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

SUBJECT

  • EC Trade Agreements with Spain and Israel

Attached for your approval (Tab A) is a Decision Memorandum and instructions to our negotiators governing the conduct of the consultations concerning the impairment of trade benefits to us which arises out of the preferential trade agreements now in effect between the European Community on one hand and Spain and Israel on the other.2

There is inter-agency (State, Treasury, Defense, Commerce, Labor, Agriculture, CEA, and STR) agreement that we must take positive action to back up our stated opposition in GATT to the Community’s proliferation of these preferential agreements. The consultations will be the first occasion on which we will have presented a specific request for adjustment or compensation to the EC or any of its preferential partners for what we regard as an illegal preferential arrangement.

Our strategy is to maintain pressure on the European Community and its preferential partners, present and prospective, sufficient to impress on each a sense both of the seriousness with which we view preferential trading practices and of our determination to bring about reform of the rules and practices involving discrimination against us. This strategy conforms with the interim strategy approved by you at the most recent CIEP meeting.3

[Page 719]

Objectives

In the short run, our objective is either to obtain adjustment of the agreements to make them consistent with GATT or to obtain sufficient compensation to serve as a deterrent to the further proliferation of such agreements by the European Community. Over the longer term, our objectives are to negotiate new rules governing preferential arrangements and to reduce the European Community’s trade barriers and those of other participants in preferential arrangements. We recognize that these objectives will most likely only be achieved in the context of the major multilateral trade negotiations scheduled to begin next year.

Though all concerned agencies agree to the need for this action, your endorsement is desired in view of the potential domestic and foreign political risks involved. The foreign risks are:

1)
A probable adverse reaction in the EC which France in particular is likely to try to exploit to our disadvantage.
2)
The possibility of a strongly negative reaction in Israel and Spain. The latter could increase our difficulties in getting better cooperation on our military base problems in Spain.

The main domestic risk arises from the possible reaction to an action which Israel might seek to interpret here as unfriendly to Israel’s national interests.

While I recognize these potential risks, I believe we are justified in running them in the interests of the credibility of our international economic policy stance of firm opposition to illegal preferences, and to show domestic and Congressional opinion that we are ready to act to defend our legitimate trade interests. Moreover, these risks will be minimized by skillful negotiation which NSC and CIEP will monitor. Henry Kissinger agrees that this is possible and will coordinate with me in preparing our negotiators so that their presentation will be conducted in a way that takes account of our overall strategies concerning Europe and the Middle East. There is also agreement that we will spin out the negotiation rather than move to retaliation, if agreements are not reached.

There is disagreement between State and Treasury (Tab B)4 concerning the need now for fallback positions. State proposes alternative fallbacks which the negotiator would be authorized to accept at his discretion. Treasury opposes such authority now. I believe we should not authorize any specific fallback at this time. When we know exactly the reactions to our initial position, we will be better able to determine the desirability and content of alternative positions than we can in advance. [Page 720]Thus, the instructions are drafted to require the negotiator to report back to me on his conclusions for further review.

Recommendation

That you approve the attached Decision Memorandum and instruction, and authorize me to coordinate any necessary follow-up action without further reference to you unless there is disagreement among CIEP agencies over a major point. Henry Kissinger concurs.

Approve5

Disapprove

See me

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 322, European Common Market, Volume IV 10/72-7/73. Confidential. This memorandum is a revision of Flanigin’s draft memorandum to President Nixon; see Document 281 and footnote 8 thereto. It is attached to a November 29 memorandum from Flanigan to Kissinger which reads: “The attached has been prepared in cooperation with your staff. It is agreed that you and I should discuss the appropriateness of this course of action at this time. Hormats feels the course of action outlined need not result in confrontation. Sonnenfeldt apparently feels that we should continue endless delay with regard to the EC preferential agreement until after the situation in the Middle East is clarified and the European study is completed. Please call me regarding this matter at your earliest convenience.” In the margin next to the reference to Sonnenfeldt’s view on delay, Haig wrote: “baloney.” A copy of Flanigan’s package is attached to an undated, handwritten note to Haig which reads: “Bob Hormats called to say this latest Flanigan memo is somewhat of a disaster. He is doing memo.” (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 219, CIEP) See Document 283.
  2. Not printed; see the attachment to Document 281.
  3. Presumably a reference to the September 11 CIEP meeting and CIEPDM No. 14; see Document 277 and footnote 2 thereto.
  4. At Tab B is an October 20 memorandum from Irwin to the President; for text, see Foreign Relations, 1969-1976, vol. III, Document 105.
  5. None of the options is checked.