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168. Memorandum From the President's Assistant for International Economic Affairs (Flanigan) to President Nixon 1

SUBJECT

  • Description of the Trade Reform Act of 1973, with Options Papers on two remaining decisions

The proposed Trade Bill provides authorities and tools for the following purposes:

1)
To negotiate more open and more equitable trade.
a)
Five-year authority to reduce, raise or eliminate most tariffs over a period of time, for use during the upcoming multilateral negotiations. Authority to eliminate tariffs is essential to get an open, as opposed to restrictive, solution to the problem of preferential discrimination (particularly by the Common Market) against our exports. Import restrictions on some sensitive products or categories (e.g., textiles) would be exempt from change, either temporarily or permanently.
b)
A declaration of Congressional intent that you negotiate agreements reducing, eliminating or harmonizing non-tariff trade-distorting measures (used by the Common Market and Japan to restrict imports of our agricultural commodities), and a new procedure to assure prompt Congressional action where changes in US law are needed to implement the agreements.
c)
A more flexible authority for retaliation against those countries which balk at removing unfair restrictions against our exports.
2)
To guard against disruption of our market, to facilitate orderly adjustment to fair competition, and to assure that imports compete fairly with our domestic producers.
a)
A new domestic safeguard procedure to enable us to act promptly (within four months or sooner) and effectively to restrain the rise in imports causing serious injury for periods up to seven years, if needed, to give industry and workers time to make orderly adjustments to import competition. The criteria for availability of this relief would be eased relative to current law to permit us to respond promptly to real problems.
b)
Reform of existing unemployment compensation programs and establishment of minimum pension provisions, through separate legislation as you have proposed before. Pending implementing action by the States on such reform, workers unemployed from trade related causes (using less stringent and time-consuming processes than in current law) to be given benefits equivalent to those they would receive under the new unemployment compensation standards. Training and relocation grants to facilitate worker adjustment would continue, as under broader manpower programs. The existing adjustment program for individual firms would be repealed, but a modest program of studies and technical aid (already authorized under existing programs) would be used to encourage private initiatives by an industry to improve its productivity and competitiveness.
c)
Changes in antidumping, countervailing duty and related laws to assure prompt action, and fair and effective procedures in handling cases of unfair import competition.
3)
To strengthen our capacity to manage trade policy and respond effectively to problems created for our economy by international or domestic imbalances.
a)
New authority to raise or lower tariffs or quotas across the board, or to impose these restrictions selectively against particular countries, to help correct an imbalance in our international payments position.
b)
New authority to reduce trade barriers to fight domestic inflation.
c)
Other permanent authorities to provide flexibility in international bargaining after the main negotiating authority expires.
4)
To open up and take advantage of new trade opportunities.
a)
Authority to fulfill your commitment to set up a system of generalized preferences for LDC's, with adequate provisions for exceptions and safeguards. This scheme will help to bring pressure on Europe and Japan to liberalize their programs, open their markets to Latin American and Asian countries, and remove reverse preferences that discriminate against U.S. exports.
b)
Authority to grant MFN to communist countries in the context of a trade agreement. This would permit you to meet your commitments to the USSR and Romania, and give you flexibility to deal with the PRC and others.

To put American exporters on a more equal basis with foreign competitors, the Message will note separate legislation to be submitted calling for changes in the Webb–Pomerene Act regarding the antitrust exemption for Joint Export Associations, and extension of its coverage to include exports of certain services connected with the sale of goods (e.g., engineering, construction, management counseling).

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To deal with the Burke–Hartke challenge to American investment overseas, the Message will stress the interrelationships among the trade, monetary and investment systems and the need to avoid unilateral action now which would compromise our ability to negotiate a balanced reform. The Message will also note certain changes in our laws concerning taxes on foreign source income which will be proposed as part of a tax reform package to improve our tax policy as well as to counteract the Burke–Hartke approach.

The two remaining issues for Presidential decisions, on which Option Papers are attached, are:

a)
Whether the President's authority to impose, on a non-MFN basis, a surcharge or quota for balance of payments purposes should be constrained by international agreements (Tab A), and
b)
The form in which Congress should be requested to give the President authority to grant MFN status to the USSR (Tab B).

Tab A

Option Paper

Issue: The Trade Bill provides that the President may impose a surcharge or quota, either selectively or on all nations, as a means of responding to a Balance of Payments deficit. At issue is whether the President is required, where the restraint is imposed selectively, to do so consistent with either international obligations or the approval of the IMF.

  • Option I: Authority to apply the surcharge or quota selectively only if allowed or recommended under international rules.
    • Pro: 1) Is compatible with our general support of the rules of law in international relations and basic defense of the MFN principle. U.S. leadership in indicating its intention to depart from its MFN obligations in surcharge cases only under multilateral agreement will strengthen international cooperation and dampen dangers of chaotic unilateral actions.

      2) Gives the President a legal defense against pressures to make exceptions for particular countries (Canada, LDC's) from the imposition of a general restraint.

      3) The threat of across-the-board restrictions to reduce our overall payments deficit keeps the pressure on all countries to cooperate to reduce the deficit. It encourages third countries to assist the US in bringing pressure on those nations which have undue surplus. An authority aimed primarily at one or just a few countries reduces that pressure and lets others (e.g., France with whom we usually have a trade surplus) wash their hands of the affair.

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      4) Chairman Mills' speech March 212 noted the possible need for an import surcharge against a country in chronic balance of payments surplus, but stated, "… this power should, of course, be used only in accordance with agreements now being negotiated in the international monetary reform effort."

    • Con: 1) If we don't succeed in getting changes in IMF rules which would permit countries to take discriminatory action against those in persistent surplus, we would not be able to use the authority on a selective basis. This makes our action to impose a selective surcharge hostage to the decisions of others.

      2) Congress may insist on authority to take unilateral discriminatory action whatever we propose.

      3) A showing that we are ready to act outside international rules if needed could improve the possibilities for getting the necessary rules agreed to by all.

      4) Giving the President unilateral authority to act contrary to MFN does not mean he will in fact ignore MFN constraints, only that it is available.

  • Option II: Authority to apply the surcharge or quota selectively regardless of international rules, subject only to requiring that the President in taking such action "shall consider the relationship of such action to the international obligations of the United States."
    • Pro: 1) Gives full flexibility to protect our interests through imposition of a surcharge or quota against countries where our bilateral trade deficit or whose surplus is particularly large.

      2) Makes clear to foreign countries that we have a powerful weapon to use if we deem it necessary.

      3) Because it is selective among countries, this could help bring pressure on Japan and ease European and LDC fears that we would use across-the-board restrictions that hurt them when our main problem is elsewhere.

      4) The President can resist pressures to make exceptions from a general restraint by referring to international obligations.

    • Con: 1) It could complicate relations with Japan, since it will be seen as aimed at her.

      2) It invites other countries to levy similar restrictions against us regardless of whether rules sanction such action or not.

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      3) If we cannot get the rules we want in the IMF, we can ask Congress for unilateral authority later and certainly get it.

State, STR, NSC and CEA recommend Option I. Treasury, Commerce, Labor, Agriculture and CIEP recommend Option II.

Tab B

Option Paper

Issue: The Trade Bill is the appropriate vehicle for providing the President authority to grant MFN status to communist countries, when he considers doing so to be in the national interest. At issue is the question of how best to obtain such authority in order to (a) fulfill the agreement with the Soviets, (b) not jeopardize the current availability of Exim loans to the Soviets, and (c) not jeopardize the Trade Bill.

  • Option I: Request full Presidential authority to grant MFN status to communist countries where he considers it in the national interest.
    • Pro: 1) Similar to Presidential authority regarding other countries.

      2) Most forthcoming on behalf of the Soviets.

      3) Allows a fall-back position to the Javits proposal. (Option II)

    • Con: 1) Brings the debate with the Congress on this issue immediately to the fore.

      2) Would undoubtedly be amended as proposed by Jackson and Mills, resulting in (i) the need for a Presidential decision that excessive exit fees were not being imposed, or (ii) if that were not possible, accepting the limitations of the amendment, including the loss of authority to grant Exim Bank credit to the Soviet Union, since vetoing the Trade Bill is unlikely.

      3) Threatens the Trade Bill with lengthy and divisive debate.

  • Option II: Request Presidential authority to grant MFN status to communist countries, subject to a veto in two months by either House of Congress (Javits formula).
    • Pro: 1) Reduces the possibility of immediate confrontation on this issue, and consequent tying up of the Trade Bill.

      2) Provides time for a negotiated settlement with the Soviets.

      3) If passed, allows the President to meet his personal commitment to Brezhnev and so protect the détente, even if Congress subsequently reverses the action.

    • Con: 1) While acceptable to most members of Congress with whom it was discussed, the Javits formula is unacceptable to Mills, Jackson and Ribicoff. Therefore, it could be amended in the Congress to accord with their position.

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      2) The only fall-back from this position is to remove MFN authority for the Soviet Union from the Bill entirely, sending a request for MFN status for the USSR to Congress in separate legislation.

  • Option III: Exclude from the Trade Bill reference to MFN for communist countries, and send the Congress separate legislation on this matter.
    • Pro: 1) Avoids tying up the Trade Bill in debate on this issue.

      2) Provides time for a negotiated solution.

    • Con: 1) Would appear to the Soviets as reneging on our commitment, as they know inclusion of this authority in the Trade Bill increases the chances for passage.

      The proper choice among the above options cannot be made accurately until the situation in the Soviet Union, and the consequent attitude in Congress, is determined just before submission of the Trade Bill. Therefore, the following scenario is proposed:

      (a)
      In all drafts of the Trade Bill (on the assumption that these drafts will be leaked) include Option I.
      (b)
      Kissinger will discuss the situation in the USSR with Dobrynin on March 28. Based on indications from several Jewish leaders, a confrontation could be avoided on the following basis:
      (i)
      35,000 Jewish émigrés from the USSR per year.
      (ii)
      Inclusion among the émigrés, through the exemption provision in the Soviet law, of some college graduates and other "special" cases.
      (iii)
      A reduction in the persecution, by firing and other means, of Soviet Jews, when they or their relations apply for an exit visa.
      (c)
      Assuming the current Soviet attitude is at least as forthcoming as the above settlement, submit the Bill with Option I, if agreement can be reached with Congressional leaders not to amend the authority. If no agreement is possible, choose Option II. Choose Option II if that course avoids the amendment. If no progress is made with the Soviets, choose Option II, with Option III a fallback position.

  1. Source: National Archives, RG 56, Records of Secretary of the Treasury George P. Shultz, 1971–1974, Entry 166, Box 6, GPS Trade—Volumes I & II 1973/74. No classification marking.
  2. On March 21, Mills spoke in the House of Representatives on his desiderata in a new trade bill. (The New York Times, March 22, 1973, p. 65)