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

231. Memorandum From the United States Trade Representative (Askew) to President Carter¹

Washington, February 8, 1980

SUBJECT

• Nonrubber Footwear Imports

I. BACKGROUND

Following a U.S. International Trade Commission (USITC) finding of serious injury to the domestic nonrubber footwear industry in 1977, you ordered negotiation of orderly marketing agreements (OMAs) and domestic measures to enable the industry to adjust to import competition.² In so doing, you rejected the Commission’s recommendation for an additional high duty on imports over 266 million pairs as not fairly balancing your concerns for domestic jobs and production, inflation, and expanded world trade. You stated that you were reluctant to include import restraints in your remedy but had done so in view of the serious situation in the domestic footwear industry.

OMAs were negotiated with Taiwan and Korea, effective through June 30, 1981.³ However, you retain authority to impose restrictions on footwear imports from other countries if imports from them appear likely to disrupt the effectiveness of the OMAs.

The import relief program has come under criticism recently because of a surge in imports from countries not under restraint, primarily Italy. Imports, instead of declining as a result of the rollback of Korean and Taiwanese shipments, increased from 374 million pairs in 1978 to 405 million pairs in 1979. Imports from Italy alone rose from 63 million pairs to 97 million pairs in the same period. Domestic production and employment are on a downward trend.

The import surge has threatened the credibility of the relief program. The shoe industry and unions prefer imposition of global quotas—i.e., against all exporting countries. A statement of the industry’s views is attached.⁴ They would like a commitment from you that import levels will be brought down to 370 million pairs and that a mechanism will be established to assure that this figure is met. They are also hopeful that this mechanism can be continued for three additional years after expiration of the current relief program. These objectives are opposed strongly by (a) consumer groups, who are concerned about the inflationary impact of quotas; (b) U.S. shoe retailers; (c) foreign suppliers who would be hurt and, in the case of Europe, might impose barriers of the same sort.

Fortunately, the upward trend of imports appears to have reversed, based on recent data and projections. Various forecasts and our contacts with the EC and other exporting countries lead us to conclude that imports in 1980 will drop significantly from 1979 surge levels, to roughly 380–385 million pairs.

I believe that imposition of a global quota is not warranted at this time and I have told this to the industry and unions. However, the industry does need to be given more certainty about our intention to moderate imports and limit future surges in order to restore the credibility of the relief program.

II. OPTIONS

The first option would be to continue quiet efforts to reduce imports below 1979 surge levels. It would not, however, lock the Administration into a position where it will have decided in advance: (a) how much imports have to fall; and (b) how restrictive an action should be taken if action is later judged necessary. Treasury, State, Justice, National Security Council and International Development Cooperation Agency favor this option. (Fred Kahn)

These agencies believe that a commitment now to restrict imports if, in the future, those imports exceed a trigger level as called for in option two, would signal a significant retreat from the Administration’s anti-inflation objectives—enumerated in a wide range of economic policies. Moreover, coming at the same time as possible price-increasing actions on steel imports, such a commitment could be read as a reversal of Administration trade policy.

The proponents of this option believe a commitment to restrict imports should not be made when imports are falling and will probably continue to fall. A decision to restrict shoe imports, in their view, should be made only when we see whether the level of imports in fact remains excessively high. A trigger could force us to take a major protectionist step affecting scores of countries if imports exceed 385 million pairs by a small margin. Many of these countries would be LDC oil importers. Moreover, they believe, a commitment now to bring imports “toward pre-surge levels” (370 million pairs), would guarantee the industry a ceiling on imports—even if the industry makes no effort to meet import competition. This option has the disadvantage of failing to provide the certainty of relief that the industry and unions want.

The second option would be to assure the industry and unions that the Administration is committed to maintain the integrity of the footwear relief program by working to reduce imports in 1980 significantly below the 1979 levels and prevent new surges. We will more closely monitor imports to anticipate the sharp changes that can occur in a fashion-oriented industry. If we find that imports are not dropping significantly from 1979 levels toward pre-surge levels, we will take appropriate action⁵ to achieve this objective. We would leave open all options, including voluntary restraint agreements, orderly marketing agreements, tariffs, tariff-rate quotas, and global quotas. A press release to this effect would be issued.⁶

Under this option, we would only consider the use of global quotas as a last resort, if absolutely necessary to control surges. However, it is essential that we keep this option open not only because it may ultimately be the only effective way to moderate imports but also to give credibility to our efforts to negotiate more acceptable solutions with the surging countries. If the import situation unexpectedly deteriorates and our other efforts to correct the problem are unsuccessful, I would, after consultations with the agencies, recommend appropriate unilateral action for your approval.

This option has the advantage of being more acceptable to the industry and unions than the first option because it is more specific in setting our objective for imports in 1980, i.e. a significant drop in imports and prevention of new surges. However, by indicating that action will be taken only if imports do not drop significantly, this option suggests a range of acceptable imports above the pre-surge level of 370 million pairs to perhaps 385 million pairs before unilateral U.S. action would be necessary. This leeway would give us flexibility in dealing with the situation and would avoid arbitrarily triggering import restraints if the target of the lower end of the range is exceeded. This option is favored by Commerce, Labor, Interior, Agriculture, CEA⁷ and DPS. (OMB) (Landon Butler)

III. RECOMMENDATION

That you approve option two which would commit the Administration to work to reduce imports in 1980 significantly below 1979 levels and prevent new surges from occurring. All means of achieving this option would be left open including the possibility of using global quotas if necessary. I have discussed this issue with the unions and, although they still prefer a commitment to limit imports to 370 million pairs, they can accept the approach in option two.

OPTION I (Treasury, State, DOJ, NSC, IDCA, Kahn)

OPTION II (Askew, OMB, DPS, CEA, DOC, DOL, DOI, USDA) Butler⁸

1. Source: Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Subject Files, Box 51, Memos from the President [2]. Limited Office Use. Sent for action. Hormats initialed the memorandum on Askew’s behalf. Carter wrote at the top of the page: “Reubin—ck w/Schultze re statement. J.” Executive Order 12188 of January 2 renamed the Office of the Special Representative for Trade Negotiations the Office of the United States Trade Representative.
2. See Document 17.
3. See Document 32.
4. Not attached.
5. Carter underlined the phrase “take appropriate action” and wrote “?” in the adjacent margin.
6. Attached but not printed is a draft press release dated February 28.
7. Carter underlined “CEA.”
8. Carter indicated his approval of this option, writing “But: a) keep the statement as non-specific as possible; b) Include a strong [paragraph] near top re fighting inflation. J.” Carter’s decision was announced on February 29; for the text of the announcement, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980–81, Book I, pp. 420–421.