234. Memorandum From Secretary of State Vance, Secretary of Commerce Klutznick, and the United States Trade Representative (Askew) to President Carter 1

SUBJECT

  • Steel Policy

We are facing a potential crisis in U.S.–EC relations. The question before us arises from the decision of U.S. Steel to file anti-dumping cases against steel imports from France and Germany on Monday.2 We need to decide how to prevent this filing from disrupting trade and political relations with Europe. Secretary Miller is sending you a memo on the situation.

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We strongly recommend that you support the option in his memo to temporarily retain the Trigger Price Mechanism (TPM).3

On Monday we expect U.S. Steel to file dumping complaints against steel imports from West Germany and France. U.S. Steel has prepared cases against seven EC member states and is preparing cases against Japan and other steel producers. U.S. Steel is filing only two cases at this point because it—and the rest of the industry—is hoping that a negotiated resolution to the steel problem can be arrived at over the next 60–75 days. This limited filing gives us better prospects for managing the problem.

Roy Jenkins has written you the attached letter expressing his concern over the situation and asking for consultations before you consider suspending the TPM.4 European leaders believe that the situation can be contained over the next two months or so if the TPM is maintained and no further cases are filed. Maintenance of the TPM would prevent steel price volatility, and would be useful in persuading other companies not to join U.S. Steel in filing cases. Should the TPM be suspended, they believe that the situation could quickly get out of control. Europe is facing a number of key trade decisions. Our Ambassador to the EC (Enders) reports that if the TPM is not maintained, the EC will probably be unable to resist pressures to impose a large tax on vegetable oils and fats, e.g., soybeans (affecting $3 billion in U.S. exports). Pressures will also grow for restrictions on U.S. exports of textiles to Europe.

With regard to steel, Europe appears to be vulnerable to dumping complaints. From what we know at this point, the seven U.S. Steel cases could, if pushed to a successful conclusion, reduce EC steel exports to this market by about two-thirds.

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This situation could have a profound impact on not only our trade but also our political relations with Europe and European support for certain of our foreign policy objectives.

We recommend the following course of action (see attached press release).5

(1) Temporarily maintain TPM at present levels.

(2) Announce that this is being done to prevent immediate disruption of steel trade and to complete a review of the accuracy of TPM calculations.

(3) Also announce that a future decision on continuation of TPM will take into account our assessment of cases filed, any additional cases and the impact of cases on international trade.

(4) Continue efforts to find a solution to the problem.

The pros and cons of this course of action are:

PROS

1. Allows time to arrive at a negotiated result if that is possible. Suspension of TPM at this point could result in a filing by U.S. Steel of its other five cases and probably a filing of petitions by other companies. European leaders, in turn, could lose control of the situation. Negotiation in this climate would be difficult at best.

2. Avoids other companies joining U.S. Steel. Other U.S. steel producers (Bethlehem, Republic, National) have said that they have prepared dumping cases but will not file them as long as we maintain TPM and continue to look for a solution.

3. Necessary to enable European leadership to manage the situation. EC Commissioner Davignon has said that price volatility6 resulting from suspended TPM would cause him to lose control of the situation, but that he can manage the situation as long as the dumping complaints are limited and we maintain TPM.7 The Europeans, like us, want to prevent the steel trade issue from spilling over into other trade and foreign policy areas.

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4. Time works in our favor if the situation remains fluid. Steel imports from Europe appear to be falling, and the American steel market is strengthening. This should ease the tension.

5. Maintains TPM flexibility. If the steel industry moves in an unsatisfactory way, or if conditions otherwise warrant it, we remain free to suspend TPM.

CONS

1. Administration might appear “soft” on steel. We have said we would suspend TPM if broad antidumping cases are filed. While U.S. Steel has limited its filing to two EC producers, they are the largest EC producers and the amount of trade involved is substantial. Maintaining TPM even on a temporary basis may be seen as a reversal of our previously stated intention to suspend it.

2. Inflation costs. Our willingness to maintain TPM could open us to the charge that we have not done as much as we can to counter inflation in this market.8 We believe, however, that the impact of many steel dumping cases, if pursued, could be more inflationary than the alternative solution.

Efforts to achieve a satisfactory solution will be difficult. We know that some representatives of the industry have totally unrealistic expectations. But we have already made progress in reducing the number of antidumping suits, and we believe we should continue our efforts to resolve this difficult issue through discussion. It is possible that the most satisfactory outcome is simply to let the U.S. Steel cases follow their procedural course through Commerce and the ITC, retaining TPM and avoiding additional cases. The trade and foreign policy costs associated with the alternative of immediately suspending TPM, which could cause many other suits to be filed, is sufficiently high that we should do all that we reasonably can to avoid it.

  1. Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 174, 3/10/80 [2]. Confidential. Hormats initialed on behalf of Klutznick and Askew. This memorandum is attached as Tab A to a March 9 memorandum from Owen to Carter entitled “Steel TPM.”
  2. March 10. Ultimately, U.S. Steel did not file an anti-dumping case.
  3. In a March 9 memorandum to Carter, Miller recalled Carter’s affirmation that he would suspend the TPM in the event of a request by U.S. steel producers for a major foreign dumping investigation. (See Document 232.) Miller reported that Jenkins and Davignon had subsequently urged retention of the TPM, arguing that suspension “would result in considerable pressures for EC trade actions that would be detrimental to U.S. interests. Under these circumstances, the Vice President, Commerce, USTR, State, Agriculture, Labor, and DPS recommend that the TPM not be suspended immediately even if U.S. Steel files the two petitions.” (Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Subject Files, Box 80, Steel [1]) Miller appears also to have sent Carter an earlier memorandum on the TPM issue that makes arguments similar to those made in his March 9 memorandum. (Memorandum from Owen to Carter, March 9; Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 17, European Communities: 3/77–3/80)
  4. Jenkins’ March 7 letter to Carter is not attached; a copy is ibid. In a March 9 memorandum to Carter, Owen noted that Miller, Eizenstat, Cooper, and Askew agreed “that we have no choice but to defer our decision until after consultation with the EC.” (Ibid.)
  5. Attached but not printed is an undated draft Department of Commerce press release entitled “United States Steel Corporation Files Antidumping Petitions Against Imports from West Germany and France.”
  6. An unknown person underlined the phrase “price volatility” and wrote “?” in the adjacent margin.
  7. Davignon made statements along these lines in separate conversations with Askew and Hormats. (Telegram 3141 from USEC Brussels, February 19; Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Briefing Book Files, Box 121, Briefing Book: EPG [Economic Policy Group] Executive Committee Meeting 2/21/80; and telegram 3343 from Geneva, February 29; Carter Library, National Security Affairs, Staff Material, International Economics, Subject File, Box 6, Steel: 2–3/80)
  8. In his March 9 memorandum to Carter (see footnote 3 above), Miller cautioned him to “bear in mind that continuing the TPM and processing antidumping suits at the same time will be more inflationary than either of the two alone. Also, any negotiated solution of the dumping cases is likely to be more protective and, therefore, more inflationary than the status quo. Maintaining the TPM will probably be interpreted as inconsistent with an intensified anti-inflation program.” Owen noted in his March 9 memorandum to Carter (see footnote 4 above) that “Treasury, CEA, and OMB believe, as do I, that inflation should be the dominant concern in making this decision. Other agencies don’t disagree with this as a matter of principle, but they don’t think that keeping TMP is more inflationary [than] suspending it.”