235. Memorandum of Conversation1

SUBJECT

  • U.S. Protectionism2 and East-West Trade Legislation

PARTICIPANTS

  • The Secretary
  • Secretary Simon, Department of the Treasury
  • Helmut Sonnenfeldt, Counselor
  • Arthur A. Hartman, EUR
  • William Clark, Jr., EB, (notetaker)

The Secretary: There are two things I wish to discuss today. The organization for the Economic Summit must get underway.3 We need some instrument to pull together the work being done. I think it would be useful to set up a small working group. In that connection, Simon and I might meet on the priority matters to be considered. When we don’t have this type of planning we don’t have good meetings.

Secretary Simon: I would suggest that we set up a group similar to the one we had at the time of the Energy Conference.4 We could meet twice a week at 6:00 in the evening.

The Secretary: I don’t want a series of bilateral arrangements. I think it is important that we get in early and assure that everyone is kept informed.

Sonnenfeldt: Seidman’s operation is already beginning work on the papers that will be required. This should assure that we are fully included in the preparation.

The Secretary: I still believe we should set up a small group and I assume that Treasury feels that same way.

[Page 806]

Secretary Simon: Yes. I believe that Yeo and Parsky would be sufficient for a group on our side.

The Secretary: We will probably need about three people from our shop—Sonnenfeldt, Hartman and Enders. However, I want meetings set up on a formal basis so that everyone knows the preparation and in particular so that I know what is being prepared. In this way, we can assure that things get done and get done well.

Secretary Simon: I would like to talk about protectionism. I have talked recently with the Germans—Apel and Poehl—and the automobile case is of primary concern to them at this time. Treasury must make a determination by February 6. We have to look back at the previous procedures in countervailing duties and anti-dumping to understand the attitudes in this case. Treasury had previously taken the position that if it held off on some cases, they would go away. The industry was aware of this and at times there were two or three secretaries under fire. The Congress put a stop to such activity in the Trade Act of 1974. It in effect told the Secretary what he could do and what he could not do, and exactly what criteria had to be met before countervailing duties could be waived. Treasury will bend over backwards not to make a finding that countervailing duties are assessable or that dumping exists if there is any legal loophole which it can grab hold of. There is currently a steel case involving countervailing duties on the EC rebate of value added taxes under a complaint filed by U.S. Steel. This case is complicated by two one hundred year old cases in which the Supreme Court said that favorable tax policies by governments for exporters would constitute a bounty or grant and could be countervailed. Treasury has disagreed with this position and, in fact, has gone in the face of it. Up to the present time the Treasury position has never been challenged and we have not been sued. I have told Assistant Secretary McDonald that in the current case on steel we will take the position that we disagree with the Supreme Court decision, although it will not be made that explicit, and that we will follow the 70 year old Treasury policy and not accept the petition that would hold that the value added tax is countervailable. In doing this we have to realize that we may be sued, but I believe it should help in our relations with our European allies.

The Secretary: I want to discuss some method by which we can avoid having to face these individual issues. It would be useful if we had a small group to determine an overall strategy in this area. I have been told that Ambassador Dent’s Deputy has expressed the view that the more cases that we can pile up, the stronger it will make our negotiation position in Geneva.

Secretary Simon: I could argue the other side of that proposition. Nothing could be more disastrous in my view. If we find that automobiles [Page 807]are being dumped, it will blow the multilateral trade negotiations out of the water.

Sonnenfeldt: We would have Schmidt on the warpath at exactly the wrong time.

The Secretary: Let’s take Brazil as an example. In 50 years Brazil should have achieved world power status and it is now a key country in Latin America. Yet every time I see the Brazilian Foreign Minister, there is another of these cases that I don’t know about which is bothering him.

Secretary Simon: Everyone in Treasury knows of my very close relationship with Finance Minister Simonsen of Brazil.5 We pick up the telephone all the time to discuss these cases and I believe he is fully satisfied with the way we have worked them out.

The Secretary: The Foreign Minister is not as satisfied. As you know, Brazil is eager to achieve a special status with the United States and we must do what we can to bring Silvera6 along. If your contact is happy, then I would like to get in on these problems early so that I can bring my counterpart along as well. This is not in any way a complaint. I have had no complaints from our people. As you know we do not want any foreign policy problems. You, of course, have your own charter. What I want to do is have an early look at a strategy on protectionism. It is increasingly apparent that the Europeans and, to some degree, the Latin Americans are viewing the Trade Act as a protectionist act and not one being used for the liberal purposes for which we had intended it. We should have had Fred Dent here today, however, I understand he is not in town.

Hartman: If we could go back to the steel case for a moment, I wonder if there would be some value in talking to U.S. Steel about it. They have a great deal to lose if the world should adopt a protectionist bent as a result of actions we are taking.

Secretary Simon: That is settled. I have just told you that we will not accept the petition and will be prepared to have them (U.S. Steel) sue us if that is what they wish to do.

Hartman: There is a collateral problem as I understand it. If the finding in the lower court goes against Treasury, it would be necessary to withhold the assessment of duties on steel imports. This could have significant trade impact upon our suppliers.

Secretary Simon: No, I do not believe that is correct. I will have to talk to our lawyers about it. The case will undoubtedly take years to [Page 808]settle and we cannot leave it in limbo for that time. The steel companies, of course, talked to Treasury prior to filing of this complaint and only filed it as a last resort.

The Secretary: Why did they take that action at this time?

Hartman: It is possible that they wish to have a voluntary restraint agreement on steel.

Secretary Simon: Sure, that may be what they are after. They may in fact want to go to court and it’s possible they will go to court. We still can’t keep the case in limbo and we can’t assume that U.S. Steel will take the Treasury Department to court; this would be a very serious step on their part.

Hartman: There will be a lot of pressure in an election year. We also have, for example, the case on hams from the EC.

Secretary Simon: This is a damned important case. For example, Denmark is very closely involved.

The Secretary: I do not believe that we can expect the Europeans to go along with another cheese type confrontation7 in this matter.

Secretary Simon: The solution will be similar to cheese. We will ask the Europeans to make a 20% reduction in their present subsidy payment and to agree that if the corn hog ratio slips we will have to review the question further and perhaps they will have to reduce or remove their remaining subsidies. I believe that the State Department has agreed with this position.

Hartman: This will be very difficult for the EC to do but I believe we have to make the offer. What we need are international rules covering this type of action.

Secretary Simon: We must avoid the problem of everyone harping on our being lenient in the past with our trading partners. This was what was behind the Congressional move to put our feet into the fire by limiting discretion on the part of the Secretary. In this regard, I think it is important that we move the MTN forward.

The Secretary: It is part of the same miasma that they have on many issues in Congress. They think everything is a unilateral favor which we grant to others. They do not realize that if we get a wave of retaliation started, the U.S. will have to pay a great deal as well as the others.

Sonnenfeldt: We have a meeting between Soames and Robinson next month and unless we have something positive to say which will [Page 809]smooth over the problems we now have with the European Community, those discussions could very well turn into a brawl.

The Secretary: That is why I think it would be useful if we had a meeting—Simon, Fred Dent and who else.

Hartman: Butz might have an input in some of the cases.

The Secretary: I don’t think we necessarily need him at all times.

Hartman: No, but we might use him on the ham case. For example, hog prices are currently up and yet we are contemplating an action which can only raise the price of pork products to the consumer.

The Secretary: You, Fred Dent and I need to get together to develop a strategy on this matter. I don’t want to run it from this building but I do believe we must be in agreement on what we are to do in this area. Only in this way will it be possible for me to avoid the Foreign Ministers beating up on me. I have to know what the other agencies are doing and why these things are being done.

Secretary Simon: I agree. Our problem is that years of inactivity have led Congress to do what it can to tie my hands on these matters.

Hartman: The Europeans see the major requirement as injury and we do not have an injury requirement; this needs to be changed.

The Secretary: Why did we not fight to get it changed?

Secretary Simon: We did fight to get what we could, in fact we had to make an agreement on dairy to get the waiver provisions that we have in the Trade Act at present. This agreement came back to haunt us during our confrontation on cheese with the EC when we had to go back to Mondale and Nelson8 in order to exercise discretion.

Sonnenfeldt: STR is also apparently hogtied by the Senate Finance Committee. They cannot make a move without its approval.

The Secretary: I have a letter from Ambassador Ramsbotham.9 Have these been circulated?

Sonnenfeldt: No, I sent the only copy directly to you.

The Secretary: Well have copies made and I want to give one to Hartman, Sonnenfeldt and one to you Bill. These are considered the top British concerns and they ask that they be raised with the President and with me. I asked that they be prepared in writing and this was done in the form of a letter to me from Ambassador Ramsbotham.

Secretary Simon: Will these be issues to be raised at the Summit?

The Secretary: They could be raised as issues in our foreign policy approach.

[Page 810]

Hartman: The Brits are under increasing pressure from the left to take their own protectionist actions.

Secretary Simon: In fact the pressure is so strong they may well have to do something in this area.

The Secretary: In the large part, this is probably due to Healey. Healey is a shit who can’t be trusted.

Secretary Simon: Healey now has the Prime Minister glint in his eye.

Sonnenfeldt: Healey is not acceptable to the left anymore and is now officially off the national executive.

The Secretary: However, who else in that age group would compete with him; I don’t see anyone.

Sonnenfeldt: Callaghan is a possibility. He might take over.

The Secretary: Callaghan is in his sixties and Wilson is younger than he is. It just can’t happen for more than a year or so. What are your views on the Russian oil deal and the grain talks now that the matter has come out in the press?10

Secretary Simon: My views agree completely with yours. We should have stayed until we got agreements on both.

The Secretary: With the press leak that has occurred it now appears impossible.11

Secretary Simon: I still think we should stay until we come back with both agreements. The problem is that everyone here expects us to do that. If we come back with just a grains agreement there will be a number of people saying that it is another giveaway. However, I agree that as a result of the article, an agreement now appears to be a dead duck.

The Secretary: Who is the SOB that leaked the story to the press?

Sonnenfeldt: Looks like FEA since the article quotes from the telegrams.

The Secretary: Why did we send telegrams out? We are not a lending library.

Sonnenfeldt: Bell from FEA wrote the telegram12 and the story either came out of the telegram or out of someone who was present at the talks.

[Page 811]

The Secretary: In either case that would be Bell.

Secretary Simon: Robinson should go back13 and try to get something, if only an option to buy oil at some time in the near future.

The Secretary: That is my view as well.

Secretary Simon: No matter what we get it will make the farmers unhappy. They don’t want any deal at all.

Sonnenfeldt: To them it will look again as if some extraneous concern is holding up a deal which they very much want.

The Secretary: The stupid bastards, what are they unhappy about; they have a corner on the market.

Secretary Simon: They don’t want to be in the position of being residual suppliers again.

The Secretary: Why not, they’re in a very strong position.

Secretary Simon: The problem with being a residual supplier in the present market is no problem at all. However, a residual supplier must also operate in a market that is going down as well as up.

The Secretary: I don’t see what their problem is. The Soviets don’t have any other place to get the grain.

Secretary Simon: The farmers are just a suspicious lot. They have been unhappy over past years and will continue to be unhappy with whatever we bring back.

The Secretary: Yes, that’s true, but I still don’t see a need for the unhappiness.

Hartman: They want to sell more.

The Secretary: They not only will be selling to the Russians but they also have the Japanese. Between the two they can sell as much as they want. How much does Japan buy currently?

Secretary Simon: I believe it’s somewhere in the neighborhood of 10 to 12 million tons.

The Secretary: The Japanese can’t get it anywhere else either. Thus, the farmers stand to sell somewhere in the neighborhood of 18 million tons.

Hartman: The Japanese buy soybeans as well. The farmers will also be in a good position if we get a grain reserves agreement.

The Secretary: I really do not concur over the advisability of having the Russians holding grain reserves. I disagree with Enders on this point. I think it is in our advantage for them not to have grain reserves.

[Page 812]

Sonnenfeldt: It doesn’t appear to be an issue at this point. Their reserves are so low that they will be merely replenishing them over the next two or three years.

The Secretary: On protectionism I want to have a meeting between Simon, Dent and myself when Dent gets back.

Secretary Simon: You can be assured on that topic when you talk with the Foreign Ministers that Treasury will bend over backwards to exercise whatever flexibility we have.

The Secretary: It would still be very helpful if we have a developed strategy on how to deal with these matters.

Secretary Simon: I agree, it would be useful not to treat them on a case-by-case basis.

The Secretary: Yes, that’s the only way we can do it. I hear nothing about these cases and then Silvera is on the line complaining about something. We need a strategy for our overall approach.

Hartman: If we had a strategy on how to handle each case and what arrangements could be made we would be in a better position. I realize it won’t be possible to get an international agreement in an election year, but we can talk about it.

Secretary Simon: That’s what Ambassador Dent has been doing. We need to put this issue on the front burner. We have to tell industry that we are working for an interdependent, open world trading order, and that is part of our strategy to attain such open world trading order.

The Secretary: This in a world with 123 dictatorships.

Hartman: Still we need an overall strategy to deal with the matter.

The Secretary: We will also need to get started on what we want the content of the discussions to be at the Summit. Can we get a list of headings as to what might be considered? If it does not follow an agreed plan, the Summit may lead to less confidence rather than more. There is also the possibility that if it becomes too economic, we will not be able to pull our own weight.

Sonnenfeldt: I will send you a copy of the preparations already under way by Seidman and we will get the group together that you have already talked about.

The Secretary: That’s right. We need a small coordinating group to work on the overall strategy and at the same time we can begin to get the papers written.

Sonnenfeldt: I think we should give some attention to modifications we might want in the Trade Act with regard to dealing with the USSR.

Secretary Simon: The USSR has what we need to get passage of any changes in JacksonVanik. What we need is some improvement in the figures.

[Page 813]

The Secretary: I don’t think it is possible that we will get any such changes. I don’t think they can do it.

Secretary Simon: They have the message we have told them what is needed and they have taken it down. If they let one or two of the more visible go, it would help. They wrote down the names of people we are most concerned about.

The Secretary: I have to give you one word of warning on this. As soon as you get any improvement, those birds out there will get you a new list of ten more people. The Congress and the Jewish groups are always prepared to come back with more demands. We took a list of 700 hardship cases with us and I believe at the present time 400 or 500 have been released. The whole issue at first started over the question of the education tax. That has now been suspended and it was done in writing.

Hartman: Yes, and at that time we were up to 34,000 being released and now we are down to somewhere in the neighborhood of 10,000.

Secretary Simon: Well, there are two ways we can handle this. We can do nothing and see what happens, or we can move ahead with proposals of our own. I favor the second. Up to the present we have restricted our Congressional initiative to Ribicoff and Javits. I believe at this time we should broaden it out and take in others.

The Secretary: I think we should start in on Cranston.14 He has a good head for counting noses and appears willing to work with us.

Secretary Simon: After we do our work with Congressional contacts, we must get the legislation up to the Hill.

The Secretary: What do you think the legislation should say?

Secretary Simon: I think we should go for the whole modification. We may have to take less, we may have a compromise. But if we start with less as our initial position, then we can do nothing but end up with an even more reduced package.

Sonnenfeldt: If we go up then the Russians may be inclined to do something that will help us during the heat of the debate.

The Secretary: Who do you think should do the Congressional liaison work?

Secretary Simon: Well it could be done by SimonKissinger or it could be done at one step lower by Parsky and Sonnenfeldt. I don’t see why the initial contacts can’t be at the level just below the Secretaries and then the big guns can move up in the end.

Sonnenfeldt: That’s OK with me. Vanik is going to Moscow and he wants more publicity. He’s unhappy with the amount of publicity [Page 814] Jackson has received and the fact that people seem to be talking more to Jackson than they are to him on the issue.

The Secretary: I don’t think Jackson has done himself any good with his work on the Trade Act.

Sonnenfeldt: I think there are a number of Congressmen who want off this hook and they are looking for us to find them a way to do it.

The Secretary: When should we put up the legislation?

Secretary Simon: I think we will probably need a month.

The Secretary: I think we might need to move more quickly. Why not go up with a change on a quicker timeframe.

Secretary Simon: It might be possible to go up in two weeks, but we would need to do our Congressional liaison first.

The Secretary: How about disentangling Stevenson from the other issues. I think that that might be possible.

Secretary Simon: That would be OK if they go forward together.

Sonnenfeldt: Well, we will still have to get the EXIM problem solved at the same time, so Stevenson alone might not be that valuable.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P820123–2170. Confidential; Nodis. Drafted on October 14 by the Chief of the Special Trade Activities and Commercial Treaties Division, William Clark, Jr., and approved in S on October 16. The meeting took place in Kissinger’s office.
  2. Hartman and Enders raised the issue of U.S. protectionism and the multilateral trade negotiations, with particular emphasis on Dent’s role therein, with Kissinger at a September 11 Department of State staff meeting. Kissinger, opining that "Dent is not an unreasonable man," requested a paper on the issue as well as an interdepartmental meeting, suggesting that "we ought to try to get together with Simon and Butz and then see if we can’t agree on a strategy that we can pursue." (Ibid., Transcripts of Secretary of State Kissinger’s Staff Meetings, 1973–1977, Entry 5177, Box 8, Secretary’s Staff Meeting, September 11, 1975)
  3. The first international economic summit was held at Rambouillet, France, November 15–17; see Documents 122 125.
  4. The Washington Energy Conference took place February 11–13, 1974.
  5. Mario Henrique Simonsen.
  6. Antonio Azeredo da Silveira was the Foreign Minister of Brazil.
  7. In April 1975, a longstanding dispute over EEC subsidization of cheese exports to the United States was resolved when the EEC agreed to eliminate some of its subsidies while the United States agreed not to impose countervailing duties against those EEC cheese exports that continued to be subsidized.
  8. Senator Walter Mondale (D–Minnesota) and Senator Gaylord A. Nelson (D–Wisconsin).
  9. Not found.
  10. In October 1975, U.S. negotiators were engaged in talks in Moscow concerning the conclusion of agreements for long-term grain sales to the Soviet Union and oil purchases from the Soviet Union.
  11. Apparently a reference to an October 12 New York Times article that reported that an oil deal with the Soviet Union had become less likely, given the Soviet rejection of an American proposal to purchase oil at a discounted price.
  12. Not further identified.
  13. On October 11, Robinson, the lead U.S. negotiator for both the grains and oil talks, left Moscow for Paris to attend a preparatory meeting for the December Conference on International Economic Cooperation. See Document 300.
  14. Senator Alan Cranston (D–California).