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

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

Washington, January 18, 1980

SUBJECT

• Reduction of Disincentives to US Exports (U)

The study of export disincentives pursuant to your September 1978 export policy decision² has now been underway for a year. This memorandum summarizes findings and proposed phased decisions, beginning with interim measures that you might announce next week, along with good news about exports and the balance of payments. (U)

The study has focused on our trade with non-Communist countries; issues peculiar to East-West trade were not included in the study or in the decisions proposed below. (U)

Progress in carrying out this study has been slow, largely because of the difficulty of securing reliable data. The task force conducting the study has estimated that all the indentified disincentives may result in a combined annual export loss of $5–10 billion, but these figures cannot be supported by firm evidence. (C)

The five major disincentives are:

—ambiguities in the Foreign Corrupt Practices Act³

—overlapping anti-boycott laws and regulations

—foreign policy export controls

—nuclear export controls

—arms export controls. (C)

The study has thus far covered only these five major disincentives. There are about a dozen other laws and policies that discourage or restrict exports, but they are much less significant than these five. We could go on to examine these other disincentives and produce a single report after they have all been examined but, given the duration of the study to date and the business community’s impatience, I believe it would be better to divide the venture into two phases:

—The first phase, consisting of (i) a report and recommendations on the five major export disincentives listed above, which are summarized in this memorandum, and (ii) a Presidential decisions announcement similar in form to your export policy announcement in September 1978. A draft text of this statement is attached.⁴

—The second phase, culminating in the new report on export incentives and disincentives that the Congress has mandated for July, 1980,⁵ could include any further action that then seemed politically feasible on the major disincentives, as well as recommendations on the secondary disincentives not considered in the first phase. The President’s Export Council⁶ would be involved in preparing this second phase. We would also inform Reginald Jones⁷ of the first phase decisions, before they are announced publicly. (U)

In Phase I we have looked for recommendations that would reduce the negative effect of the five major export disincentives and demonstrate your appreciation of US business interests, without requiring controversial legislative proposals or abandonment of fundamental policies in other fields. This limits the scope and effectiveness of these recommendations: Strongly supported policies, in some cases recently affirmed by the Congress or the Executive Branch, would be compromised by any major dismantling of export disincentives. (C)

My recommendations regarding each of the five main disincentives are set forth below. (U)

1. Foreign Corrupt Practices Act. You would reiterate support for the purpose of the Act but note business complaints about its ambiguities and its provision for duplicate administration by the Justice Department and the S.E.C.; you would announce that the procedures for providing guidance to business on the Act that you called for in your earlier export policy statements have now been established, and that Justice now will begin providing guidance on the meaning of the Act and will publicize the substance of each decision under the procedure. You would suggest that after a year of operating experience under the new procedure, its effectiveness in eliminating uncertainty will be reviewed by the Executive Branch in consultation with representatives of the business community; and you would suggest that the Congress then might wish to review any remaining issues. (State, Commerce, Justice, Treasury, USTR, NSC, and DPS concur.)⁸ (C)

2. Anti-boycott Laws and Regulations. You would propose no action on this matter, but would reiterate your support for the purposes of the legislation, express your satisfaction that several boycotting governments have moderated practices that conflict with US anti-boycott laws, and note that business uncertainty also has been alleviated by clarification of US Government regulations. No agency recommends action that might reopen debate on this subject in the Congress at this time. This argues against seeking more ambitious changes advocated by some agencies, i.e., congressional amendment of the Tax Reform Act of 1976 so as to tie its penalties to violations of Commerce Department regulations under the Export Administration Act, or repeal of the Tax Reform Act (Ribicoff act).⁹ (C)

3. Foreign Policy Export Controls. You would declare your endorsement of the amended Export Administration Act, citing particularly its tighter guidelines for use of export controls in foreign policy sanctions, as distinguished from national security cases; you would note our recent publication of a clearly identified and shortened list of goods, technologies and countries subject to export control for foreign policy reasons; and you would reaffirm your policy of seeking broad international participation in such economic sanctions where feasible and of very selectively applying such export controls when the target country has ready access to alternative supply. (C)

All concerned agencies concur with this statement of existing policy, although some would prefer policy changes in favor of export interests. The existing policy allows considerable flexibility in applying export controls for foreign policy purposes, such as disassociating the United States from abhorrent acts of foreign governments, e.g., apartheid in South Africa or support of terrorism in Libya or Chile. Cy Vance opposes reversal of recent decisions based on present policy, which you reaffirmed in a decision memorandum last December 29.¹⁰ Consequently, we are not presenting other options examined in the study of export disincentives, such as limiting foreign policy export controls to cases where you find that the sanction is likely to cause a favorable change in the target country’s policy, or limiting the essentially symbolic sanctions, i.e., where alternative supply is likely, to countries engaged in actions hostile to fundamental US interests. (C)

If you wish to consider changes in present policy before announcing your interim decisions, a delay of several weeks would be entailed while State prepared an analysis. (C)

Approve statement confined to present policy¹¹

Submit additional options, without delaying statement

Submit additional options, delaying statement

4. Nuclear Export Controls. You would note that under your Administration there has already been major progress in liberalizing our own nuclear export practices, such as providing multiple reload licenses for most of our principal trading partners, providing general licenses for components for most reactors abroad, and eliminating licensing requirements for non-significant quantities of nuclear material; in streamlining Executive Branch procedures under the Nuclear Non-Proliferation Act; and in harmonizing with other suppliers our nuclear export policies in dealing with cases of proliferation concern. (C)

You would now direct the responsible executive agencies:¹²

(1) in considering exports of dual-use items of significance for nuclear explosives, to assure that primary emphasis is placed on countries of proliferation concern, and to minimize the impact on commerce with our major trading partners;

(2) to continue efforts to harmonize international conditions for approving or denying exports and re-exports of dual-use items which we continue to license;

(3) to eliminate the need for a separate retransfer authorization for those cases where the retransfer was foreseen and approved in the NRC license; and

(4) to continue to seek ways of rationalizing the export review process for countries with good non-proliferation credentials, and take other steps to enhance US reliability as a supplier of nuclear materials and equipment. (C)

All concerned agencies concur.¹³

5. Arms Export Controls. While foreswearing an intention to increase arms exports, you would direct (a) firm deadlines for action on cases, parallel to those mandated in the new Export Administration Act (EAA) for civil use items and (b) establishment of an appeals procedure within the Executive Branch to provide a court of last resort for the US exporter who is unable to secure action on an arms export request within a reasonable period of time. (This might head off a move to extend to arms the provision in the new EAA which would move delayed cases for civil items to the courts.) All concerned agencies concur.¹⁴ (C)

RECOMMENDATION: That you indicate your preferences as to each of the five issues and authorize prompt issuance of the Presidential statement, which has been cleared by your speechwriters, Stu Eizenstat, Zbig and Al McDonald.¹⁵

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 92, Export Controls: (National Export Policy): 1–6/80. Confidential. Sent for action. Carter wrote at the top of the page: “Henry. J.” An attached February 26 memorandum for the record by Denend notes that Owen’s memorandum “was forwarded to the President for decision prematurely. Thus, the decisions taken were not implemented. Subsequently, a fully coordinated recommendation (NSC 1137) was forwarded to the President on this subject which he approved.” The subsequent memorandum to Carter was not found.
2. See Document 164.
3. On December 20, 1977, Carter signed the Foreign Corrupt Practices Act into law, noting that the act “makes corrupt payments to foreign officials illegal under United States law. It requires publicly held corporations to keep accurate books and records and establish accounting controls to prevent the use of ‘off-the-books’ devices, which have been used to disguise corporate bribes in the past. The law also requires more extensive disclosure of ownership of stocks registered with the Securities and Exchange Commission.” See Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book II, p. 2157.
4. Attached but not printed is a draft Presidential statement entitled “Reduction of Export Disincentives,” dated January 19. Carter initialed at the top of the draft statement and wrote “ok.” The draft differs from the statement that was ultimately issued on February 27; for the text of the latter, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book I, pp. 400–403. Regarding the 1978 announcement, see footnote 2, Document 164.
5. The 1979 Trade Agreements Act directed the President to submit a report on exports to Congress by July 1980. See Document 248. Carter sent Congress a report on U.S. export promotion policies on September 9; see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book II, pp. 1689–1695.
6. Executive Order 12131, May 4, 1979, revived the President’s Export Council; see Public Papers of the Presidents of the United States: Jimmy Carter, 1979, Book I, pp. 784–786. On December 22, 1980, the President’s Export Council submitted its final report, entitled “The Export Imperative,” to Carter; for his remarks on receiving the report, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book III, pp. 2827–2829.
7. Reginald Jones was Chairman of the President’s Export Council.
8. Carter indicated his approval of this recommendation and wrote “But do not insinuate future approval of bribery. J” below it.
9. Carter indicated his approval of this recommendation and initialed “J.” The Export Administration Act of 1979 (P.L. 96–72), signed by the President on September 29, 1979, aimed to control U.S. exports for reasons of national security, foreign policy, or short supply.
10. In a December 28, 1979, memorandum to Carter, Brzezinski sought his decisions on extending various export controls for foreign policy purposes. Carter communicated his decisions to the President of the Senate and the Speaker of the House of Representatives in two separate letters dated December 29, 1979. (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 66, Trade: 12/79)
11. Carter indicated his approval of this recommendation and initialed “J,” writing “(hard for me to understand)” in the adjacent margin.
12. Carter made a checkmark in the margin adjacent to all four numbered points below.
13. Carter indicated his approval of this recommendation and initialed “J.”
14. Carter indicated his approval of this recommendation and initialed “J.”
15. Carter indicated his approval of this recommendation and initialed “J.”