236. Memorandum of Conversation1

SUBJECT

  • GSP, Protectionism and the Multilateral Trade Negotiations

PARTICIPANTS

  • Department of State
    • The Secretary
    • Deputy Secretary Ingersoll
    • Under Secretary Robinson
    • Thomas O. Enders, Assistant Secretary for Economic and Business Affairs
    • Arthur A. Hartman, Assistant Secretary for European Affairs
    • Carl W. Schmidt (EB Notetaker)
  • Department of the Treasury
    • Secretary Simon
    • Gerald L. Parsky, Assistant Secretary for Trade, Energy, and Financial Resources Policy Coordination
    • David R. Macdonald, Assistant Secretary for Enforcement, Operations, and Tariff Affairs
  • Office of the President’s Special Trade Representative
    • Ambassador Frederick Dent
    • Ambassador Clayton Yeutter
  • National Security Council
    • Robert Hormats

Secretary Kissinger: I thought we should have a discussion today of how to handle the problem of protectionism.

Secretary Simon: Yes, that is why I’ve brought Dave Macdonald with me in addition to Jerry. Dave is my expert on countervailing duty problems. He’s a very compassionate man—he hasn’t countervailed anyone all day.

Secretary Kissinger: I don’t know what we should do about the question of protectionism. The Trade Act is increasingly being perceived not as a device for trade liberalization but rather as a mechanism for advancing protectionism. It seems that almost every country I deal with is raising complaints along these lines. Very often I don’t hear about these complaints in advance. I’m not saying that they are right or wrong in their specific complaints about our countervailing [Page 816]duties and other issues. But I believe that we need to work out an overall plan to deal with these problems.

Secretary Simon: I think that everyone will agree that our recent decision on the steel countervailing duty complaint2 has helped improve the atmosphere tremendously. We are going to expedite the auto case which in my view is the only other major case we still have—the others beyond that all seem to be nits and gnats. I would like to know if there are other problems which could come up—aside from ham—whose outcome and our handling of them could have an impact on Fred Dent’s negotiations. What can we do over the next few months to help him? Are there other positive steps we can take to show that we are not protectionist?

Ambassador Dent: Well, next month we have decisions coming up on the implementation of GSP which is then to go into effect in January.

Secretary Simon: I would like to see that the U.S. has the largest possible list for GSP. According to what my staff tells me, our list is probably larger than Fred’s list.

Secretary Kissinger: I have trouble believing anyone could have a smaller list than Bill Simon’s.

Assistant Secretary Enders: The point is that there remain some 450 items in dispute. If these items come off of the final GSP list, we will not have a credible system.

Ambassador Dent: That is not a fair statement. The product list which has been approved up to now compares favorably with the GSP systems of other countries. There are some problem items still to be reviewed and these will be considered in two meetings this week. These problem items will be wrapped up this week.

Secretary Kissinger: How does what you say meet Bill Simon’s need to make the list as big as possible?

Ambassador Dent: Ambassador Yeutter will first chair a group this week to look at these problem items and then I will chair a group to look at what they have come up with. The views of all of the agencies concerned will have to be considered.

Secretary Kissinger: Does that mean any one agency can knock off a product from the list?

Ambassador Dent: No, it does not mean that. But we should be clear that we are limited by law to exclude the sensitive items and we must recognize that there has been a surge of interest recently across the land in GSP and the general thrust of this interest has been negative. [Page 817]Our list at present is comparable to those of other nations. We will be looking this week to see if we can bend a little more to include some additional products. But we must be careful we not be bent too far, otherwise we will get snapped back by the Congress.

Deputy Secretary Ingersoll: This is true but I’m afraid some of the agencies have gone too far in their objections.

Secretary Simon: I think this fits into the general problem of protectionism and how other countries see us. We will be seen as protectionist if we chop back our list.

Deputy Secretary Ingersoll: Yes, and we should also keep in mind that the Congress has already excluded a healthy number of products and has built in $25 million ceilings as a safeguard.

Ambassador Dent: Yes, there are competitive need ceilings. But the law requires that import sensitive products be excluded. The ITC and the Administration have held public hearings to receive the advice of the public sector and there is now considerable interest and attention on GSP. Unfortunately, this view tends to be negative and this extends to the Congress as well.

Deputy Secretary Ingersoll: I have noticed that a lot of the agricultural items are in trouble. All it seems to take is for one Congressman to object to an item being on the list.

Ambassador Dent: We should remember that the UNCTAD decisions concerning GSP were to make GSP a system for industrial products and not agricultural. There already are too many agricultural items on our list.

Secretary Kissinger: How will the list be preserved in such a way so that we will have a credible system? I haven’t seen the list so I can’t really comment on what is on it and what is not.

Ambassador Yeutter: The list of products which has been agreed to so far amounts to about $2½ billion in duty-free trade, covering roughly 2,600 items. This represents a very substantial list already. In dispute are items covering almost another billion dollars in trade.

Ambassador Dent: Many of those items which are still in dispute are items which have been earmarked by the Congress.

Assistant Secretary Enders: It is one thing to exclude those products which Congress has earmarked but it is something else again to have products excluded by administrative decisions. This seems to me to be the core of the present problem. If positive action is not taken, we will be perceived as having gone much beyond what was required by the Congress in excluding products from GSP coverage.

Ambassador Dent: If you call heeding the ITC advice administrative decisions then I can’t agree. We have got to be responsive to the requirements laid down by the Congress.

[Page 818]

Secretary Kissinger: Does private sector advice mean that the private sector has a veto over what we can do?

Ambassador Dent: I am not saying that it has a veto, but we must decide what advice that has been received is reasonable and what is not, and act accordingly.

Ambassador Yeutter: Of the items still under discussion, Commerce objects to practically all of them being included, Agriculture has its objections, Labor has 15–20 items it feels should come off, and STR has internal differences of view.

Ambassador Dent: USDA sent a very pared list to the ITC and then has pared it down still further. We should recognize, on the other hand, that almost the entire list of industrial products went to the ITC.

Assistant Secretary Parsky: Your reference to $2½ billion being comparable to other countries’ programs is somewhat deceptive. We should look at the total U.S. imports from LDCs, which is some $18 billion. If you look at the total potential, then our GSP coverage is less proportionately than that of other countries.

Assistant Secretary Enders: In the aftermath of your speech for the 7th Special Session,3 Mr. Secretary, and those initiatives, I think we can anticipate even more expectation on the part of LDCs on our GSP system’s coverage.

Assistant Secretary Parsky: I think that’s true.

Ambassador Dent: Nevertheless, GSP will be seen on the Hill as a $2½ billion giveaway.

Secretary Kissinger: What I want to know is can we continue to employ our 7th Special Session strategy of splitting away the moderate LDCs from the others? Will we be able to use our GSP for this purpose?

Ambassador Dent: If I recall my figures correctly, Mexico will get the highest percentage of its request list of any major country—some 88 percent.

Under Secretary Robinson: I have recently been meeting with our Economic Officers in Western Europe and they say that it appears to [Page 819]them—and to the Europeans—that we increasingly are using the Trade Act and such moves as the possible removal of items from our GSP list as threats to improve our negotiating leverage. But they are fearful that this tactic will unleash the wrong responses, that is, retaliation and a backing away from the negotiations by our foreign partners.

Secretary Kissinger: Yes, that’s my impression too.

Ambassador Dent: I met with Soames last week in Brussels and we had a very good discussion concerning agriculture in the negotiations, ham, and a whole range of problems.4 Wellenstein, Gundelach, Rabot and Hijzen 5 also took part and the talks couldn’t have been more constructive. There was concern on their part about protectionism in the United States but they now have lessened their decibel level. We should recognize that Soames will always complain because that’s his job.

Secretary Kissinger: As I see it, we have two problems to deal with. We must reduce the short-term complaints that are arising, and we must develop a long-term strategy to deal with trade issues. I agree that our purpose is not to make Soames happy. He will continue to defend the interests of the Community as we do ours. The question for us is can the United States exercise leadership at this time. There is no one else around who will if we don’t.

Ambassador Dent: If we look back, we can see that when we learned of the filing of countervailing petitions on steel, we notified the EC and others in advance that this was coming. We have been trying to inform other countries that these issues are being advanced here from the private sector. As to whether we can control the private sector, we can discuss their problems with them and try for their restraint. We can appeal to their own selfish interests and point out that we have many cases where restraint would help us achieve something in the end which would be of greater benefit to them than short-term actions. Shoes is one example where the U.S. has suffered 48 percent market penetration whereas U.K. market penetration has only been 23.4 percent. Here we are consulting with other governments in anticipation of whichever way the ITC ball bounces.

[Page 820]

Ambassador Yeutter: It seems clear to me that the whole effort to paint the U.S. as protectionist is a well thought out and well orchestrated campaign by the EC.

Under Secretary Robinson: But the U.S. private sector isn’t doing anything to help prevent this campaign.

Secretary Simon: What if we were to really seize the initiative and propose going to zero duties? We would put this on the table and even if others wouldn’t pick it up it would be clear that the U.S. was not protectionist.

Ambassador Dent: The French would immediately say that you’re attacking EC agricultural policy and that this was heresy.

Secretary Simon: How would you feel about dividing agriculture from industry if it meant getting some progress?

Ambassador Dent: Whether I do or not, the Congress has mandated in the law that there be linkage between the two.

Secretary Simon: Ok, then let’s say we’re going after all barriers to trade, then table our proposals. At least we’d have a proposal on the table.

Assistant Secretary Parsky: The maximum we can cut tariffs under the Act is 60 percent.

Ambassador Dent: At the July Trade Negotiations Committee meeting we made some milestone proposals for progress.6 But we need to see that while trade represents 7½ percent of U.S. GNP, it is 20–50 percent in EC countries. The record shows that the U.S. was playing a leadership role in July but that we and others have been held back by the recession and now by the attitude of the French, which is threatening to block movement in the MTN. I hope that positive results will come from the Summit meeting next month.7 This could be especially useful since Giscard was at Tokyo for the signing of the Tokyo Declaration in 1973. Now the French are threatening to pull down the negotiations because of agriculture. It would be good to make sure Giscard knows what his people are causing.

Secretary Simon: Yes, what you’ve said complements my suggestion. Let’s use the Summit meeting to move ahead. What kind of proposals do we need to make there which would help the Geneva talks?

Ambassador Yeutter: We will be making proposals for tariff reductions soon after the start of the new year at Geneva.

[Page 821]

Ambassador Dent: The big substantive results which should come from these negotiations is in the NTB area. Tariffs have been cut down pretty well already. Our biggest problem is countervailing duties, according to our negotiating partners. And we say that it’s negotiable. But it’s clear that to solve this issue we’re going to need to deal with the problems of subsidized exports to this market and third-country markets. Without this, we’re not going to be able to get anywhere on countervailing duties.

Ambassador Yeutter: We recently put some initial proposals for a subsidy code on the table at Geneva and there will be a meeting in a few weeks to discuss these problems. Dave and Peter 8 have been working hard on this. There also are other areas in the negotiations such as standards, government procurement, and tropical products. All of these negotiations are also proceeding at their pace.

Assistant Secretary Enders: Isn’t our real intent here to use the Summit to push forward the tempo and conclusions of the MTN? I would suggest we identify specific proposals which could be put forward at the Summit to achieve these goals.

Ambassador Dent: There are two things which can be done at the Summit which would be helpful to the MTN. First, the others want to hear the President say that the U.S. is not protectionist. And then we should use the meeting to make clear to Giscard what the French position is doing to the negotiations.

Assistant Secretary Parsky: It seems to me that if we just say we want to talk, or talk more, in the negotiations, it won’t work. It seems we must have some major new proposals from the U.S. at the Summit if we are to make the EC move.

Ambassador Yeutter: It looks more and more as though the French don’t want to negotiate within the framework of the MTN.

Secretary Kissinger: Wouldn’t it be best to force them to negotiate by putting out some proposals, in which we would have many other countries on our side, and thus get them to come along?

Ambassador Dent: Many other countries are more hard hit than we with inflation and recession. World trade is off 10 percent this year. Under these circumstances, it’s very hard to capture the imaginations of other countries.

Secretary Kissinger: If their trade is down and ours is up, I would think we would now be in an excellent position to capture their imagination with some new proposals for results.

[Page 822]

Secretary Simon: Can’t we propose we go to zero tariffs in all items under our GSP, provided that other countries will do the same?

Ambassador Dent: Let me stress that GSP is not part of the Geneva negotiations.

Mr. Hormats: But couldn’t we go faster on tropical products within the MTN? This would be a helpful proposal.

Ambassador Dent: Yes, we have recently agreed to table offers early next year on tropical products. We are moving now in that area as well.

Assistant Secretary Enders: I suggest a variant of Bill Simon’s suggestion, that is, we go to zero on some industrial products with builtin safeguards.

Secretary Kissinger: Can’t we make some proposals in the negotiations which spell out what we are prepared to do and what we cannot do because of domestic legislation? Then everyone will know the rules of the game. I admit I haven’t followed these negotiations. I don’t know whether I know what I’m talking about or not.

Deputy Secretary Ingersoll: The fact is, we haven’t had much in the way of negotiations as yet.

Ambassador Dent: We believe that the Summit can be very helpful for the negotiations. Therefore we prepared some papers with suggestions as to what might come from the Summit and these were looked at on Saturday9 in the Seidman group. When I was in Europe last week I sounded out the people whom I met about what should come from the Summit. For example, Olivier Long felt that there should be a broad endorsement of the objectives of the negotiations and a call to push ahead, but that we should not go into details.

Secretary Kissinger: We can’t just have the President state platitudes that we are not protectionist. If we can make some solid proposals, and if it looks plausible that we mean it, then Giscard and the others can instruct their Ministers to move ahead and to work out the details.

Ambassador Yeutter: We can’t expect those at the Summit to go into details but we can ask the leaders to state the basic objectives for the negotiations.

Secretary Kissinger: It will be important not to get into details. We cannot afford to take the President beyond the things which he can reply to in the give-and-take.

[Page 823]

Ambassador Dent: Another problem at the Summit is that of representation. Not all of the key countries nor the EC Commission will be represented. Therefore, there will be problems in agreeing and making broad commitments in the absence of the EC Commission, which is empowered to do the negotiating.

Secretary Kissinger: This should not be an insurmountable problem. Tom, what do you think?

Assistant Secretary Enders: I am taken by Bill Simon’s proposal which in effect would be to capture the imagination of other participants by making new proposals and exercising a leadership role. It has been a long time since the Tokyo Declaration and a good deal has happened in terms of the energy crisis, following exchange rates and the like. I think we can use the Summit to give some new direction to the MTN, not by making specific negotiating proposals but rather by stating more sweeping goals.

Secretary Kissinger: Art, what do you think?

Assistant Secretary Hartman: I agree that it would be useful to restate some of our negotiating goals. For example, it would be helpful if the leaders at the Summit identified a subsidy code as an item for priority negotiations. More work could be identified in the sectors area, which could be given a little broader treatment now in the light of floating exchange rates. We could also get from others positive response to our request to include agriculture in the negotiations.

Secretary Kissinger: We really have two problems which we need to deal with. First, what can we do about protectionism problems at the Summit, and second, how do we develop a strategy for the longer term? It’s hard to discuss these in the abstract and therefore I suggest we form a working group. We should look at what the President should say at the Summit and how would these statements be helpful to Fred Dent in the MTN. The United States now has the strongest position of any democracy whereas it’s clear to me that other democracies are in deep trouble. In almost every European country there is a domestic tendency toward paralysis. What is needed is to create a situation in which these countries can again feel that they are able to control their own destinies. I don’t see anyone except us in that position. It is much like the immediate post-war period except we can’t pour in massive amounts of funds. Our economy appears to be getting stronger but their’s are not. Therefore, the United States must act as the leader. I understand, Bill, that you’re making good progress in the monetary area.

Assistant Secretary Parsky: It will be of particular importance to show some progress in the Summit in the trade area. It will be difficult for us to respond to the other countries in other areas—for example, to their urgings that we reflate for them. Thus, we need to come forward in the trade area, in part to offset the other areas.

[Page 824]

Secretary Simon: I think the pressure from others on us to reflate will soon be over. I recently found out that Chancellor Schmidt was misinformed at the time he was last here10—he thought the most recent figure for the U.S. growth rate was 3 percent. When we got home, he was briefed and was told that our performance was up to 8.2 or 8.3 percent. As a result of this, I think he’ll relax the pressure.

Ambassador Yeutter: We agree that trade issues deserve treatment at the Summit and have prepared some papers in this regard. I think they can be incorporated into our efforts.

Secretary Kissinger: You and some of the others here in a working group should put together the various ideas for Fred to look at in terms of what would be useful for the negotiations.

Ambassador Yeutter: We must handle this very carefully, however, since Congress is a full-scale partner of ours in the MTN.

Ambassador Dent: I think it should be known that the Europeans proposed steel talks last week with the idea of placing further restrictions on trade. There is a very pessimistic cast over the European trade position at the present time. Therefore, we must design an instrument which is credible to the Europeans in the current climate.

Assistant Secretary Enders: In addition to setting goals for trade to be used for the Summit meeting, we also need to talk about setting ground rules for countervailing duty cases. Can we agree that all possible flexibility and discretion that we have at our disposal will be used?

Secretary Simon: I have already done this in instructions to my people. In fact I have gone even further in private talks with the Germans.

Assistant Secretary Enders: I would suppose then that the President could go this far in his talks at the Summit?

Secretary Simon: Yes, but no further than that. There would be hell to pay if this were to leak to the press and on the Hill.

Ambassador Dent: Aside from this, we also must recognize the position of the AFL/CIO and of the Congress.

Ambassador Yeutter: Yes, we can’t in effect just tell the Europeans that they can hit us between the eyes for the next two and one-half years on subsidies.

Secretary Kissinger: I think that is understood. Tom, would you and the others who have ideas on what we’ve been discussing form a working group. Let me thank you for coming in today.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P820123–2332. Confidential; Nodis. Drafted on October 28 by the Director of the Office of International Trade, Carl Schmidt, and approved in S on October 29. The memorandum of conversation is marked "Draft." The meeting took place in the Kissinger’s conference room.
  2. On October 20, the Treasury Department announced its finding that the value-added tax rebates given by the EC to its steel exporters were not a subsidy and that there was thus no need for the United States to impose countervailing duties.
  3. Kissinger had been scheduled to deliver an address entitled "Global Consensus and Economic Development" to the Seventh Special Session of the United Nations General Assembly on September 1. However, encouraging developments in the Middle East in the second half of August prompted a change in his plans, such that he was shuttling between Jerusalem and Alexandria from August 21 to 31, negotiating the Egyptian-Israeli disengagement agreement that was signed on September 1. In his absence, Daniel Patrick Moynihan, U.S. Representative to the United Nations, delivered Kissinger’s speech to the Seventh Special Session. For the text of the speech, see Department of State Bulletin, September 22, 1975, pp. 425–441. Excerpts were printed in The New York Times, September 2, 1975, p. 20.
  4. Dent met with EC Commission representatives in Brussels on October 17. Reports on their talks are in telegram 9368 from USEC Brussels, October 17; telegram 7926 from USDel MTN Geneva, October 18; and telegram 7927 from USDel MTN Geneva, October 18. (All in the National Archives, RG 59, Central Foreign Policy Files)
  5. Edmund Wellenstein was the EC Director General for External Relations; Finn Olav Gundelach was an EC Commissioner; Louis Georges Rabot was the EC Director General for Agriculture; and Theodorus Hijzen was the EC Deputy Director General for External Relations.
  6. Telegrams 5616, July 16; 5680 and 5681, July 17; and 5712, July 18, from USDel MTN Geneva report on the July meeting of the TNC. (All in the National Archives, RG 59, Central Foreign Policy Files)
  7. Reference is to the economic summit at Rambouillet; see Documents 122 125.
  8. Not further identified.
  9. October 25.
  10. Chancellor Schmidt was in Washington for meetings with President Ford and U.S. officials on October 3.