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

134. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, June 5, 1978

SUBJECT

• DISC

1. Introduction. Mike Blumenthal and Juanita Kreps have recommended to you that we propose to the Congress a smaller and more cost-effective DISC, and a new direct export incentive within the DISC for small and medium-sized firms.²

2. The Pro Argument. A cost-effective DISC and a direct export incentive would help to sustain US exports and thus to stabilize the dollar. By the same token, the National Export Policy now being developed³ will lack credibility in the business community if we are still opposing DISC when it is announced.⁴

3. The Con Argument. State argues that these proposed export incentives would step up the pace of export subsidy competition and thus go counter to the type of international subsidies code we are trying to negotiate in MTN. (See State memo at Tab A.)⁵

I doubt that negotiating a reformed DISC with Congress will significantly reduce our chances of securing an international subsidies agreement. Indeed, in seeking a reformed DISC, we could inform both the Congress and foreign governments that we will propose its repeal if a satisfactory international agreement is negotiated. This would show the Congress that we are tough negotiators, and give foreign governments a tangible reason to seek an international agreement.

In any event, the chances of negotiating a subsidies code are uncertain, at best. In the absence of a code, common sense argues for having a cheap and effective DISC, instead of the present expensive and ineffective one—which the Congress will otherwise insist on our retaining.

4. Conclusion. Substantively, the arguments favor DISC reform. Procedurally, I see little merit in deferring your decision pending further interagency consideration, as State suggests, since we already know the views of the principal agencies involved and since delay would prevent us from influencing the current Congressional review of pending tax reform issues. I therefore recommend that you approve the Treasury-Commerce proposal. Bob Strauss does not oppose this proposal, although he can hardly support it explicitly, given his STR responsibilities.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 92, Finance/International: 1–6/78. Confidential. Sent for information. Brzezinski initialed at the top of the page.
2. See Document 132.
3. See Document 119.
4. In his tax reform plan announced on January 20, Carter included a measure calling for the phased elimination of DISC. See footnote 13, Document 119.
5. Tab A, attached but not printed, is a June 3 memorandum from Christopher (as the Acting Secretary of State) to Carter entitled “Export Tax Subsidy.”