Office of the Historian

200. Memorandum From the Executive Secretary of the Department of State (Eliot) to the Presidentʼs Assistant for National Security Affairs (Kissinger)1

Washington, October 30, 1970.

SUBJECT

  • Classification of Romania as a Developing Country

In response to the request that General Haig made on October 27, we are submitting the following report on the measures which can be taken to carry out the Presidentʼs commitment to classify Romania for certain purposes as a “developing country” (Less Developed Country or LDC).2

We assume that the Romanians are primarily interested in being classified as an LDC in order to receive generalized tariff preferences from the US. Implementation of our preference scheme will require Congressional authorization. We expect to submit a legislative proposal early in the next year. It is unlikely that the scheme will actually go into effect before late 1971.

Since many of the exports of Romania are similar to those of other LDCs, Romaniaʼs competitive position in the US market as well as in the markets of other donor countries would be adversely affected in the future if it is not a beneficiary of generalized preferences. The Romanian desire to be considered as an LDC is therefore understandable.

On purely economic grounds, Romania could be classified as a developing country for the purposes of generalized preferences since the [Page 495] stage of its economic development is roughly comparable to that of Yugoslavia and several other countries which are considered LDCs.

Section 231(a) of the Trade Expansion Act of 1962 (TEA)3 denies the President authority to apply tariff concessions or MFN treatment to the products of Communist countries other than Yugoslavia and Poland (both of which enjoyed MFN status when the Act was passed). Unless Congress is prepared to amend this legislative restriction, it would be unlikely that Congress would agree to permit extension of the benefits of generalized preferences to Romania since such preferences offer far greater benefits than those resulting from the granting of MFN treatment.

The Under Secretaries Committee recommended, and the President concurred (NSDM 86 of October 14, 1970),4 that only Yugoslavia among the Communist countries should be granted beneficiary status in the proposed US preferences system, but that our position would be reviewed if additional Communist countries receive MFN treatment. We would expect to request Congress to give the President authority to add countries to the list of beneficiaries under certain conditions.

The Secretary has forwarded to the President recommendations to seek authority to negotiate MFN treatment for Romania and other Communist countries and to seek repeal of the Fino Amendment which prohibits Export-Import Bank lending to Communist countries which aid North Vietnam. With the Presidentʼs concurrence, authority to extend MFN treatment generally or specifically to Romania could be sought in the next legislative session. Once authority to extend MFN to Romania is granted and legislation on generalized preferences has been approved which would not specifically exclude it, the President could decide to include Romania as a beneficiary of generalized preferences. Alternatively, a specific provision could be written into the bill on generalized preferences giving Romania beneficiary status despite the provisions of Section 231(a) of the TEA.

While we believe the Romanian President raised the developing country issue because of its significance regarding generalized preferences, there are other potential advantages for Romania in being classified as a developing country. The US gives preferential treatment to developing countries under our capital controls (Interest Equalization Tax and Foreign Direct Investment Controls), untying of aid procurement, and tax treaties. In international forums, such as the GATT, IMF, and IBRD/IDA, classification as a developing country is also important.

Theodore L. Eliot Jr.
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–259, U/SM 87–89, U/SM 87. Confidential.↩
  2. See Document 199.↩
  3. 76 Stat. 872 (P.L.–87–794).↩
  4. For NSDM 86, see Foreign Relations, 1969–1976, volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 245.↩