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

152. Memorandum From the President’s Assistant for Domestic Affairs and Policy (Eizenstat) and Robert Ginsburg of the Domestic Policy Staff to President Carter¹

Washington, July 28, 1978

SUBJECT

• Export Policy

Attached are:

(1) a memorandum from Commerce setting forth the recommendations developed by the Export Policy Task Force;² and

(2) separate memos from CEA and OMB setting forth their views on the Commerce paper.³

CEA recommends that you accept Commerce’s basic package (items 1–12) except that you reject the proposal for a continuing review of the need for an export tax incentive. CEA also recommends that you request a PRC study of the major export barriers (such as Jackson-Vanik, anti-boycott and anti-bribery legislation, etc.) which it feels were not dealt with adequately by the Export Task Force. CEA’s general views are that: our recent export performance has been poor but not disastrous; the Task Force recommendations are unlikely to have a significant impact upon exports; and each individual proposal should be considered on its own merits, rather than being viewed as part of an all-or-nothing package.

OMB believes that: the Task Force recommendations are not significant enough to amount to a “national export policy”; the financial incentives called for are likely to be costly in budgetary terms but not very effective in promoting exports; and that the major disincentives to exports have not been adequately reviewed. OMB recommends that you defer all decisions involving increased tax or budget expenditures until the fall budget reviews and that the Administration undertake, under White House direction, an intensified review of all potential impediments to exports.

Because of the diversity of viewpoint among Commerce, CEA, and OMB on the nature of the “export problem” and the Commerce recommendations, we recommend that you read all three memos.

We believe that your decisions on the specific recommendations should be taken within the following overall framework:

1. We generally agree with the CEA/OMB conclusion that the Commerce recommendations are unlikely to have a significant impact on exports. In our view, the hard truth (and the reason we were hesitant about getting the Administration involved in a high-profile, public effort in this area) is that as far as unilateral policy actions are concerned the U.S. can dramatically increase its exports only by taking initiatives along the following lines:

(a) terminate or severely curtail our arms sales and human rights efforts and repeal the foreign bribery and Arab boycott laws;

(b) provide massive tax and/or spending subsidies for exports.

We regard the first set of initiatives as unwise on both policy and political grounds and the second set as inappropriate for economic and budgetary reasons.

2. Nonetheless, the Commerce recommendations do include some modest steps in the right direction. We should take these steps and take credit for them. Largely because of the depreciation of the dollar, the U.S. export performance is likely to be strong over the next year or more in any case. (We are already beginning to see improvement in the June export figures.) Some of this positive performance will redound to the credit of whatever export policy we announce.

3. The Task Force has made 14 policy recommendations, which Commerce has divided into 12 “essential measures” and 2 “additional measures.” Commerce states that the first 12 measures are “essential to a comprehensive and credible export policy” and that “the elimination of any of them would substantially weaken the total effect, and the psychological impact would be jeopardized.” We strongly disagree. Many of these recommendations are relatively insignificant. You should not regard this as an all-or-nothing package. For example, take two of the recommendations (which we in fact support):

(a) Commerce proposes that you increase Eximbank’s direct loan authority for FY 1980 from the $3.9 billion budget mark currently in effect to $4.1 billion. In light of the facts that we have increased Eximbank’s loan authorization 5-fold over the past two years (up from $700 million in FY 1977) and that the present budget mark is already $300 million over the FY 1979 authorization of $3.6 billion, it is difficult to understand how an extra $200 million could be deemed “essential” to a “credible” export policy.

(b) Commerce proposes that SBA be directed to target up to $100 million of its current authorization for loans to exporters. Since SBA already does such targeting without any formal requirement, this item is without real substance.

In addition, the items involving the Justice Department’s enforcement of the antitrust laws are largely window dressing. Accordingly, you should feel free to consider each of the recommendations on its own merits, rather than feeling obligated to approach this package on a take-it-or-leave-it basis.

4. We do not agree with the OMB recommendation that you should defer your decisions on the financial incentives in the package until the fall budget reviews. In our view, that approach is politically unsound and would provoke genuine criticism that the Administration is not capable of enunciating any export policy.

5. We do not oppose the CEA and OMB recommendations that the Administration conduct a serious review of some of the fundamental barriers to exports such as arms sales and human rights policies. However, we are skeptical as to the results of such a review and do not want the Administration to become involved in another public effort which unduly raises outside expectations and concerns. Accordingly, we recommend that, if you decide to order such a review, your order not be publicly announced and the review be held very tightly within the White House.

Our recommendations on the Commerce proposals follow:

1. Presidential Commitment. Commerce believes that your personal involvement will give a boost to the export policy announcement. On the other hand, as we have indicated above, there is substantial doubt as to whether these proposals constitute a significant enough “policy” to merit your personal involvement. We recommend that you defer your decision on this proposal until after you have decided what will be in the export package and after you have heard from Jody and Gerry Rafshoon on this.

2. Export Tax Incentive. Commerce proposes that the Administration reaffirm its opposition to DISC but at the same time state that we have no philosophical objection to an export tax incentive per se and that the Secretaries of Treasury and Commerce will be directed to continue to review the need for an export tax incentive. The problem with this is that Secretary Blumenthal, Ambassador Strauss, Undersecretary Cooper, etc., are telling our foreign trading partners that the U.S. does object to export subsidies and that foreign governments should eliminate or curtail such subsidies.

Another basic problem is that the better targeted an export tax credit is, the more in violation of GATT and our MTN posture it will be. We have just completed an interagency effort to develop an export tax credit, and the best proposal presented was one which you and your senior White House advisers rejected. Further publicly directed review in this area is a no-win situation:

(a) either we conduct a study and come up dry again, which will embarrass us and disappoint much of the business community; or

(b) we develop a more effective alternative to DISC (which will likely be illegal under international trade rules) and we then become obligated to renew our fight on DISC next year—that is a decision which we should preserve for 1979.

In any case, our major exporters are unlikely to have their confidence and certainty enhanced if we tell them that we are undertaking a study to develop a substitute for DISC which will channel DISC benefits from them to smaller companies.

We recommend that you disapprove this proposal.

3. Increased Eximbank Funding. Commerce proposes that you increase Eximbank’s direct loan authority from the FY 1980 budget mark of $3.9 billion (up from $3.6 billion in FY 1979) to $4.1 billion. Of the various financial incentives for exports, Eximbank is probably the best vehicle. A $500 million increase over FY 1979 would be a substantial initiative for which the Administration could take considerable credit. We recommend that you approve this proposal.

4. Taxation of Americans Abroad. The Administration has already made a proposal in this area (which you personally approved last February), which would cost about $245 million.⁴ The Ribicoff bill, which has passed the Senate and which is also a responsible approach to the problem, would cost about $310 million.⁵ There is no House bill and the Ways and Means Committee has not yet even reported out a bill. Joe Waggonner’s subcommittee has recommended a bill to the full Committee which would cost about $590 million. Commerce proposes that the Administration drop its own proposal and support the Ribicoff bill.

While we would be willing to state in the export policy announcement that the Ribicoff bill is a responsible approach, we do not think the Administration should change its position before conference and before the House even has a bill. That would merely up the ante by $65 million and encourage a more expensive bill in the House. Treasury’s Congressional liaison staff and Frank Moore’s shop agree that it would be unwise legislative strategy to drop our proposal at this time.

Accordingly, we recommend that you disapprove this proposal.

5. SBA Targeting to Exporters. We recommend that you approve this proposal.

6. Export Consequences of Regulations. Commerce proposes that agency and department heads be required to take into account the effect on U.S. exports of their major administrative and regulatory actions that have significant export consequences. This could be an important item in reducing the arbitrary impediments to U.S. exports. We recommend that you approve this proposal.

7. Use of Export Controls As a Foreign Policy Tool. Commerce recommends that export consequences be weighed as a factor, along with other factors, when considering the use of export controls for foreign policy purposes. We agree that the effect on exports should be considered as a major factor, along with foreign policy, in decisions involving the use of export controls. However, we do not think that exports should be given an automatic priority and caution that the reference in the decision memo to giving “particular weight” to whether the U.S. goods are available from alternative suppliers may have that effect. We recommend that you approve this proposal but that you cross out the second sentence of this item from your decision memo.

8. Guidelines Clarifying the Foreign Corrupt Practices Act. Commerce recommends that the Justice Department be directed to issue guidelines clarifying the requirements of the anti-bribery statute. We have discussed this matter with the Justice Department and they are prepared to provide some affirmative guidance as to the kinds of violations they deem most serious; however, it would be improper for them to indicate which violations of the law they will not prosecute. With that understanding as to the “guidelines” Justice will provide, we recommend that you approve this proposal.

9. Antitrust Business Review Procedure. We recommend that you approve this proposal, which calls for prompt Justice Department response to business questions on international antitrust issues and additional educational work by the Justice Department. We have discussed this item with Justice and, although they regard it as window dressing, they will be glad to cooperate.

10. Expansion of Webb-Pomerene Exemption to Include Services. The Webb-Pomerene Act provides an exemption under the antitrust laws for U.S. firms forming a consortium for the export of goods. Commerce proposes that we seek to amend the Act to provide a similiar exemption for the export of services. Some members of the business community believe that this Act restrains their ability to bid on foreign engineering and construction contracts. The Justice Department disagrees and points out that there have not been any prosecutions under the Act in over 20 years. Justice has agreed to provide us with language for the export policy announcement which would provide further guidance and reassurance to businessmen in this area but believes we should not amend the Act because that would be inconsistent with the Administration’s antitrust stance and could provide some encouragement for foreign cartels. Although we do not regard the issue as vital one way or the other, we recommend that you disapprove this proposal, with the understanding that Justice will provide helpful language for the export announcement.

11. Export Assistance Programs. We recommend that you approve Commerce’s de minimis request for an additional $20 million to provide better assistance to U.S. exporters.

12. Interagency Committee on Export Expansion. Commerce proposes that you create an interagency Committee on Export Expansion, chaired by Commerce, to oversee the Administration’s export effort. The Committee would publish an annual, public report for the President on the progress made. Our experience over the past several months has made us very skeptical about the wisdom of, in effect, making the Export Task Force a permanent Administration body, complete with annual report. We would suggest instead that the export expansion effort be monitored by the Commerce Department and/or the EPG. Consideration should also be given to reviving the President’s Export Council, a private sector advisory group which has been dormant in recent years. Businessmen continue to be interested in the Council and would probably appreciate its revitalization. Accordingly, we recommend that you disapprove this proposal.

13. Agricultural Financing and Assistance. Part A of this proposal represents existing Administration policy and, accordingly, you need not make a new decision on this issue. Part B calls for Administration support of legislation setting up agricultural assistance offices abroad. The Department of Agriculture is already moving to provide this assistance under existing authority. We believe there is merit in providing such assistance but that it should be provided on a case-by-case basis as it can be justified rather than legislatively mandated. Accordingly, we recommend that you disapprove proposal (B).

14. Multilateral Discussion of Compensatory Defense Agreements. We recommend that you approve this proposal.

1. Source: Carter Library, White House Central Files, Subject File, Box TA–6, TA 3 6/1/78–7/31/78. No classification marking. Neither Eizenstat nor Ginsburg initialed the memorandum.
2. Not attached.
3. Not attached.
4. The Tax Reform Act of 1976 contained provisions designed to augment the amount of taxes collected from Americans working overseas. The Carter administration’s February 1978 proposal on this issue is described in “New Income-Tax System for Americans Who Work Abroad is Proposed by Carter,” The Wall Street Journal, February 24, 1978, p. 12. No other record of Carter’s approval of this proposal was found.
5. The Senate bill, which was passed in May 1978, is described in “Senate Votes to Give Americans Abroad Break on U.S. Taxes,” The Wall Street Journal, May 12, 1978, p. 48.