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

38. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter ¹

Washington, July 5, 1977

SUBJECT

• Cargo Preferences

I have just received Stu Eizenstat’s memo (Tab A) on which you approved a scaled-down version of cargo preferences.² Obviously, there are important domestic policy considerations at stake. But, your decision will also have significant foreign repercussions which I do not believe were adequately spelled out in the Eizenstat memo:

—Our trading partners, particularly the Europeans, will see cargo preferences as a protectionist device. It will raise doubts about your commitment to an open world trading system and to the London Summit Declaration. As you may recall, Prime Minister Nordli told you in London of the serious impact cargo preferences would have on Norway.³

—Unemployment and inflation in Europe remain very high; governments in power are weak. Leaders are under increasing pressure to adopt trade restrictions to protect jobs at home. The heads of state of the EC Nine last week issued a statement expressing concern about high unemployment and asked for a study recommending measures to deal with five sensitive industries, including shipbuilding.⁴ Adoption of cargo preferences by the US will further weaken their resolve to resist demands for protection. Instead, they may emulate our actions. The result would be disastrous for world trade.

—As Bob Strauss indicates, the concept of preferences is more important than the actual percentage offered.⁵ From the standpoint of US trade policy, a 10% preference is as damaging as 25%. It breaches treaties with 30 countries. Moreover, once we have started down the preference road, it will become increasingly difficult to draw the line. The maritime industry will push for more. A 10% preference will merely open the door.

—Commerce and Labor recommend that you defend this action on national security grounds—i. e. that US flag ships will be more reliable than foreign ships in emergencies. State, Defense and I disagree. We believe that it is more probable that in an emergency foreign ports would be closed to US flag ships.

I urge you to reexamine your decision in light of these considerations; my concern is shared by State, Treasury, OMB and CEA.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 89, Economic Policy Group: 1977. Confidential. Hormats sent the memorandum to Brzezinski for his signature under cover of a July 1 memorandum. (Ibid.)
2. Tab A is not attached. In his July 1 cover memorandum to Brzezinski (see footnote 1 above), Hormats wrote: “The President has decided to go ahead with a modified cargo preference scheme recommended by Stu Eizenstat. His note on Eizenstat’s memo (Tab A), which we have never received (we had to obtain this from the EPG), indicates that Bob Strauss should work with the unions and Congress to obtain agreement on the ‘minimum’ acceptable level of preference.” A June 23 memorandum from Eizenstat and Bill Johnston to Carter entitled “Cargo Preference” is in the Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 89, Economic Policy Group: 1977.
3. Carter met with Nordli in London from 2:30 until 2:45 p.m. on May 10. (Carter Library, Presidential Materials, President’s Daily Diary)
4. The EC Council met in London June 29–30. Telegram 10953 from London, July 1, contains the text of the statement on growth, inflation, and employment issued at the conclusion of the meeting. (National Archives, RG 59, Central Foreign Policy File, D770235–0992)
5. See Document 34.