678. Memorandum From the Executive Secretary of the Department of State (Eliot) to the President’s Assistant for National Security Affairs (Kissinger), Washington, January 12, 1972.1 2

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DEPARTMENT OF STATE
Washington, D.C. 20520

January 12, 1972

MEMORANDUM FOR MR. HENRY A. KISSINGER
THE WHITE HOUSE
Subject: Venezuela - Denunciation of Bilateral Trade Agreement

On December 31 the Government of Venezuela officially informed us of its intention to terminate the US-Venezuelan Reciprocal Trade Agreement, the denunciation to become effective six months from that date. While both nations consider the trade agreement obsolete and while the impact on bilateral trade is expected to be small, denunciation raises the legal and policy issue of whether or not the concessional rate on certain oil imports into the United States should be increased to the statutory rate.

The attached memorandum provides information regarding the present status of the Trade Agreement and the initial implications which its termination will have for our trade relations with Venezuela. We will keep you informed of our additional analysis as well as the actions which the Department, in consultations with other agencies, will propose for dealing with the problems posed by Venezuela’s intention to denounce the Trade Agreement.

[signed L. Paul Bremer for]
Theodore L. Eliot, Jr.
Executive Secretary

Attachment: Memorandum.

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DENUNCIATION OF US-VENEZUELAN RECIPROCAL TRADE AGREEMENT

On December 31 the Government of Venezuela officially informed us of its intention to terminate the US-Venezuelan Reciprocal Trade Agreement, the denunciation to become effective six months from that date. While both nations consider the Trade Agreement obsolete and while the impact on bilateral trade is expected to be small, denunciation raises the legal and policy issue of whether or not the concessional rate on certain oil imports into the United States should be increased to the statutory rate.

Background:

The Reciprocal Trade Agreement with Venezuela was signed in November 1939 and later revised in August 1952. It provides for reciprocal and unconditional most-favored-nation treatment (Articles IX and X). However, Article XV provides that this treatment will not apply in cases where certain benefits are given in order to facilitate border traffic, customs union or a free trade zone.

Tariff concessions granted are included in two lists. List I includes the concessions granted to the United States by Venezuela and List II the ones granted to Venezuela by the United States. List I covers some 619 items, accounting in 1969 for some 50% of US-Venezuelan trade. List II contains US bindings on certain petroleum products, iron ore, coffee and cocoa. An “escape clause,” added in 1952, provides that either of the two countries can suspend, lift or amend concrete concessions or obligations while the Agreement is in effect, in case any of these threatens or injures national industry or security.

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Since 1959 the Agreement has had little effective meaning in the significant trade relations between the two countries. (Two-way annual trade amounts to $2 billion.) On the one hand, the United States imposed oil quota restrictions in March 1959 and granted special “overland” access to Canada in 1962. On the other hand, Venezuela in July 1959 imposed an import substitution system of licensing and quotas which virtually nullified the effects of tariff concessions on goods on List I.

During the State Visit of President Caldera in June, 1970 and in Washington discussions in June, 1971 between two Venezuelan Cabinet Ministers and high US officials, Venezuela indicated a strong desire to revise the Agreement so that she could raise (or lower) tariff rates in anticipation of Latin American Free Trade Area (LAFTA) and Andean Group negotiations, eliminate a cumbersome import licensing procedure, and convert from specific to ad valorem tariff rates. In these latter meetings, the United States agreed to further discussions at the technical level. The timing and place for the technical talks were to be determined through the respective embassies. Subsequently, on August 26, 1971, the Trade Staff Committee agreed to a position (TSC Document 71–98) for use by the US delegation to these technical talks if and when the Venezuelans requested that they be held. We heard nothing further from the Venezuelans on this matter until the denunciation.

We are still studying the implications of the Venezuelan action and the policy options open to us. Subject to further study, our conclusions are as follows with respect to its effects on Venezuelan exports to the United States and US exports to Venezuela.

Venezuelan Exports to the United States

All US concessions granted to Venezuela by virtue of the Trade Agreement have been superseded by tariff [Page 4] concessions granted in the GATT except for two concessions covering crude oil. Thus, Venezuela is assured of maintaining present treatment for all other exports to the United States upon termination of the bilateral. However, by virtue of the denunciation, the rate of duty on the two concessions might be raised to the statutory level; i.e., from 5.25 and 10.5 to 21 cents per barrel. (The question of whether the duty must be raised or whether the increase is discretionary is being studied by the Office of the Legal Advisor.) If the duty were increased, the cost of Venezuela’s 1970 shipments would have been raised by an estimated $57.2 million. The question as to who would pay the extra duty and whether petroleum imports from Venezuela would be affected cannot be answered with certainty. Nevertheless, it is clear that it would decrease the value of oil import tickets.

US Exports to Venezuela

The benefits to the United States from Venezuelan concessions have been decreasing over the years. While total US exports to Venezuela have been increasing, trade in concession items subject to restrictions has declined sharply since 1958. The ultimate impact on our exports will not be known until Venezuela adopts new tariff rates.

Policy Issues

The following issues are currently being discussed within the Department and with other agencies:

1. Is it in our interest to ask Venezuela to modify its intention to denounce the entire Agreement, agreeing to maintain the general clauses with MFN protection for US exports and the concessional rate for Venezuelan petroleum crude exports?

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2. Is it in our interest to maintain the present tariff rates on crude petroleum or to raise them to the statutory rate?

3. What alternative bases can we explore with Venezuela in order to promote our future trade interests?

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 797, Country Files, Latin America, Venezuela, Vol. 2, 1972. Confidential, with LOU attachment. Brewster signed for Eliot. Caldera stated that the decision to rescind the treaty would bolster Venezuelan nationalism, and strengthen the economy of the country. (Airgram A–20 from Caracas, January 19, ibid., RG 59, Central Files 1970–73, POL 2 VEN)
  2. Even though both Venezuela and the United States considered their Reciprocal Trade Agreement obsolete, Venezuela’s unilateral decision to terminate it raised the issue of whether or not the United States would maintain special, lower tariffs on imports of oil from Venezuela. Executive Secretary Eliot informed President’s Assistant for National Security Affairs Kissinger the Department of State would keep him informed of proposals to deal with the problems posed by Venezuela’s decision.