165. Memorandum From Secretary of Commerce Dent to the Executive Director of the Council on International Economic Policy (Flanigan)1
- Agriculture and Multilateral Trade Negotiations
We appreciate the opportunity to comment on the subject paper, which you circulated March 5 and which you noted “represents the position of the U.S. Department of Agriculture.”2
We have reservations about a number of the issues raised in this paper. I will limit my comments to those which, from a Commerce perspective, seem most significant.
We are, of course, keenly aware of the importance of U.S. agriculture and agricultural exports to our trade and of the generally favorable competitive advantage we enjoy in the agricultural sector. We appreciate also the substantial element of protection and uncertainty weighing on American agricultural exports to the European Communities due to the variable levy system of import control. In short, we agree that agriculture is important and should be dealt with in the multilateral negotiations in a very substantial way.
One serious reservation about the paper is its implied “all or nothing” approach. Under the heading of negotiating principles the paper [Page 628] states: “multilateral trade negotiations must be directed at the substantial reduction of tariffs and the complete elimination (underscoring supplied) of all other forms of border protection and export subsidies.” The paper goes on to state that “stubborn adherence to this principle is the necessary condition for achieving complete removal of artificial barriers that hamper the movement of goods and prevent the economic response of supply and demand to price.” While this principle may be a suitable initial negotiating approach, I suspect that stubborn adherence to it as a guideline in the forthcoming negotiations would diminish, rather than promote, the practical results achieved. This is particularly true in agriculture where the intransigence of the EC with respect to its Common Agricultural Policy reflects European reluctance to eliminate the protection afforded to high cost European agriculture. I doubt that this long-term objective can be attained in the next negotiating round, given the underlying negotiating possibilities and time frame. Thus more limited and presumably attainable interim goals probably should be developed for the forthcoming negotiations.
Moving from negotiating principles to the objectives on page 5 we find much with which we in Commerce agree. Item D, however, which refers to the phased increase of quota limits and eventual elimination of all quotas, presents certain questions. There certainly are numbers of areas where this could and should be done. On the other hand there are likely to be cases, where because of special circumstances or where an industry is of critical national importance, countries will insist that quantitative controls must be retained, textiles being a case in point.
With regard to the procedures outlined by Agriculture for reaching its objective of substantial reduction of tariffs and complete elimination of all border protective and export subsidy measures, the paper suggests a line-by-line or item-by-item negotiating approach. The reasons given for preferring this approach are not convincing. Agriculture argues that the “important barriers to trade are applied by a country against both agricultural and industrial products,” but it does not necessarily follow that the only way or even the best way to deal with these barriers is on an item-by-item basis.
I assume that the objective of the United States is to achieve maximum reduction of barriers to world trade. This objective could not be achieved by an item-by-item approach, at least as a basic negotiating technique for dealing with industrial trade. First, it tends to limit, almost by definition the scope of the negotiations by requiring countries to table “request and exception” lists. Countries with the largest exception lists (items on which a country does not wish to negotiate) tend to control the pace of the negotiations. So widely accepted are its limitations as a viable negotiating technique that at a recent meeting of the GATT Committee on Trade in Industrial Products (CTIP), the Committee [Page 629] agreed to exclude item-by-item negotiations on industrial products from further examination.
Finally, it should be recognized that many countries are not yet prepared to accept formulas of reciprocity based on equality in approaching “… the goal of minimum interferences with the flow of world trade.” Reciprocity, therefore, will continue to be measured in conventional terms such as trade coverage of concessions granted. The item-by-item approach, if applied to such generally accepted concepts of reciprocity, would inevitably mean that countries, such as the U.S., must pay for agricultural concessions with industrial concessions. However, we cannot afford such a trade-off since our trade with the EC in non-agricultural products and levels of industrial tariffs are roughly in balance, leaving us with little or no surplus in the industrial sector to trade-off for agricultural concessions. In the case of Japan, our imports of non-agricultural products are considerably larger than our exports to Japan, giving us an apparent surplus of negotiating leverage. However, much of that surplus would be needed in the industrial sector to obtain deeper cuts in Japan’s industrial tariffs which are considerably higher than ours, if we were to enter into item-by-item type negotiations. The same is true of Canada.
I would conclude, therefore, by agreeing that the best approach to freeing up agricultural trade is to attempt to achieve minimum levels of interference to world trade flows, and to regard each country’s efforts, if adequate, to constitute reciprocity. Under this concept, I would think that an item-by-item negotiation would be inappropriate and that an agricultural sector negotiation would be a more viable approach.