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

153. Editorial Note

In early August 1978, Special Representative for Trade Negotiations Robert Strauss wrote to European Communities (EC) Vice President Wilhelm Haferkamp, EC Commission Director General for External Affairs Sir Roy Denman, and EC Vice President Finn Gundelach on the issue of the countervailing duty waiver. Strauss, citing recent discussions with members of Congress, expressed doubt as to whether a bill extending the waiver would pass; moreover, he worried that such a “bill would serve as a target for the attachment of many protectionist amendments and with the mood of this country, we would end up doing more harm than good. Quite frankly, I am becoming convinced that the risk of regressive legislation is too great for us to gamble on introducing the extension.” Strauss offered a solution, asking “whether or not any possibility exists for us to make sufficient additional progress on subsidies by mid-September to encourage congressional support of the extension of the waiver. I presume that this is not a practical suggestion because of the time schedule with the August recess.” (Telegram 199311 to USEC Brussels, August 7; National Archives, RG 59, Central Foreign Policy File, D780323–0662)

On September 14, West German Minister for Economic Affairs Otto Graf Lambsdorff wrote to Strauss urging him “to use all means at your command to prevent” the imposition of countervailing duties on EC goods after the January 1979 expiration of the waiver. Such duties, Lambsdorff claimed, “would without shadow of doubt call forth a demand for incisive countermeasures on the part of the Community and impose a strain on the climate of world trade that would be diametrically opposite to our common objectives in the MTN.” Lambsdorff continued: “If the MTN are to be successful, I feel it is absolutely necessary that a fait accompli be avoided in the vital area of subsidies/countervailing duties. I fully recognise and very much appreciate all you have done in talks with the Congress to ward off this eventuality. However, I do not believe that the suggestion of additional progress on subsidies by mid-September is a realistic option because it amounts to one partner making unilateral concessions with a view to the final package.” While West Germany would do all it could “to ensure that the agreed 15th December 1978 deadline for a successful conclusion of the MTN is met,” Lambsdorff doubted that the EC would be “prepared to make unconditional concessions in the final phase now in progress unless there is some prior guarantee that a satisfactory solution can be found in the matter of the application of countervailing duties after 4th January 1979.” Lambsdorff encouraged Strauss to do what he could “to avert a situation in which the United States would inevitably be held responsible for endangering the GATT negotiations.” (National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 2, Countervailing Duties 1977) In his reply to Lambsdorff, Strauss asserted that the administration would continue its efforts to secure the necessary legislation, despite the fact “that the negative position of some members of the Community at the Bonn Summit has complicated our present task.” (Telegram 234044 to USEC Brussels, September 15; National Archives, RG 59, Central Foreign Policy File, D780375–0068)

On September 18, Haferkamp replied to Strauss’s letter of the previous month. Haferkamp asserted that countervailing duties on EC goods “would inflict grave damage on our exporters, would lead to strong pressures for retaliation and since not only Community exports would be affected could thus unleash a trade war of considerable dimensions.” Warning that “the slim chance, as you now judge, of the waiver being prolonged at this point in time creates a very serious situation,” Haferkamp stated that it would not be “realistic for us to propose to our member states that we conclude these negotiations in the absence of an assurance that the waiver on countervailing duties will be extended. Nor indeed do Finn Gundelach and I think it realistic to put to our member states the need for the political decisions which all of us will have to face in the final stage of the negotiation when it will be clear that as a consequence of US legislation a trade war is in prospect in only a few weeks time.” Haferkamp assured Strauss that the EC would continue to “pursue vigorously discussions and negotiations in Geneva with the aim of concluding these negotiations by 15 December,” but cautioned “that unless the uncertainty over the imposition of countervailing duties from 4 January can be resolved the common assumption of shared responsibility on which we have based the Tokyo Round would no longer exist and these negotiations could not be concluded.” (National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 2, Countervailing Duties 1977) The next day, September 19, Denman notified the U.S. Mission to the EC in Brussels that the EC Council “was unanimous in its support” for the position set out by Haferkamp. (Telegram 17722 from USEC Brussels, September 19; National Archives, RG 59, Central Foreign Policy File, D780381–0146, D780404–0193)

On September 19, the head of the U.S. Delegation to the Multilateral Trade Negotiations, Alonzo McDonald, cabled Strauss from Geneva: “To add a sense of urgency and solid credibility to December 15 deadline, we are taking the line here that our only hope to find a solution to the CVD waiver problem depends on having a completed MTN package in hand before January 1979. In effect, we are thus attempting to use the waiver deadline for the same purposes that the expiration of our negotiating authority served in the Kennedy Round. It is our understanding that this was Congress’ original intent to avoid a last minute scramble in which the subsidies issue would be simply postponed because it is too hard to resolve. We need some legal or mandatory date against which to work to force our other negotiating partners to close out, particularly the LDC’s who would prefer to wait until the opening of UNCTAD V next May, thinking that a political furor then might improve their Tokyo Round results.” McDonald concluded: “This is not a proposal but an assumed reality. Unless otherwise instructed, will pursue the line persistently that CVD waiver deadline forces us to have a completed package in hand by year end.” (National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 2, Countervailing Duties 1977)