariffs by the major developed countries over a 10 or 15 year period. Ultimately, this assures that countries excluded from the EC preferential system will no longer have to bear the discriminatory cost of this European (and, as applicable, Mediterranean, African and Caribbean) policy.

The Rey paper does not define the ultimate objective, limiting itself just to a 50 percent cut to be achieved by 1980. This part-way approach naturally leads him to an irrelevant concern about extra-high duties and how to deal with them. The only satisfactory way to break through a sterile argument about tariff disparities4 is to accept elimination as the goal from the outset. Only in this context can the disparities issue be disposed of in a way which all must recognize as fair.

2)
Safeguards. The Eberle paper outlines a general concept for dealing with necessary exceptions to the free trade principle and safeguards which will be needed. We should consider whether we should press for discussion of an orderly marketing system modeled along the Eberle outline in the HLG report, or some alternative to it. The Rey treatment of this issue ( p. 21 of his paper) is very general and vague.
3)
Agriculture. The implications of the general principle of non-transfer of costs in the agriculture trade sector are clear. It means, in effect, organizing world trade in agriculture mainly according to factors of comparative advantage. It is also clear that this concept has met with heavy resistance from most of the Europeans in the Group. Rey’s proposed “Code of Good Behavior” contains several elements of a first-stage cut of the problem which go beyond most European thinking to date. The issue here is how hard should we press for full acceptance of the principle now and what, if any, compromises should we consider in the interests of a more unanimous report? As an alternative to compromise, how do we ensure that our viewpoint is adequately expressed in the report and what should we do to get support for it from other members of the Group?
4)
Non-Tariff Barriers. The application of the general principle to non-tariff barriers is explicitly discussed in the Eberle paper ( p. 24). Do we need to be more explicit regarding particular NTB’s or other trade-[Page 690]distortions? Should we try to get the report to identify a list of NTB’s of particularly great importance and suggest specific ways of handling them? Rey’s breakdown of NTB’s seems overly simplified, ignoring the fact that many NTB’s are not susceptible to elimination but only harmonization with a view to reducing their trade-distorting side effects.

II. Strategy

Against the probability that the Group will remain divided on one or more key issues (e.g., agriculture), we have two general options:

1)
To accept the Rey deadline of a final report to the May Ministerial meeting and try to rally as much support as possible within the Group to our views. The Report would thus contain perhaps several majority/minority explicit splits.
2)
To seek to postpone submission of a final report until later this year.5

The choice of options should be determined mainly by our judgment of how the timing and content of the Report is likely to affect our efforts to get public and Congressional acceptance of bold new international trade legislation. We should discuss whether a weak Report in May would be more damaging than a weak one next December or vice-versa.

Another strategic consideration which we should discuss is the advantages and disadvantages involved if Bill Eberle were to take a very firm position now (or later) on certain key issues, indicating that he could not subscribe to a report which did not meet certain minimum criteria (e.g., agriculture, tariffs, NTB’s). If this tactic seems desirable, what specific criteria should determine this posture?

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 219, CIEP. Confidential. The paper was circulated to members of the CIEP Review Group under cover of a February 9 memorandum from Flanigan informing them that the OECD High Level Group would meet starting on February 14 and inviting them to a February 11 meeting in the Cabinet Room to discuss strategy with Eberle. This paper is one of three papers Flanigan provided for the meeting.
  2. Jean Rey, Chairman of the OECD High Level Trade Group. Rey’s 28-page paper is not printed.
  3. The 25-page U.S. paper Eberle submitted to the High Level Group in December is not printed.
  4. As the Tokyo Round was launched, the United States and the European Community were thought to have approximately equivalent average tariffs. Establishing the Community’s common external tariff had tended to eliminate the very high and very low tariffs in some product categories of its member states, but the U.S. tariff code had not experienced this “averaging” and contained a few very high tariffs and many very low, even negligible, tariffs. The Community argued that these tariff disparities gave the United States a negotiating advantage, since reducing a negligible tariff by 50 percent was not giving up a protective measure whereas reducing a prohibitive tariff by 50 percent still accorded a substantial measure of protection.
  5. The second option was adopted. See Department of State Bulletin, June 10, 1972, p. 836. For President Nixon’s message, the prepared statements of the U.S. delegation, and the communiqué of the May 24-26 OECD Ministerial, see ibid., pp. 827-838.