10. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) and Secretary of the Treasury Shultz to President Nixon1
- European Community Preferential Arrangements with Spain and Israel
In October 1971 we informed the European Community, Spain, and Israel that we wanted to consult with them pursuant to GATT rules regarding the impairment of our trade inherent in the Community’s preferential trade agreements with those countries. These consultations have still not been launched, in part because of persistent interagency disagreements over how to proceed.
Despite the problems and legitimate concerns, negotiating instructions were worked out with the concerned Departments. (Tab A)
The proposed line of action has risks, but they should be manageable.
The foreign risks are:
(1) A probable adverse reaction in the EC which France in particular is likely to try to exploit to our disadvantage.
(2) The possibility of a strongly negative reaction in Israel and Spain. The latter could increase our difficulties in getting better cooperation on our military base problems in Spain.
The main domestic risk arises from the possible reaction to an action which Israel might seek to interpret here as unfriendly to Israel’s national interests.
While we recognize these potential risks, we believe we are justified in running them in the interests of the credibility of our international economic policy stance of firm opposition to illegal preferences and to show domestic and Congressional opinion that we are acting to defend our legitimate trade interests. The risks can be minimized by skillful negotiation. We intend, in close consultation, to guide the playing of the hand. Moreover, rather than move to retaliation, we will spin out the consultations.[Typeset Page 39]
Pursuing a negotiating strategy of risk minimization, we propose to:
(a) Tell the three parties involved confidentially and in advance what we intend to do and why, so that they fully understand the economic problems that compel us to act. These discussions will help preserve the political context.
(b) Avoid, in these confidential discussions, putting forth any specific figure for compensation. We intend to seek compensation for trade with the three parties worth about $750 million, most of it involving our exports to the EC. (The amount for Israel is about $40 million.) However, unless fully explained to the parties beforehand a figure of this magnitude might impede a serious dialogue on the preference issue.
(c) Seek to establish in these discussions the principle that compensation is due us and then, in the ensuing formal consultations, come forth with specific figures, and negotiate over those.
(d) Conduct discussions without publicity.
If you approve, George Shultz will make the initial presentation to the parties involved. We will then monitor the consultations together, with Peter Flanigan providing appropriate guidance.
That you approve the scenario concerning negotiations with the EC, Spain, and Israel.
Summary: Kissinger and Shultz secured Nixon’s approval of their strategy for addressing the issue of EC preferential agreements with Spain and Israel.
Source: National Archives, Nixon Presidential Materials, NSC Files, Box 322, Subject Files, European Common Market, Vol III Oct 72–Jun 73 (1 of 2). Confidential. Sent for action. Attached but not published is Tab A, an undated paper entitled “Negotiating Instructions on EC-Spain and EC-Israel Trade Agreements.” A stamped notation on the memorandum indicates the President saw it. Nixon initialed his approval of the proposed strategy.↩