Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

133. Memorandum From the Head of the Delegation to the Multilateral Trade Negotiations (McDonald) to the Special Representative for Trade Negotiations (Strauss)¹

Geneva, June 2, 1978

SUBJECT

• Assuring U.S. Trade Success and Tokyo Round Approval

In looking ahead to the task of obtaining approval for the Tokyo Round results, we should begin thinking how these fit into an overall U.S. trade program that could significantly expand our political and public base of support. In my view, this means complementing the Tokyo Round results, which are predominantly “offensive” toward trade liberalization, with a comprehensive and aggressive “defensive package” aimed at assuring increasingly fair trade now and for the future.

Such a program would call for a major reorientation and reinforcement of U.S. trade practices which should have wide appeal even to many interest groups opposing the liberalization moves. Thus, with such an enlarged effort we could shift focus appropriately from the more distasteful liberalizing moves to encompass a broader constituency who must favor a reinforcing and upgrading of the system and the U.S. role in assuring fair trade.

For example, this approach might well elicit the support of Senators like Heinz and Danforth, who consider U.S. present practices as too weak and ineffective, as well as those key industries who need a long-term, aggressive U.S. posture to preserve and build their positions in international trade (e.g., chemicals,² electrical machinery, capital goods producers).

The remainder of this memorandum lays out some initial ideas for the defensive elements in such a program, leaving aside for the moment the offensive aspects of trade policy (e.g., tariff reductions, freer flow of agricultural products, lowering of trade barriers, opening or expanding accesses to markets). Obviously, these ideas need a lot of elaboration and refinement but we must begin that process shortly if we are to have a solid and clearly winning series of trade proposals ready for Congress in January that will help ensure approval of the Tokyo Round results.

“DEFENSIVE” ELEMENTS OF TOKYO ROUND RESULTS

1. Major Moves for “Fairer Trade”

Much of our focus in the Tokyo Round centers on improving the international system leading to “fairer trade.” These include the following aspects that we must negotiate in Geneva and emphasize in our public presentations.

A. Codes: Central themes through all of the codes call for

—increased discipline in the system

—greater transparency of domestic and international procedures with an increased opportunity to air individual cases and complaints

—greater opportunities for consultations over problems before they reach the crisis stage

—objective reviews of differences

—expanded international understandings with more common ground rules, leaving less latitude for arbitrary manipulation of trade measures and administration

B. Dispute Settlement Mechanism: Our aims here are for

—reinforced procedures

—easier notification and consultative arrangements

—accelerated, objective reviews of trade complaints and violations of understandings

—greater tendency to build over time a series of case precedents that themselves permit the evolution of the GATT to deal with changing circumstances.

2. More Realistic Safeguards

Also as a defensive measure, our aims here are to widen the range of options for safeguard actions and avoid a major confrontation and diplomatic incident whenever safeguards are involved. While increasing the actual level of discipline within the system by encompassing many sub-rosa activities, we need to be able to protect the legitimate interests of American industry when trade is diverted by informal arrangements and secret procedures.

Moreover, we should have the international right to invoke consultations on a government-to-government basis without threatening a trade war or taking Article XIX³ actions when we face or anticipate problems from import disruptions. These consultations should provide opportunities for reviewing a whole range of trade problems, including new concerns such as excessive capacity build-ups through government policy and financial intervention.

3. An Upgraded and Modernized GATT

Within the GATT framework itself, we are seeking

A. Improved understandings and guidelines for

—balance of payments actions

—preferential arrangements between LDC’s, and

B. The introduction of the concepts of

—graduation for advanced LDC’s, and

—embryonic guarantees of supply access (e.g., limitations on export restraints)

REORIENTATION OF U.S. TRADE POLICY WITH “DEFENSIVE” APPEAL

In addition to the elements of a defensive package that are being negotiated in the Tokyo Round, these must be supplemented by some wide ranging reorientations of overall U.S. trade policy. Key elements should probably include the following:

1. Improved Domestic Programs and Processes

A. Adjustment Assistance: Here we need a workable, substantive effort with the support of organized labor to help pragmatically the adjustment of workers displaced in industry, particularly in those sectors with rising imports. Both Murray Finley and Sol Chaikin, during their Geneva visits,⁴ said they felt this is a must. Certainly Congressman Vanik has been disappointed that no new program has come forward yet from the Administration in this area.

B. Programs for Youth Training and Retraining of the Unemployed: A Government-sponsored series of incentives to private industry for (a) building skills in our otherwise unemployed youth and for (b) retraining workers dislocated through industrial restructuration is badly needed. This would have wide appeal. One would expect for relatively small sums of money, with the active support of private industry, this could represent a major move toward ensuring higher levels of employment long-term for the less qualified elements of our society.

C. Simplification of Processes on Injury Determination: One of industry’s major complaints is that the U.S. Government itself is the biggest obstacle to gaining recognition of its problems and obtaining appropriate relief within a reasonable timeframe. The procedures for bringing complaints about unfair trade practices and finding injury in subsidy/countervail, anti-dumping, and safeguard actions need to be simplified.

A fast-track opportunity also needs to be included as an option for those industries who feel totally stymied by the normal time delays and who feel their businesses are being threatened irretrievably by current administrative delays. There may also be circumstances identified requiring mandatory reference by the U.S. to the GATT.

Improvements here could go far to underline our interest in combating unfair trade practices on every front, domestically and internationally. They could also make an injury test in a subsidies code a more compatible concession because of the side benefits gained for business in improving injury processes for anti-dumping and safeguard actions.

D. “Buy America” Adaptations: For countries that do not sign the code or who later do not live up to our international understandings, we should continue “Buy America” preferences. This would have wide appeal. Senator Heinz also indicated interest during his recent visit to Geneva⁵ that his activities and our aims in the Government procurement code could converge around this theme if the code appears to be a realistic first step toward opening major foreign markets for U.S. exporters.

E. Advise U.S. Industry on How Best to Deal with Trade-Related Problems: STR should provide positive guidance to industry on where to go and how to proceed within the U.S. Government on trade questions.

2. An Aggressive Bilateral/Multilateral Program for Maintaining Fair Trade Relationships

Too many people feel currently that our trade relationships are flabby, inconsistent, and have not been aggressively pursued on a regular basis. Certainly we will need the following kinds of efforts:

A. Japan: This will be a continuing negotiation since only by a process of aggressive erosion can the United States hope to move toward the realization of a parity of opportunity of the kind essential for both of our countries. Our steps toward this aim in the Tokyo Round will need to be constantly policed and reinforced.

B. Advanced LDC’s: These groups are establishing precedent-setting patterns on a day-to-day basis as they move toward development. Many of their industries are increasingly among the more efficient and progressive. Thus, our trade relationships with such countries as Brazil, Korea and others will take constant vigilance and a regular series of bilaterals to enforce adherence to reasonable rules of the game in fair trade.

An aggressive policy with the advanced LDC’s may also permit us to segregate the LLDC’s for some special privileges which we want to confer for humanitarian reasons. This would cost us very little in trade problems. Of course, such a two-pronged effort would in itself reinforce the concept of graduation by making it a reality in U.S. practice.

C. EC: With the largest trading entity we will also want to maintain essentially a continuing dialogue cum negotiation to make sure we are playing by the same rules. Then, together we must insist on the adherence of others who have access to our markets. Our long-term interests are converging and we collectively can provide enormous discipline for the system if the EC will join us in this effort.

D. Multilateral Efforts: Here we must make the GATT work. We should do the following:

—devote the time and effort needed to upgrade and reinforce its mechanisms and secretariat

—get the codes off to a good start with constructive, positive precedents

—provide mandatory referrals of legitimate complaints by U.S. industry to the GATT

—maintain strong U.S. positions to provide a continuing role of leadership

—keep a broad-based, commercially oriented discussion going to reduce political build-ups of pressure in the UN, UNCTAD and other political fora.

3. STR Responsibility for Building and Defending U.S. Export Interests

As the President’s Special Trade Representative, the office of STR should be charged with the responsibility to build and defend U.S. export interests on a consistent and effective basis. These efforts, in cooperation with many of the executive department entities, should include:

—initiate and provide leadership for key U.S. programs to expand exports and support the needs of exporters

—audit across the board of U.S. programs to comment on their impact on our international competitive position

—serve as a persistent, continuing watchdog over U.S. export results and trends and our balance of trade.

4. Active Management of the Trade Interface with Non-Market Economies

We have no good solutions yet to our relationships between the Western economies and the Communist/Socialist countries whose markets are essentially closed to us. We must make sure that our market is not glutted by their merchandise when they have followed no reasonable rules of economics in developing industries or pricing products.

For example, in textiles we should move to negotiate a textile quota arrangement with the People’s Republic of China.⁶ With the Eastern Bloc countries, we will also need to determine rules of the game for a series of industries, and particularly in chemicals where their expected capacity in the next few years will equal that of the United States.

5. Continuation of a Trade Advisory System

Our Government should establish an Office of Trade Relations as a part of STR. This entity should provide for a continuing dialogue on a constructive, substantive plane between those officials responsible for developing and administering trade policy and those executives most knowledgeable about the trends and competitive elements affecting our industries.

This effort over time, similar to the interchanges between the ISAC’s and the U.S. Delegation in Geneva over the last six weeks, could become the nucleus of a constructive interface on trade issues between the Government and the private sector, reaffirming for both their respective rights and obligations for our common well-being in the international trade field. This also assumes the continuation, on a permanent basis, of a private sector advisory system similar to the one established for the Multilateral Trade Negotiations.

Other elements undoubtedly should also be considered, but the above could provide the core for a solid defensive package. Then linked to our MTN results, I believe this would enormously enhance the appeal to Congress and the public support for the results of the Tokyo Round.

1. Source: Carter Library, Records of the Office of the Assistant to the President and White House Staff Director, 1979–1981, Box 25, Special Trade Representative 6/78. Personal and Confidential. A copy was sent to Wolff.
2. McDonald discussed recent consultations with chemical industry representatives in a June 2 memorandum to Strauss entitled “Reconciliation of STR Chemical Industry Positions.” He noted that he “spent considerable time trying to think through with them some solutions to their problems so that we could obtain their full support by the time we get the Tokyo Round results to Congress.” (Ibid.)
3. Article XIX of the General Agreement on Tariffs and Trade deals with “Emergency Action on Imports of Particular Products.”
4. Finley visited the U.S. MTN delegation in Geneva on April 12 and 13. (Telegram 5683 from Geneva, April 18; National Archives, RG 59, Central Foreign Policy File, D780166–0167) Chaikin visited Geneva on May 17 and 18. (Telegram 7836 from Geneva, May 22; National Archives, RG 59, Central Foreign Policy File, D780215–0151)
5. Heinz was scheduled to visit Geneva May 16–19. (Telegram 121386 to Geneva, May 12; National Archives, RG 59, Central Foreign Policy File, D780202–0485) No report on his visit was found.
6. McDonald discussed ways of addressing problems associated with trade in textiles in a June 1 memorandum to Strauss. (Carter Library, Records of the Office of the Assistant to the President and White House Staff Director, 1979–1981, Box 25, Special Trade Representative 6/78)