285. Action Memorandum From Robert Hormats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • European Strategy and Trade Legislation

The decision on whether or not to submit the trade legislation, and on the character of any legislation we might submit will be made in the near future—probably this weekend. That decision will have a critical effect on our relationship with Europe and Japan and on any Presidential initiatives towards either. It is essential that you discuss this matter with Shultz and Flanigan as soon as possible.

The Situation

Trade problems have been an extremely divisive element in our relationships with Japan, Canada and Europe. One of the early arguments for comprehensive trade legislation was to enable us to negotiate, in a multilateral context, solutions to many of the trade issues which could not be solved bilaterally after last year’s August 15 decisions. It was also seen as an alternative to the Burke-Hartke protectionist legislation—which will have strong support from the labor unions next year—the passage of which would surely touch off a disastrous trade war.

Over the past year the US has provided most of the initiative for an international commitment to major multilateral trade negotiations beginning in 1973. The negotiations would deal with fundamental problems of the world trading system including tariff and non-tariff barriers and preferential trade agreements. They would also aim at developing a new set of trading rules.

The President can enter into trade negotiations, but lacks legislative authority to implement their results (i.e., the concessions we commit [Page 724]ourselves to make.) A decision must soon be made as to a) what type of authority will be sought by the President and b) what the timetable for submission will be.

The Issue of Authority

There are three options:

1. Submit comprehensive trade legislation asking Congress for specific authority to reduce tariffs and for a less specific mandate supporting the reduction of non-tariff barriers, with authority to improve safeguard and domestic adjustment assistance programs to assist firms and workers injured by imports.

Pros:

  • —The Presidential authority to cut tariffs strengthens our ability to press other nations to get an extensive negotiating mandate.
  • —Demonstrates the President’s personal commitment to negotiate on trade, which would help to elicit a similar commitment—perhaps at Summit meetings—from the leaders of our trading partners.
  • —Comprehensive negotiations in themselves would serve as a useful counterpoise to the demonstrated tendency of the EC to institute—in its internal bargaining process—policies which insulate Europe’s markets at the expense of its trading partners, and establish a forum for our applying effective pressure against such tendencies.
  • —Allows us to take the highroad for solving particular trade problems and to point to negotiations to counter ad hoc demands of specific domestic interest groups for protection.

Cons:

  • —Being too specific and comprehensive may tempt the Congress to temper with the legislative proposals, thereby restricting the President’s flexibility, and to append protectionist alternatives to each of the major sections of the bill.
  • —Greater Presidential effort and a more extensive educational campaign may be necessary to explain and secure passage of comprehensive legislation.

2. Request a joint Congressional resolution endorsing negotiations on trade (giving the President no authority to reduce tariffs), with all negotiations being conducted on an ad referendum basis. (Shultz apparently favors this approach.)

Pros:

  • —May require less of a Presidential effort on the Hill.
  • —Minimizes risk of Congressional tampering with specifics.

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Cons:

  • —The assumption on which this is based—that two or three years hence, after the negotiations are complete, Congress will accept the results as a package—is an extremely doubtful proposition. The Europeans in particular would consider such a very weak mandate.
  • —The weakness of our mandate would give our trading partners the excuse to get a similarly weak mandate and thus mean that negotiations would probably fail to solve the most important trading problems. (This in effect means that the momentum which has been built up would be lost and the possibility of negotiating a resolution of trade issues would be severely diminished.)
  • —Calls into question the seriousness of the President’s commitment to negotiations and thereby damages his credibility in the economic area and in other areas as well.
  • —Weakens our friends in Europe who have pressed very hard for a forthcoming and constructive European response to our initiatives for trade negotiations.
  • —Constrains the President’s ability in whatever Summitry takes place to discuss a resolution of trade issues—the most important source of friction in our relationship with Europe—since he will have no authority to make concessions as a quid pro quo for concessions which he might press others to make. (Thus, the President’s discussion of trade would be substantially limited to our pressing others to make non-reciprocal concessions—which the Europeans would consider unacceptable.)
  • —Gives other heads of state the excuse not to commit themselves personally to resolving trade problems and monetary problems as well.
  • —Means that as the EC develops new arrangements we would be extremely limited in our ability to engage in negotiations aimed at liberalized trade.

3. Request no mandate or Congressional action at this time but begin negotiations and then refer everything back to the Congress when the negotiations are completed.

Pros:

Considered by some to be the best way to avoid bringing trade to the fore and therefore stimulating a protectionist effort in the Congress.

Cons:

All of the cons of Option 2.

My View

We have made considerable progress in securing from our trading partners a commitment to negotiations. The Summit meeting of the European Community2 constituted a major breakthrough for us in that the Europeans set a timetable for these negotiations and stressed their intent to move quickly. Nearly every European official with whom I spoke—and Ambassadors Hillenbrand and Greenwald 3—emphasized a) the importance of these trade negotiations as a means of dealing with and managing major trade issues and preventing trade from becoming a divisive force in US-European relations and b) the necessity of our securing authority to cut tariffs if we want the Europeans to get a forthcoming negotiating mandate. Failure to submit, and work hard to secure, comprehensive legislation will make it virtually impossible for us to deal meaningfully on trade with Europe and Japan, damage severely the credibility of the President, render us increasingly vulnerable to protectionist legislation, and virtually eliminate our ability to resolve in the next several years the politically divisive trade issues which confront us and will do so in the future as the EC evolves. It could deal a lethal blow to any Presidential initiatives with Europe and Japan next year. It is therefore essential that the President submit legislation as described in Option 1.

Timing

As I understand it Flanigan and Shultz intend to talk to Wilbur Mills in the very near future to determine whether he wants to take trade legislation first (as I understand he does) or whether he wants to hold it off until after he considers such other matters as tax reform. After this we will have to make a decision on the timing of submission.

  • Arguments for early submission: Our trading partners would be given greater incentive to move quickly to prepare for negotiations with the knowledge that the President regards this as a priority item, the results of the November election give impetus to legislation submitted early in the session, gives us a better chance to have authority by September (when negotiations are scheduled to begin), delay might appear to reflect uncertainty or lack of priority trade, failure to take advantage of Mills’ apparent willingness to take this legislation first may cause him to be less cooperative in scheduling hearings later, if we [Page 727]do not move quickly the AFL-CIO Burke-Hartke Bill may capture the initiative on trade issues.
  • Disadvantages to early submission: Would be insufficient time for the development of broader foreign policy initiatives (which are a necessary backdrop to trade legislation), for consultations with Members of the Congress, and for developing public support, and present levels of trade imbalance and unemployment may harm the bill’s chances.
  • My Opinion: On balance I lean toward submitting the bill early in the year, if our “Year of Europe” and other foreign policy initiatives are far enough along and visible enough to allow us to put the trade bill in a broader foreign policy context—which is essential for the bill’s success—and if the President makes a strong commitment to it in the State of the Union Message and elsewhere. This would minimize foreign concerns about the President’s commitment to negotiations, give us the domestic initiative, and allow the Congress to see the bill as part of the President’s broader foreign policy strategy. And there is no guarantee that our trade and domestic positions would improve significantly in three-four months.

Action Necessary

Based on the above considerations I have prepared a set of Talking Points4 which I recommend you use with Shultz and Flanigan as soon as possible. In your discussion with them, you should be aware that the most important single factor in selling this bill will be the degree to which we can link it to the President’s overall foreign policy strategy vis-à-vis Europe, and to a slightly lesser extent, Japan. In particular, the timing of submission of this legislation will depend in very large part on whether we are far enough along in our foreign policy initiatives to present this legislation at an integral part of those initiatives. If you think that we will be ready by late January, then the legislation should go up at that point. If we will not be sufficiently far down the road by that time, it may be better to wait a few months. My strong preference, however, as noted above, is to submit this legislation as early as possible if we can construct the necessary foreign policy backdrop.

If you are not able to discuss this with Shultz and Flanigan in the near future, I recommend that you authorize me to make the points contained in this memorandum to Flanigan and an appropriate member of Shultz’s staff and to indicate that you favor Option 1. With regard to the timing question, however, I will need to get your judgment on whether we will be far enough down the road on our foreign policy approach to [Page 728]submit legislation at the end of January.

Recommendation:

1. That you discuss these matters with Shultz and Flanigan using the Talking Points at Tab A.

Approve, set up meeting with Shultz and with Flanigan 5

2. If you do not have time to do this, that you authorize me to:

(a) Convey the position that you favor Option 1.

Approve

Prefer Option 2

Prefer Option 3

(b) Indicate whether you think we will be far enough along in the foreign policy area to submit legislation in January.

Will be far enough along, submit in January

Will not be far enough along, submit later

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 402, Trade, Volume V 1/72-4/7/73. Secret. Concurred in by Sonnenfeldt. Attached to a 6 p.m. December 14 note from Hormats to Haig informing him that the subject would likely be discussed the following afternoon and that it was urgent that Haig or Kissinger give Shultz and Flanigan their views within the next 18 hours. Also attached is a December 15 memorandum from Haig to Kissinger informing him that Shultz had stopped by that morning to discuss the broad approach to trade legislation, which would be taken up at a 6 p.m. meeting that day of interested Cabinet officers and Flanigan. Shultz reportedly wanted the most senior member of Kissinger’s staff to participate and since he (Haig) would be leaving shortly, he recommended Sonnenfeldt attend. Shultz would report to Kissinger the next day on the meeting.
  2. October 19-20. In an October 27 memorandum Sonnenfeldt and Hormats informed Kissinger that at the Conference the Community reaffirmed its intent to negotiate trade on the basis of reciprocity and acknowledged that trade and monetary relations were linked. They concluded that the European leaders, unlike the Community’s officials in Brussels, were putting their economic relations with the United States in an overall political context. (Ibid., Box 322, [Page 726]European Common Market, Volume II 1971-72)
  3. Hormats traveled to Europe for a special OECD Ministerial December 4-5. He then had bilateral meetings in capitals with European officials. Hormats summarized his conversations in a December 18 memorandum to Kissinger, which is attached to a January 6, 1973, memorandum from Hormats to Kissinger calling it to the latter’s attention. (Ibid., Volume III 10/72-7/73)
  4. The talking points are not printed. See Document 287 for the briefing material Hormats provided for Kissinger’s December 20 breakfast meeting with Shultz.
  5. None of the options under these two recommendations is checked.