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

SUBJECT

  • Your Breakfast with Secretary Shultz on Wednesday, December 202

Trade Legislation

I assume the major topic which Shultz will raise is trade legislation and its relationship to your European strategy. My memorandum of December 14 (Tab B)3 deals in detail with this issue. Essentially there are two issues: a) whether the President’s trade legislation requests authority to reduce tariffs or does not (in which case all negotiations on tariffs would be conducted on an ad referendum basis), and b) when legislation should be submitted. At the meeting on December 15 (minutes at Tab A)4 Shultz tilted toward requesting no authority and Volcker advocated this course. All others favored seeking authority and going forward early in the year if our foreign policy initiatives are sufficiently advanced.

Authority vs. no authority

The arguments in favor of the “no authority” position are that it would require less Presidential effort on the Hill than legislation including tariff cutting authority, minimize the risk of Congressional tampering with specifics, and improve our negotiating position to seek removal of non-tariff barriers (which we could not receive prior authority to cut and which are an important barrier to trade) since negotiations would not focus on tariffs at the expense of NTBs. There are a number of problems with this approach:

  • —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 (who remember that after the Kennedy Round the Congress did not approve the agreement on the American Selling Price for chemicals) would consider this 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.
  • —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 we 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.

The argument in favor of requesting legislation with tariff cutting authority is that it is the only basis on which the Europeans will negotiate seriously with us. It also strengthens our ability to press other nations to get an extensive negotiating mandate and demonstrates the President’s personal commitment which in turn will help elicit a similar commitment from other leaders. In addition, the very fact of comprehensive negotiations would serve as a useful counterpoise to the demonstrated tendency of the EC to institute policies which insulate European markets at the expense of its trading partners and establish a forum for our applying effective pressure on such tendencies. The disadvantages to this approach are (in Volcker’s view) that it would focus trade negotiations to a greater degree on tariffs than on non-tariff barriers, we would be causing a stir with the Congress on tariffs which are less important than NTBs, and greater Presidential effort and a more extensive educational campaign may be necessary to explain and secure passage of a bill containing tariff cutting authority. Treasury may also have the view that the more attention focused on the trade problem the more intense the domestic protectionist rhetoric will become and the more of a problem it will be in our relations with Europe.

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My view of the situation is that the bill set up must contain tariff cutting authority. We have made considerable progress in securing from our trading partners a commitment to negotiations. The summit meetings of the European Community constituted a major breakthrough for us in that the Europeans set a timetable for these negotiations and stressed their intent to move quickly.5 Nearly every European official with whom I spoke—and Ambassadors Hillenbrand and Greenwald—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.

The argument that having authority to cut tariffs would focus negotiations away from NTBs can be countered by ensuring that our negotiators press equally hard on NTBs, and unless we have authority to cut tariffs it is doubtful if we will have a negotiating framework which will permit a negotiated reduction of NTBs or agricultural barriers. And, to argue that we should not focus attention by submitting this legislation ignores the fact that the EC—by its very decision making process—will continue to come up with policies which harm our interests and protectionists in this country will continue to raise issues and press for harsh restrictions.

Failure to submit, and work hard to secure, legislation containing tariff cutting authority 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 containing tariff cutting authority.

Timing

What Shultz will need from you is a view on whether we will be far enough along in the “Year of Europe” to put the trade bill in a foreign policy context—which is essential to the bill’s success.

There are a number of 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, give us a better chance to have authority by September (when negotiations are scheduled to begin), [Page 741]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 do not move quickly the AFL-CIO Burke-Hartke bill may capture the initiative on trade issues.

Disadvantages of early submission: Would be insufficient time for the development of broader foreign policy initiatives, 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.

If Heath comes in early February, and additional summits are announced during February and March, these could—along with suitable statements in the State of the Union and State of the World Messages—provide the backdrop necessary. (The President could formally state his intention to submit this legislation in the Heath communiqué.) If we are far enough along, it is most desirable to submit the bill early to minimize foreign concerns about the President’s commitment to negotiations and give us the domestic initiative. Moreover, there is no guarantee that our trade and domestic positions would improve significantly in three or four months.

With regard to future planning for coordinating the economic with the foreign policy scenario, you might suggest setting up a working group within the EOB including Ken Dam (who will be Shultz’ new deputy in the White House), myself and Hal Sonnenfeldt, and Deane Hinton from CIEP. This group could coordinate the range of issues involved and attempt to pull together some of the details as the scenario unfolds.6

[Omitted here is discussion of the U.S.-Soviet Commercial Commission, Gas Group, Polish Commercial Commission, and Peterson’s Trip.]

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 290, Treasury, Volume III. Secret. Concurred in by Sonnenfeldt.
  2. No record of the December 20 meeting was found.
  3. Document 285.
  4. Document 286.
  5. See footnote 2, Document 285.
  6. Regarding Secretary of the Treasury Shultz’ role at the White House, see Foreign Relations, 1969-1976, vol. III, Document 107.