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.
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.
[Page 133]
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.]
