Foreign Relations of the United States, 1969–1976, Volume E-15, Part 2, Documents on Western Europe, 1973–1976, Second, Revised Edition

46. Memorandum From the President’s Assistant for International Economic Affairs (Flanigan) to President Nixon¹

Washington, December 28, 1973.

SUBJECT

• Negotiations with the EC on Trade Impairment

The CIEP Executive Committee met December 21 under Secretary Shultz’s chairmanship. The main issue concerned the action which the U.S. should take concerning the failure to date to reach a satisfactory settlement with the EC in the negotiations under GATT Article XXIV:6 over impairment of U.S. trade resulting from EC enlargement.

The European Community will implement on January 1 a new tariff schedule and apply the Common Agricultural Policy to the trade of the United Kingdom, Ireland, and Denmark, following their accession to the EC.

We believe that the new schedules will cause impairment to our trade. The EC does not agree. Under the GATT, if disagreement of this type arises the parties concerned must negotiate a solution. If no agreement is reached, the EC can proceed to implement the new tariffs but we have the right to make compensatory withdrawals in our own tariff schedule.

We, and a few other countries, have been discussing this matter with the EC quietly for more than a year. The EC finally put forward a “supplemental offer” of new concessions to the countries concerned, including the U.S., on December 13 in Geneva. We have informed EC officials that the offer is inadequate as it applies to the U.S. There is little indication that the EC will do anything further unless pressured.

The Council has reviewed the issues and alternative courses of action. The basic alternatives are (1) to reject the EC offer and begin immediately the process of retaliation; (2) to “live with” the EC offer and work toward solutions in the future Multilateral Trade Negotiations; (3) to negotiate further with gradually increased pressure. This pressure would involve public hearing procedures and other domestic legal steps to lay the basis for possible compensatory withdrawals to be announced on May 31, 1974 (a target date which we are required to meet under GATT rules unless a time extension were arranged authorizing compensatory withdrawals if additional concessions are not obtained). This procedure is consistent with our international obligations and pursuant to U.S. laws. The ceiling on the amount of withdrawals, if no agreement is reached, would be the difference between the value of the U.S. trade impairment, and the concessions we can negotiate with the EC.

The Council recommends the third course of action to you, as it gives the best opportunity for the U.S. to try to reach agreement to protect the trade benefits we have bargained for and to try to make the GATT procedures work with the least risk to our domestic economy and relations with the EC. The alternatives, together with pros and cons, are attached (Tab A).

If you approve the recommendation, you will, of course, retain the option to select the items for withdrawal, to review the situation, and if you so desire to change course as we approach concrete actions against the EC. However, in deciding whether you concur with the recommendation, it should be recognized that the initiation of public hearings and domestic legal steps do create a political climate at home which will encourage a stronger demand for withdrawals and it will be increasingly difficult to back off as we approach June. Moreover, actions against the EC items would create upward price pressures on withdrawal items within the U.S. as the tariffs will rise. Abroad, it will disturb the political mood in U.S.–EC relations and cause frictions with our European trading partners.

The objective of this proposal is, of course, to reach a mutually satisfactory settlement with the EC before next May. Part of the problem so far is that the EC has never believed that we would really withdraw concessions if we did not get such a settlement. Our tactics, if you approve, would be designed to make the likelihood of withdrawals more probable (by initiating public hearings and other related procedures), thus bringing home the seriousness of our intentions to those Europeans who, with us, would prefer to avoid a confrontation. Our hope is that, with such moves and an intense negotiating effort which we would launch during the next few months, we could reach a reasonable agreement without retaliation.

A statement of our action, along the lines of the draft at Tab B, is submitted for your approval. It would be issued (with whatever changes in the text might be needed to bring it up to date) at a time when the Council considered it most useful.

Recommendation:

(1) That you concur in the general approach in the recommended course of action as described above, including approval, in principle, of the need to implement compensatory withdrawals if we fail to reach a satisfactory agreement with the EC and, as needed, to initiate the public procedures and legal actions which would set the scene for compensatory withdrawals.

(2) That you approve the substance of the statement at Tab B, which would be issued at a tactically appropriate time if the Council deemed it useful.

Supporting this recommendation are Secretaries Shultz, Butz, and Dent; State (Under Secretary Casey), STR (Ambassador Eberle), NSC (Mr. Cooper), CEA (Herb Stein) and OMB (Mr. Bridgewater) and Peter Flanigan, and Henry Kissinger.

1. Summary: Flanigan discussed the U.S.–EC Article XXIV: 6 negotiations.

   Source: National Archives, Nixon Presidential Materials, White House Special Files, Staff Member & Office Files, President’s Office Files, President’s Handwriting File, Box 24, December 16–31, 1973. No classification marking. Sent for action. Attached but not published is Tab A, a December 14 STR paper entitled, “Options for EC–US Negotiations Under GATT Article XXIV–6;” and Tab B, an undated paper entitled, “Substance of Draft Statement on EC Negotiations.” A stamped notation on Flangian’s memorandum indicates the President saw it. Nixon initialed his approval of both recommendations. In telegram 233 from the Mission to the EC, January 14, 1974, the Mission reported that “Soames was dismayed over the size of the US request list.” EC Deputy Director General Hijzen agreed to restart the Geneva negotiations “but, in view of the wide gulf between the parties, he did not know on what basis negotiations could move ahead.” (Ibid., RG 59, Central Foreign Policy Files, 1974) In telegram 613 from the Mission in Geneva, January 30, the Mission reported on the resumption of negotiations. (Ibid.)