37. Memorandum From the Chairman of the NSC Ad Hoc Group on Europe (Hillenbrand) to the Chairman of the Review Group (Kissinger)1

SUBJECT

  • Enlargement of the European Community, NSSM’s 79 and 91

NSSM 79 requested us to examine UK accession to the European Community and NSSM 91 asked us to include a study of EC preferences.2

In the attached memorandum we describe the anticipated development of the European Community, appraise its implications for the United States, and lay out an overall strategy to deal with both the immediate problems of UK accession and the longer-term problems of economic relations with a strengthened European Community.

We then set forth more detailed policy issues for: (a) accession to full membership in the Community of the UK, Denmark, Norway and [Page 129]Ireland; (b) related arrangements for the remaining EFTA countries; and (c) association and other preferential arrangements with other countries, principally in the Mediterranean area and Africa.

The first part of the paper summarizing anticipated developments of the Community (Section I) and appraising the implications for the United States (Section II) is based on a lengthier and more detailed Department of State study paper with annexes which is also submitted herewith.3 In those studies, we examine in greater detail the setting of the negotiations, the various issues which will affect our interests, and set forth the methodology and results of our quantitative estimates of the effects of enlargement on both our agricultural and industrial trade.

Section VI of the memorandum discusses EC preferential arrangements and is in response to NSSM 91. We summarize the main political and economic facts and considerations for each of a number of EC arrangements on which the U.S. will have to take a position. We then discuss the considerations relating to GATT principles and procedures, the problem of protection of our commercial interests and the possibilities and complexities of grouping the countries involved for policy treatment prior to setting forth the options for U.S. policy.

I regret that it has not been possible to reach agreement among the members of the Ad Hoc group on either the substance or presentation of the attached paper. Although the Department consulted interested agencies on the methodology employed, both before and after the quantitative portions of the study were undertaken, a number of agencies do not accept the results as relevant for policy determination. The Department twice extensively redrafted the memorandum in an attempt to meet the agencies’ concerns, but we failed to agree on a common assessment or on a common statement of the problem. We then tried to set forth the differences between us within the structure of the summary paper, with STR attempting to supply a position that would reflect the views of the dissenting agencies. This attempt failed as well. The agencies concerned, the Departments of Treasury, Agriculture, Commerce and STR, prefer to submit their own statements rather than to contribute sections which would fit into the structure of this paper. The Department of Defense, the Central Intelligence Agency, the Council of Economic Advisers, and the Bureau of the Budget participated at different stages in the work of the Ad Hoc group and may also wish to express positions at a later stage of this policy review.

In the circumstances and in order to meet the deadline of the Review Group, I submit the paper as it is, attaching the combined state[Page 130]ment of Treasury, Commerce, and Agriculture4 and the separate statement of Ambassador Gilbert.5 No purpose would be served at this juncture by delaying the consideration of the issue by the Review Group. The paper indicates where it is believed dissenting statements on the appraisal and overall strategy could be made if the Review Group feels that only one paper should be submitted to the NSC.

Option No. 3 on policy related to the accession negotiations was drafted in the earlier attempt to set forth the dissenting agencies’ views. Following completion of our paper we received the attached statements and recommendations from these agencies. Both papers contain modified formulations of Option No. 3. As these agencies want their submissions presented in single consecutive statements and as there are differences between the two versions of the policy option, we have not attempted at this stage to revise further Option No. 3 in the State Department paper.

Enclosure

[Omitted here are the table of contents and copies of NSSMs 79 and 91.]

Enlargement of the European Community: Implications for the U.S. and Policy Options

Introduction and Summary

For two decades the U.S. Government has consistently supported the policy of European integration. Our continuing support was recently reaffirmed by the present Administration in the President’s Report to the Congress on Foreign Policy.6 The essential reasons for our continuing support are simply stated: First, an integrated Western Europe can more effectively utilize the talents and resources of its member [Page 131]nations and thus be able to participate more fully in maintaining the security of the North Atlantic area and in promoting a more stable world order. Second, a coherent structure in Western Europe can provide the indispensable framework within which a dynamic but truncated Germany both fulfills its role as a constructive member of the Atlantic Alliance and develops improved relations with Eastern Europe without concern to its neighbors.

An important conclusion of this paper is that British accession to the Community is essential to the prospects of further European integration. If the accession negotiations should fail the European integration movement would inevitably be set back, and there might well be some back-sliding. We have not thought it necessary to examine the consequences of failure but believe that the economic fragmentation of Western Europe would not benefit American interests and might well leave us saddled with the UK and the pound in a permanent client status.

The problem then is how will our interests be affected by the enlargement and strengthening of the Community, and how can we most effectively advance these interests?

Our study reveals that, as far as one can calculate the transitional effects of the probable tariff changes, the costs to overall industrial exports will be small to moderate, although individual export industries may be unfavorably affected. The longer term effects of EC enlargement will be more important, although they are impossible to predict with any accuracy. Some of the common policies to be worked out as part of the process of integration may impinge on specific American interests. We believe British accession, plus that of Denmark, Norway and Ireland, will on the whole reinforce the basically liberal and responsible economic orientation of the Community.

We see no reason why there should be any sharp reversal during this decade of the satisfactory record of the sixties when the Community was a dynamic market for our exports which increased by 143% during the first eleven years of its existence. During this period, we earned an average of over a billion dollars annually in trade surplus, and the Community was the most attractive field for our foreign investment which increased ninefold. By means of these investments we have penetrated Community and third country markets much beyond what would have been possible by exports alone.

We can however foresee a possible cost to our agricultural exports—mainly grain—on the order of $100 million if the support price level of the Common Agricultural Policy is not reduced in connection with British accession. Because of the potentially high cost to the British balance of payments of adoption of the Community Common Agricultural Policies, agriculture will be the most critical question in the nego[Page 132]tiation. To the extent the U.S., in defense of its own interests, can be helpful in persuading the Common Market to move toward lower CAP price levels, it would be easier for the British to accede, minimizing the danger to sterling and the monetary system.

We believe that active intervention in the enlargement negotiations would be counterproductive. Consistent with our overall policy of support, we believe that the most effective strategy for advancing our interests in connection with enlargement and further development of the Community is one in which we would:

—express support but seek to remain in the background to avoid being tagged with the possible failure of the European effort.

—seek to minimize the costs to us during the enlargement negotiations by reliance on GATT rights and normal GATT procedures augmented by bilateral and multilateral diplomacy.

—seek to influence the course of the future development of the Community in an “outward looking” direction through bilateral diplomatic means, exchange of high-level visits, joint working groups with the EC, as well as through multilateral forums such as OECD. We should be prepared to respond positively to a European request to set up a joint high-level U.S.–EC Commission.

—engage the Community in multilateral negotiations, which means pursuing the preparatory work now underway in the GATT and OECD for a negotiating approach on non-tariff barriers and agriculture and gearing up for another major round of reciprocal trade negotiations following conclusion of the enlargement negotiations.

The paper also lays out three policy options for protecting our interests in the enlargement negotiations. These are:

Option 1—Make clear early in the negotiations that we have commercial interests and GATT rights which we expect the parties to the negotiations to respect, that we will examine the results of the negotiation in the light of these rights and interests primarily in connection with the normal GATT examination of the agreement and the renegotiation of GATT bindings.

Option 2—Same as above, augumented during the negotiations by bilateral and multilateral consultation in which we would:

—stress to the parties that EC and UK bindings on soybeans should be maintained and that the incidence of protection for grain in the enlarged Community should be lower than that in the current Community;

—make similar representations for other important trade interests if it develops during the course of the negotiations that they may be adversely affected.

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Option 3—The U.S. should not depend solely or primarily on GATT rights and it should include in its expressions of concern economic damage that may arise from the further evolution of the enlarged Community. Furthermore, it should not limit its initial emphasis to agricultural trade. Instead it should:

1. Before as well as during the negotiations for accession express to the participants our serious concern lest the formal agreement of accession or commitments reached affecting future actions by the enlarged EC seriously damage our trade or the international trading system.

2. Make clear that we will defend our economic interests by all appropriate means, including the exercise of our GATT rights.

3. Ask that a continuing consultative mechanism be established through which we can be kept informed of the negotiations and register our concerns.

4. Stress at the outset that we will be alert for all cases where our economic interests in either industry or agriculture are seriously endangered. As examples of problems that can now be identified, make clear that we will oppose any broadening of the CAP without compensating reductions in its protective levels or any extension to other products, and would expect compensation for any increase in the protective effect of non-tariff barriers where this is not the inevitable result of the formation of a customs union.

5. Make clear that the EC member states should not finalize their governmental positions on exchange rates or international monetary issues until there has been an opportunity for full consultation in wider forms such as the IMF and the Group of Ten.

We believe that only the first two options are consistent with the above strategy.

Policy choices are also posed by the arrangements which may be worked out between the Community and the EFTA neutrals. Because of the complexity of the issues involved and the fact that neither the Community nor the EFTA neutrals have developed a clear idea of the relationship to be worked out, we recommend a low profile and a response to queries which (a) stresses our interest in the continuing political development of the Community, and (b) indicates that we will judge any arrangement with the neutrals in the light of its GATT compatibility and its effects on U.S. trade interest. Once the issues have been brought into sufficiently sharp focus and negotiations seem imminent we would adopt the same policy for protecting our interest as in the case of accession of new members.

In Part VI of the paper—responsive to NSSM 91—we discuss EC preferential arrangements with Spain, Israel, Morocco, Tunisia, the Yaounde Convention Countries, East Africa, and others. Here the prob[Page 134]lem is to choose among a number of courses of action we might follow in the GATT. These range from leaving the GATT status in abeyance to insisting that the agreements be made compatible with the GATT either by subsuming them in the generalized preference scheme for all developing countries, or by converting them into interim arrangements for full customs union or free trade areas. The problem is complicated by the possibilities of applying different options to arrangements with different countries or groups of countries and to choices for how we could defend U.S. trade interests no matter which GATT options are chosen. These possibilities are spelled out in the following sections of this paper.

[Omitted here are the body of the 40-page paper and annexes.]

  1. Source: National Archives, RG 59, Executive Secretariat, Files on Select National Security Study Memorandums, 1969–70, Lot 80D212, NSSM 91. Confidential. Cleared by Samuels, Pedersen, Camps, and Trezise. Additional documentation on EC enlargement is in the Library of Congress, Manuscript Division, Kissinger Papers, Boxes CL 290 and 292. See also Foreign Relations, 1969–1976, volume III, Foreign Economic Policy, 1969–1972; International Monetary Policy, 1969–1972, Document 40. Kissinger discussed EC enlargement in White House Years, pp. 425–429.
  2. NSSM 79, Document 318; NSSM 91, Document 34.
  3. Attached but not printed. The full response and the Department of State paper are also in the National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–164, National Security Study Memoranda, NSSM 79.
  4. Attached but not printed. The Departments of the Treasury, Commerce, and Agriculture expressed concern with “the appraisal of the implications of the enlarged Community for the United States, the discussion of the overall strategy, and the presentation of options with pro and con arguments.” Fundamentally, these Departments thought that the United States should more forcefully state its interests during EC expansion, in view of the enhanced economic and bargaining power that would result from EC enlargement. (Statement by the Departments of the Treasury, Commerce, and Agriculture, April 22)
  5. Attached but not printed. The STR also favored a more proactive posture for expressing U.S. interests during expansion negotiations. (Enlargement of the European Community: Implications for the U.S. and Policy Options—STR Views and Recommendations, undated)
  6. The President submitted his first annual report on foreign policy to Congress on February 18; for text, see Public Papers: Nixon, 1970, pp. 116–190.