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11. Memorandum From the Assistant Secretary of the Treasury for International Affairs-Designate (Bergsten) to Secretary of the Treasury Blumenthal 1

SUBJECT

  • Shoes—For Today’s EPG Meeting

I have looked long and hard at the shoe case, hunting for a reasonable compromise. Such compromises are available for color television sets and sugar, and we are actively pursuing them. But I have concluded that we should limit our shoe action to beefed-up structural reform, for six basic reasons:

1. The industry is a chronic case of inexorable consolidation and decline. Import relief won’t help the small firms; it certainly won’t trigger increased investment. The big ones don’t need it.

2. Ford’s decision to avoid import relief in May 1976,2 despite his “commitment” to the industry, is the benchmark against which our decision will be judged—not the ITC or industry recommendations.

3. This is especially true as it will be our first big one. Any restrictions will be widely interpreted as presaging “a protectionist tilt,” with severe costs, even if subsequently proven to be unfounded.

4. This will be the only big U.S. trade decision prior to the summit. (Sugar, being agricultural, is viewed differently.) Adoption of restrictions would greatly weaken the President’s position, and significantly undermine our efforts to (a) strengthen the trade pledge and (b) rejuvenate the MTN.

5. The effect of restrictions on the North-South dialogue would also be severe. Twenty-two separate countries, virtually all of them LDCs, would be hit with sharp cutbacks (even if the base period is liberalized).

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6. Perhaps most important is the broad foreign policy effect. The countries to be hit hardest would be among those most important to us, and with whom relations are most delicate:

a. Italy—Eurocommunism, balance of payments crises

b. Spain—perhaps next big economic crisis, battling to restore democracy

c. Brazil—already rejected U.S. military aid; non-proliferation and human rights confrontations; must be hit on several other economic fronts (countervailing duties, tax rebates)

d. Korea—panicked over announced U.S. troop withdrawals, human rights offensive

e. Taiwan—economic ties increasingly critical as U.S. normalization with PRC progresses

f. Mexico—economic crisis, main industry in several states with overall unemployment rates of 40 percent, hence closely linked to illegal alien problem; agreement with Lopez Portillo seeks increased access to U.S. market

g. Also key to Greece, Uruguay, several Eastern Europeans and others.

The main argument for import relief is the threat of a Congressional override. But most observers believe that the shoe supporters can’t override on their own, and we can move on color television and sugar to avoid any risk of a joint step.

RECOMMENDATIONS:

1. That you oppose any resort to import relief for shoes, coupled if necessary with agreement to move on color television (Japanese export restraints or higher tariffs a la ITC) and sugar (an international agreement with floor prices, deficiency payments and/or sliding tariffs).

2. If shoe import relief is deemed necessary, a formula less restrictive than the STR proposals:

a. A hike in the over-quota tariff to 20 percent instead of 40 percent

b. A base year of 1976 (instead of the 1974–76 average)

c. A three-year phase-down of the duty and a “phase up” of the quota (instead of five years for the former only)

  1. Source: National Archives, RG 56, Records of Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten, 1977–1979, Box 1, EC–5–2 Economic Policy Group (EPG) 1977. Confidential. Sent through Solomon. Printed from a copy that indicates that Bergsten and Solomon initialed the memorandum. Tabs A–E are not attached. A list at the end of the memorandum identifies them: Tab A, “STR paper” (printed as Tab A to Document 10), Tab B, “Economic Effects of Various Options”; Tab C, “Editorials on Shoe Case” (see footnote 3, Document 10); Tab D, “Analysis of Various Options;” and Tab E, “Detailed Description of Possible Structural Reform Program for Shoes.”
  2. Apparently a reference to Ford’s April 16, 1976, denial of import relief to the footwear industry. See footnote 2, Document 10.