273. Information Memorandum From the President’s Assistant for International Economic Affairs (Flanigan) to President Nixon 1

SUBJECT

  • Trade Negotiation Objectives

Attached for your information (Tab A) is a memorandum from Secretary Rogers forwarding a report from Under Secretary Irwin on US-EC consultations in Brussels last month. In his report, Irwin cautions that we not underestimate the serious difficulties ahead with the EC and points to their insistence that the forthcoming trade negotiations involve reciprocal concessions.

In this regard, Irwin refers to a draft Treasury memorandum on trade negotiating objectives2 suggesting a non-reciprocal basis for those negotiations and the possible avoidance of general industrial tariff reductions. Irwin fears that such an approach might jeopardize the present “state of relative calm” in our relations with the Europeans.

I am reworking the draft memorandum, based on discussions with Treasury, STR, State and OMB. When we have either reached agreement or narrowed the areas of disagreement I will report to you.

Tab A3

REPORT BY UNDER SECRETARY IRWIN ON US-EEC

CONSULTATIONS IN BRUSSELS

APRIL 27-28, 1972

Our consultations with the EEC Commission concluded this morning with a discussion of trade relations. We were impressed with the signs of growing strength and sense of purpose on the part of the [Page 694]Community institutions which now feel that the success of the enlargement negotiations has shown that the EEC has the capability of achieving over time the fullest potential. Dahrendorf and others stressed that we should not mistake this sense of accomplishment for greater progress than has really been achieved. The Community—in the fullest sense of political, economic and monetary integration—has a long road to travel, but the members sense they are now well embarked.

Both the representatives of member states and Dahrendorf stated that the Community meant what it said in the December declaration of intent when it came out strongly for major trade negotiations beginning in 1973.4 They want to negotiate trade issues and in the process achieve both liberalization and the alleviation of trade problems for third countries which may flow from the new agreements.

As background to our talks on specific issues, I stressed that the Europeans should not underestimate the psychological as well as real effects of their actions on the US, pointing out that, while Community moves toward EFTA neutrals and LDCs might appear justified and commendably motivated to them, their agreements could easily affect adversely the climate in the US despite the basic support the President and the American people generally have for the objectives of European unification. This is particularly true at a time when the US is looking for some sign of sensitivity from Europe to our particular economic concerns.

We should not underestimate the serious difficulties ahead. It seems clear that the Europeans expect trade negotiations to cover all outstanding areas including tariffs and that they would oppose negotiations which do not involve reciprocal concessions. This point may be important at the moment because Secretary Connally has drafted a Memorandum for the President which suggests more of a non-reciprocal basis for future negotiations and possibly avoiding tariff cuts.5 We have the impression on the basis of our talks here that these concepts are so at variance with the thinking of the Europeans and with the preliminary thinking of experts in the Department and, I am told, in other agencies, that they should be carefully considered within the Administration before the President commits himself to proposals which may close some or all of his options in this crucial area. We now have a situation where our political and economic relations with our European allies are in a state of relative calm, largely as a result of the successful conclusion of the Smithsonian Agreements.6 It would be too [Page 695]bad to jeopardize this development by the adoption of a proposal which had not been adequately discussed and refined.

Bill Eberle has asked Peter Flanigan to request that this memorandum be held in abeyance until we can have an opportunity to discuss it.

At the same time I talked with Secretary Connally about the Chile debt negotiations and my talk with Allende,7 we agreed, along with 2 or 3 staff members on each side, to meet and talk about State and Treasury views on the monetary and trade negotiations. I understand this meeting is set for May 3. At that time, I would expect to discuss the issues raised by Treasury’s draft.

There obviously are legitimate connections between monetary and trade policy. What we would like to explore is whether these can be dealt with in a way which will both benefit our long-term economic interests and avoid an unnecessary strain on our alliance relationships.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume V 1/72-4/7/73. Confidential.
  2. Neither Connally’s draft memorandum nor a final text was found. On May 16 President Nixon announced that George Shultz would replace Connally as Secretary of the Treasury. See Public Papers of the Presidents of the United States: Richard Nixon, 1972, pp 593-596.
  3. Confidential; Nodis. Rogers’ May 1 covering memorandum to the President is not printed. It reads in part: “our aim is to try to deal with our monetary and trade problems with the enlarged Community, whose ten members generally parallel the Western European membership of NATO, in a manner which will both benefit our long-term economic interests and avoid unnecessary strains in our alliance relationships.” Rogers indicated Irwin would be working with Connally, Eberle, Flanigan, and others with an interest in trade issues on options and policy recommendations for the President’s consideration following his return from his late-May trip to the Soviet Union.
  4. See Documents 261 and 262.
  5. See footnote 2 above.
  6. Reference is to the agreement on a realignment of exchange rates reached by the G-10 Ministers at their meeting December 17-18, 1971, at the Smithsonian Institution in Washington. For documentation, see Foreign Relations, 1969-1976, vol. III, Documents 221 ff.
  7. Irwin had been in Santiago for the UNCTAD III Ministerial earlier in April. See Document 146.