185. Memorandum From the Head of the Delegation to the Multilateral Trade Negotiations (McDonald) to the Special Representative for Trade Negotiations (Strauss)1
SUBJECT
- Suggested Approach for Gaining Public and Congressional Approval for Tokyo Round Results
Lord Macaulay of England said more than a century ago that moves toward freer trade are among the greatest benefits that a government can bestow on its people, but are almost always unappreciated at the time. During the ensuing century, that view has been repeatedly confirmed. Moreover, the complexities of modern economic society, the broad scope of the Tokyo Round negotiations, and the present uncertainties in the world economic environment all add to the normal difficulties of gaining public understanding and support for trade legislation in 1979.
To build a solid, favorable constituency for the upcoming trade bill, we must expand our sights beyond the Tokyo Round results and put forward a comprehensive U.S. trade program. Such a program is not only timely, it is essential to capitalize on the benefits negotiated in the Tokyo Round.
To illustrate the overall approach schematically, tariff reductions should account for only about 10% of the total program; the complete Tokyo results about 40–50%, and the domestic and implementation parts about 50–60% of the completed package. With a comprehensive domestic program, a broad-based support group can be developed, including interest groups that might otherwise oppose tariff reductions or at best stay neutral.
While broadening the scope of appeal by means of domestic program elements, building a positive constituency also calls for exploiting fully the favorable nontariff measures that comprise the major component of the Tokyo Round, the substantial and unprecedented agricultural results and the reforms of the international trading system that clearly open the way toward fairer trade.
When presenting the Tokyo Round results, the enormous strides represented by the establishment of monitoring groups under the new [Page 552] series of codes should be emphasized along with the added disciplines and increased transparency obtained throughout the trading system. These key elements can serve to clearly identify the Tokyo Round as “the fair trade round” since they outweigh the substantial but relatively less important movements toward trade liberalization which are less popular short term.
Furthermore, since tariff reductions as usual represent the most distasteful element for those directly concerned, this aspect should be downplayed to reflect its much diminished importance. Although the exclusive aim in the first five rounds and clearly the predominant result in the Kennedy Round, tariff actions account for no more than one quarter of the scope of the Tokyo Round. To reflect properly their reduced standing, we should differentiate our reports and commentaries (including those from advisory groups) between (1) authority already delegated to the Executive Branch by the Trade Act of 1974 (e.g., tariffs), and (2) the rest of the Tokyo Round results that require Congressional approval. To do otherwise might encourage opinions to follow traditional thinking on relative importance, thus focusing excessive negative attention on this limited subject on which no further Congressional approvals are required.
INITIAL IDEAS ON TRADE PROGRAM CONTENTS
The program should cover all three of the above subjects—in order of importance: (1) the elements of a comprehensive trade program, (2) benefits from the Tokyo Round, and (3) balanced tariff adjustments by all major trading nations. Priority efforts should be aimed soon at filling in the contents of the overall program since, with their domestic focus, they will influence predominately the attitudes of the general public and members of Congress.
ELEMENTS OF A COMPREHENSIVE U.S. TRADE PROGRAM
Elements making up the comprehensive trade program should be fundamental in nature and devoid of superficial gimmicks. They should be sound and necessary policies for a successful, long-term U.S. position in international trade. To the extent that items with less economic impact are considered, they should be only those with wide popular appeal that would help significantly to expand the positive constituencies for the program. An initial list of program elements would include the following:
A. Investment Incentives
The greatest trade threat that the United States faces is the possibility of its vast productive base becoming obsolete and uncompetitive. For this reason, a foundation stone for any effective trade program over time must be an incentive program to encourage new investments and [Page 553] capital formation sufficiently to keep competition keen and provide for a continual renewal and restructuration of our industrial base.
To maintain a healthy international position, we must invest at levels comparable to our major trading partners and those rapidly advancing among the ranks of nations. We are not doing so today. For example, the Japanese are currently making capital investments at a percentage rate of GNP approximately double that of the United States. Instead of improving our relative situation, this discrepancy can only contribute to a deterioration of our worldwide competitiveness. Moreover, the resulting competitive gap cannot be indefinitely bridged by currency devaluations and import constraints without leading us into a spiral of decline as an economy and ultimately loss of position as the key world power.
The sentiments against capital investment incentives are evident, particularly among those who strive for greater income and wealth redistribution. But it can be argued that our country has acted to redistribute income far more than any society to date. Almost half of our federal budget is allocated to transfer payments, rather than to the provision of public services. This represents a massive redistribution of income. To support a reasonable redistribution effort, our economic base must flourish. To do this, as a capitalist society intending to remain one, we must keep attractive the desire to seek out and to take entrepreneurial risks for commensurate gains for those persons and entities with access to capital.
Our capital investment pattern has been lagging in recent years, slowing our growth prospects, discouraging job formation possibilities, limiting productivity improvements and weakening our innovative thrust. The commercial risks today appear too frequently to outweigh the prospective gains, thus making conservation of capital a higher motive than placing that capital at entrepreneurial risk to search out new thresholds of opportunity.
Investment incentives are particularly important to our heavy industries requiring continuing streams of high capital investments. Since more of these industries now feel threatened than in earlier years, they are in the forefront of those concerned currently with tariff reductions. Consequently, an investment incentive program, in addition to its fundamental long-term benefits, would be immediately helpful to swing a majority of the business community positively behind the overall effort, reducing to a strictly secondary position their concerns over trade liberalization measures. Such an incentive program would have to be tailored to be consistent with the new subsidies code obligations.
B. A Sensitive and Effective Adjustment Assistance Program
The United States does not have an effective adjustment assistance plan that aids in the restructuration of our industrial base. We need one [Page 554] to facilitate the mobility of employment from declining or obsolete activities into growth sectors that are economically promising. This is one of the major concerns of organized labor, and in some of our heavily populated geographical sections, a totally legitimate one. Furthermore, this is one of the early expressed concerns of the Administration that clearly merits attention without further delay as a natural complement to any international trade liberalization plan.
C. Major Program for Retraining and Reformation of Personnel
We must anticipate that due to continuing technological advances and shifts in market demand, we need a reasonably mobile work force. With today’s accelerated pace of change, this probably means retraining and preparing many employees for shifts in skills once or twice during the course of their working lives. Although the above factors dwarf the importance of imports in establishing this need, the idea is superficially popular to blame imports—partly because this falsely implies there is a ready solution.
Again, a substantial retraining program is not only needed for domestic reasons but would gain labor support and represent a positive appeal to the general public as a fairer redistribution restructuration.
D. Accelerated Domestic Procedures
Many complaints have been registered by all of our advisory groups—industrial, labor and agriculture—on the complexity and slowness of our domestic procedures in dealing with trade problems. A plan for accelerating and simplifying these procedures to deal more forthrightly and promptly with complaints is clearly called for and would be very popular. These improvements could be linked with the implementation moves for the Tokyo Round codes, facilitating domestically the handling of escape clause actions, anti-dumping cases and subsidy/countervail claims, among the more important.
E. Procedural Customs Improvements
There are a number of these that could stand attention and simplification. Some of these ideas are already assembled by Senator Danforth’s staff and framed into a bill. By combining these ideas with the implementation steps for the new customs valuation code, another center of support might be added.
F. Adapted Buy America Program
Complementing the government procurement code will be the domestic need to adapt and reinforce our Buy America procedures. Already there is a group in the Senate, headed by Senator Heinz, strongly advocating further Buy America measures. There is wide popular support for this activity. If their concern could be refocused on non-[Page 555]signatory countries and non-covered market sectors, this merged aim might shift around another interested group who will be working actively with or against us.
G. Specialized Programs for Sensitive Industrialized Sectors
A number of sectors would respond favorably to across-the-board programs that would reflect genuine government concern about their needs and an appreciation of some of their international difficulties. Such sectors are steel, chemicals, textiles, and perhaps non-ferrous metals. The individual elements of these programs have already been developed within STR and other departments or are anticipated, but they need to be packaged and communicated as a cohesive series of action steps to obtain positive public impact.
H. Continued Export Effort
The recent program of the President to expand the U.S. export efforts could be reinforced as a part of the overall trade package. This is of keen interest to Congress where there is considerable sentiment that more needs to be done. This interest was emphasized during MTN briefing sessions recently in Geneva with Representatives Ullman and Gradison and Senator Moynihan.
I. Automatic Import Licensing
In the current international economic environment, we face problems of rapid import buildups in sensitive industries in unpredictable amounts from communist countries. Unfortunately, our ability to monitor these rapid shifts has not increased appreciably over the years. In fact, many in Congress and in industry complain that trade information in sensitive products is neither good enough nor up to date.
Therefore, we should take advantage of the trade agreement’s uniform rules on automatic import licensing to establish an import licensing system of our own. Through this system, we could require an import license, which would be nondiscriminatorily and automatically granted, for shipments from communist countries and for sensitive products. In the case of sensitive products, this would allow the government some early warning on potential escape clause cases. In a situation such as this year’s textile import surge, this system would have allowed us to get a handle on where the explosive growth was coming from.
As we have experienced over the past few years, our economy is vulnerable to exports from communist countries. Their labor situation and lack of relevant cost structure, combined with their hunger for hard currencies, causes apprehension of potential trade disruption and unemployment among domestic industry and labor. An automatic import licensing system would enable us to monitor all key movements, [Page 556] giving us the ability to stop trade disruption before it reaches a crisis level.
J. Permanent Private Sector Advisory Group on Trade
During the Tokyo Round, discussions on a continuing basis have been carried out in Washington and Geneva with advisory groups from agriculture, industry and labor. As a part of a comprehensive trade program, a permanent advisory system could be designed that would contribute invaluable knowledge, experience and insight into practical trade problems. This system could provide a continuing dialogue on trade issues that would improve communications and understanding between the private sector and the Administration.
K. Reorganization and Reinforcement of Trade Policy Apparatus
The U.S. has given much less attention to trade policy than its major trading partners. It is now timely for this passive posture to change. The results of the Tokyo Round call for a new measure of continuing international involvement on trade questions. Our trade deficits call for reinforced handling of trade relations on an aggressive business like basis.
Congress is well aware of this need and would be receptive to administrative initiatives. Senators Long, Ribicoff and Roth, and Chairmen Ullman and Vanik in the House have advocated clarifying the decision-making process on trade issues and centralizing the administration of U.S. trade policy. This move, which could in fact determine how effectively the U.S. exploits the Tokyo Round benefits, could help to coalesce the support of similar thinking groups as a part of the overall program. A White House reorganization study group already has been studying this issue, and their report could be ready by March.
Undoubtedly other elements and suggestions should also be incorporated in a final program. Even so, if realistic results were put forward on the above items only, such a program could serve to build a broad based and solid constituency, while putting in place the foundation blocks for a vastly improved and more effective U.S. trade policy for the years to come. This would represent a fundamental Administration accomplishment.
ORGANIZATION AND COORDINATION OF THE EFFORT
This approach lends itself to a special project organization to carry out this one-time effort. The project unit would need to be clearly recognized as in charge of the effort with clear-cut responsibilities for producing the kinds of results needed within a very short time period.
Group requiring collaboration and close cooperation include the following:
[Page 557]1. The Executive Departments directly concerned with trade policy: These include the Departments represented on the TPC and the EPG. Since a combination of initiatives across Executive departments would be necessary, the project group should be comprised of members from each of these entities to facilitate pulling together the package.
2. The advisory groups in labor, agriculture and industry: An expanded contact program with these groups could review elements of the program as they are being developed.
3. Members of Congress: An intensive series of consultations to acquaint members of Congress with the key elements of the program to build in the ideas of domestic program elements is essential in building a trade constituency. This is anticipated by the notice period called for in the Trade Act and is already well underway with the frequent meetings and briefings regularly arranged between key Committee leaders and their staff and MTN negotiators.
4. Liberal Trading Groups: These groups, including special trade promotion associations and consumer groups, are ready to be mobilized.
5. The General Public: An extensive program of communications, including speeches, articles and explanatory materials, is needed before and throughout the period of Congressional consideration.
This memorandum is only a thought starter for upcoming discussions with leaders in the Administration concerned with trade policy. From the Geneva perspective, we should have the major elements of the international negotiation completed or sufficiently in view before Christmas so that this effort could be organized and launched in early January. The work should parallel the period of Congressional review. It should build up as an intensive effort during the time of consultations with Congress and the drafting of the trade legislation (January through March) and continue through the period of Congressional deliberations (April through August).
- Source: National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 5, MTN Geneva 1977. No classification marking. A handwritten notation top of the page reads: “Vera—make copies for appropriate people Wolff, Vine, Rivers, Donaldson, Geza, Kelly etc.”↩