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

29. Memorandum From the Chairman of the Economic Policy Group (Blumenthal) to President Carter ¹

Washington, May 11, 1977

SUBJECT

• Review of Specialty Steel Quotas

The Economic Policy Group has reviewed the status of import quotas on specialty steel products and unanimously agreed that you should exercise your prerogative of asking the U.S. International Trade Commission (USITC) to formally review the situation. However, EPG developed two options concerning the timing of your action. You could initiate a review immediately or you may wish to wait between 45–90 days to do so.

REASONS FOR USITC REVIEW

The need for an USITC review within the next few months stems from two principal factors. First, there is an apparent economic case against restricting several categories of specialty steel imports. Demand is increasing for flat-rolled steels that are used in consumer durables (although still sluggish for other steels that are more dependent on investment). Our overall assessment is for considerable improvement in the industry as a whole as the recovery proceeds. Second, the European Community has repeatedly protested curtailment of its specialty steel shipments to the U.S., imposed by President Ford last June.² On two recent occasions it has formally requested that the U.S. Government initiate the procedures necessary to reduce or terminate import relief.³ In response, we have stated that we could consider reviewing the quotas after the USITC compiled data on the domestic specialty steel industry for calendar year 1976.⁴ This data is now available.

PROCEDURES FOR INITIATING A REVIEW

The first step involved in any reduction or termination of the quotas prior to its scheduled three year duration (from June 14, 1976 to June 13, 1979) would be to request the USITC’s advice on the probable economic effect on the domestic industry of such action. (By law, advice is also required of the Secretaries of Commerce and Labor.) It will likely take the USITC at least three months to produce its advisory report.

NATURE OF USITC ADVICE

The USITC’s recommendation is not binding, and you can support, reject, or simply not act on it. To give you maximum flexibility we are recommending that your request for USITC advice pertain to all product categories and that the advice be given on a product-by-product basis.

TIMING OF A REQUEST TO THE USITC

If you agree to initiating USITC review, the major issue is timing.

Arguments for an immediate review*t1 are:

—It would be interpreted by the public as an anti-inflation measure. The U.S. steel companies would see it as a signal of strong Administration concern about price increases and it may inhibit further price increases in the steel industry.⁵

—Our trade relations with the EC would be improved and immediate impetus would be given to post-Summit momentum towards trade liberalization. The EC would be more likely to again defer seeking compensation or retaliation under international trading rules.

—An early USITC review would strengthen our hand in urging the EC to resist protectionist measures in dealing with its own steel problems. It would provide an improved environment for international discussions on world steel problems, which should be underway by mid-June in the OECD with US, EC and Japanese participation.

—The USITC investigation will take at least three months—hence an immediate request is really only an opportunity for you to make decisions in the late summer or early fall, when the industry should be in better economic condition.

Arguments for postponing a review until sometime this summer*t1 are:

—Considerable domestic political opposition would be evoked from the domestic steel industry and unions, who would interpret a USITC request as a prelude to removal of quotas. Some members of Congress could be expected to vigorously oppose any move to relax or eliminate the quotas. This adverse domestic reaction could be postponed until upcoming trade issues such as shoes, color TV’s and sugar, including the threat of Congressional override, are settled.

—The longer the delay, the further along the industry will be in the recovery; hence more product categories will likely be included in USITC advice to relax quotas.

—The second year quotas should not begin to actually restrain imports until the fall, thereby limiting the international and domestic economic effects of a modest delay.

—If the request is delayed until late June, the ITC would be able to base its advice on an entire year of import relief. The full year will appear publicly to be a more credible time period during which to assess our experience under the quotas.

—If the request for USITC advice is delayed until mid-summer OECD discussion on world steel problems will be underway, and this might mitigate adverse industry and union reaction.

OPTIONS

Timing

1. Request ITC advice immediately. Treasury, State, CEA, NSC, OMB support.⁶

2. Delay request for ITC advice. STR,⁷ Labor, Commerce support. (In this case we would come back to you this summer when the time seems right.)

Procedure

If you choose to make an immediate request for USITC advice, you may either make the request directly to the USITC, or indirectly, by directing the Special Trade Representative (STR) to take such action on your behalf. A request to the USITC made by the STR might draw less adverse domestic union and industry attention to this study than would a Presidential request.

1. President to sign letters.

2. Ambassador Strauss to sign.⁸

Bob Strauss has provided alternative draft letters (either for your signature or Strauss’) to the Chairman of the USITC and letters requesting the advice of the Secretaries of Commerce and Labor (Tab 1).⁹

For your information a copy of the STR memorandum to the Economic Policy Group on this subject is attached (Tab 2).¹⁰

1. Source: National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 7, Steel File #1. No classification marking. A stamped notation reads: “The President has seen.” Carter wrote at the top of the page: “cc: To Strauss & Blumenthal. J.C.”
2. On June 11, 1976, the White House issued Presidential Proclamation 4445 on the “Temporary Quantitative Limitation on the Importation into the United States of Certain Articles of Stainless Steel or Alloy Tool Steel.” The restrictions were to take effect on June 14, 1976, and continue until June 13, 1979. (41 Federal Register 24101, 29089, June 15, 1976)
3. No formal requests were found. On February 7, the EC “requested that the United States begin a review of the specialty steel quotas and put into effect some immediate improvements.” On April 21, during steel consultations between the United States and the EC, EC officials “urged we seek ITC review of specialty steel quotas.” (Telegram 1192 from USEC Brussels, February 7, and telegram 4059 from USEC Brussels, April 22; National Archives, RG 59, Central Foreign Policy File, D770043–0630 and D770141–0500, respectively)
4. On February 14, in response to the February 7 EC request for a review of the U.S. specialty steel quota situation (see footnote 3 above), the EPG decided “to proceed expeditiously with shortfall reallocation,” as well as “to postpone decision on request to USITC for advice on reducing or termination relief until 1976 annual survey results are available in March.” (Telegram 36061 to USEC Brussels, February 17; National Archives, RG 59, Central Foreign Policy File, D770056–0814)
5. In a May 17 memorandum to Carter, Eizenstat and Ginsburg urged an “immediate review, primarily because that will clearly indicate to the steel industry (and the general public) your concern over inflationary price increases and your willingness to vigorously use international trade as a tool to keep domestic prices down.” (Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 284, Steel/Chrome (CF, O/A 24) (4))
6. Carter indicated his approval of this option.
7. In a May 13 memorandum to Carter, under cover of which he forwarded Blumenthal’s EPG memorandum, Watson noted that he had not forwarded to Carter a memorandum to him from Strauss on specialty steel, believing that “Bob’s view that the request for I.T.C. advice should be deferred is fully and fairly presented in the EPG memorandum.” (Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 284, Steel/Chrome (CF, O/A 24) (4)) A copy of Strauss’ May 12 memorandum to Carter on specialty steel import quotas is in the National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 7, Steel File #1.
8. Carter indicated his approval of this option.
9. Not attached.
10. Not attached and not further identified. In his May 13 memorandum to Carter forwarding Blumenthal’s EPG memorandum, Watson noted that he had not forwarded “a lengthy memorandum and statistical document prepared by the Trade Policy Staff Committee, a copy of which was originally attached to the EPG memorandum.” However, reference may also be to an April 29 memorandum from Strauss to the EPG entitled “Status Report on Specialty Steel Quotas and Steel Trade Issues,” a copy of which is in the National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 7, Steel File #1.