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

216. Memorandum From the Special Representative for Trade Negotiations (Strauss) to President Carter¹

Washington, June 5, 1979

SUBJECT

• Implementation of the Tokyo Round of Multilateral Trade Negotiations

Within two weeks we expect to submit for your approval and transmittal to Congress the international agreements and domestic implementing legislation which together comprise the final results of the Tokyo Round. Barring unforeseen difficulties, in keeping with my previous advice to you, I believe the package—the most comprehensive trade legislation any President has submitted to any Congress—will be approved by the House and Senate, under the procedures set forth in the Trade Act of 1974, before the August recess. However, we still cannot be certain. The legislation has completed mark-up in both Houses and a unique “pre-conference” by House Ways and Means and Senate Finance Committees which concluded without any major loss on issues.

This package is the culmination of almost five years of negotiations with our trading partners by this Office in cooperation with other agencies of the Executive Branch and in close consultation with our private sector advisors and with the Congress. The major elements of the package are as follows:

—international codes of conduct on nontariff barriers including subsidies and countervailing measures; anti-dumping; product standards; customs valuation; licensing; trade in civil aircraft; and government procurement;

—renovation of the international trading framework to improve the rules for resolving international trade disputes and to make the trading system more responsive to the needs of developing countries;

—a series of agreements designed to improve the international rules for trade in agricultural products;

—a revamping of our domestic laws and procedures governing unfair foreign trade practices, particularly subsidies and antidumping, and new procedures for handling complaints by private parties against foreign practices which violate code obligations.

In addition, we have agreed with our major trading partners to reduce tariffs on industrial products by an average of about 30 percent, to be phased in over the next eight years, beginning in January, 1980.

As this process has evolved, several important issues have arisen which deserve your attention:

Material Injury: In the negotiation of the Code on Subsidies and Countervailing Measures, our trading partners sought, and we agreed to recommend to the Congress, the inclusion of a “material” injury test in the U.S. countervailing duty statute. In recent weeks, concern has been expressed in some foreign capitals that the requirement that “material” injury be demonstrated before countervailing duties are imposed would not be included in our implementing legislation.² I am pleased to report that a “material” injury test which implements our international obligations will be included in the legislation.

Limiting Benefits of the Subsidies Code to Countries Accepting Its Obligations: A related issue of far-reaching significance is the conditional application of the Code on Subsidies and Countervailing Measures. Under the subsidy code, signatory governments will assume new obligations with respect to the use of subsidies. At the same time, the United States will commit itself not to apply countervailing duties against foreign subsidies, unless it can be shown that a U.S. industry has been injured or threatened with material injury. Under Trade Policy Committee guidance, we have recommended to the Congress that the benefit of an injury test in our countervailing duty law should be accorded only to countries that accept the obligations of the subsidies code, not to all countries.

The threat of a stringent application of the current U.S. countervailing duty statute (without an injury test) is our only means of persuading a number of countries, particularly advanced developing countries, to accept the obligations of the code. It is difficult to maintain a consensus for open trade if such countries continue to refuse to accept international discipline over their export subsidy practices. Also, in my judgment, we could not obtain congressional approval of the new subsidy code if a large number of countries were excluded from the discipline of the code (giving them a “free ride”).

Although there are persuasive reasons for discriminating among countries with regard to the use of the injury standard in the U.S. countervailing duty law, this step represents a departure from traditional U.S. trade policy. The U.S. has in the past extended the benefits of trade concessions on an unconditional “most-favored-nation” basis (i.e. without regard to reciprocity). This may involve controversy, especially from developing countries.

Your advisors have carefully reviewed the pros and cons of this issue, and they see no alternative but to deny the benefit of the injury standard to countries not assuming code obligations. At the same time, we expect to be flexible in working out transitional arrangements for developing countries who need time to phase out their current export subsidy practices.

The policy argument for this approach is compelling, and your advisers believe that in most cases this decision is legally defensible in the GATT. In those instances in which this decision would violate the provisions of bilateral agreements, specific legislative exceptions to this rule will be provided.

Reorganization of the Executive Branch for the Conduct of Trade Policy: As we have discussed before, there is a strong consensus on Capitol Hill that the trade policy functions of the Executive Branch are in need of reorganization. The agreement we have reached with the Hill is that the Administration will submit its recommendations to Congress by July 10, 1979, without prejudging what form those recommendations will take. We are working with OMB and other agencies to prepare the Administration’s recommendations.³

1. Source: Carter Library, Donated Material, Papers of Walter F. Mondale, National Security Issues, Box 85, National Security Issues—Trade, [11/1977–12/1979]. No classification marking.
2. For example, in the April 17 Evening Report to Carter, Christopher wrote: “Speaking for the EC President, French Ambassador de Laboulaye, accompanied by EC Ambassador Spaak, called on me today to stress the importance the EC places on the US adopting legislation which will faithfully translate the MTN agreements in US domestic law. He dwelt especially on the standard the US will adopt for determining injury in countervailing duty and dumping cases. The EC feels strongly that US law should use precisely the same formulation—‘material injury’—as appears in the MTN agreements negotiated in Geneva.” (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 21, Evening Reports (State): 3/79)
3. The Carter administration announced a plan to reorganize the making of trade policy on July 19. (Clyde H. Farnsworth, “Carter Asks For Trade Revamping,” The New York Times, July 20, 1979, p. D1) On September 25, Carter sent a trade reorganization plan to Congress. For Carter’s message to Congress, see Public Papers of the Presidents of the United States: Jimmy Carter, 1979, Book II, pp. 1729–1738.