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

80. Memorandum From the President’s Assistant for Domestic Affairs and Policy (Eizenstat) to President Carter ¹

Washington, December 1, 1977

SUBJECT

• Meeting on Task Force Report on Steel

I thought before you read the final steel report² you might want to know the results of the lengthy inter-agency meeting which we convened to review the outstanding questions on the Solomon Steel Report.³

I. REFERENCE PRICE SYSTEM

1. Time Length—We had a discussion about the length of time during which the reference price system would last since this was not mentioned in the initial summary. There was a clear consensus that the report should make clear that while there is no set deadline on the reference price system, that it was intended to be temporary and would be reviewed periodically to determine its effectiveness and in light of changing circumstances.⁴

2. Dropping Anti-Dumping Cases—The question here was whether we should seek specific assurances from the major steel companies to drop their pending anti-dumping cases and to forego filing ones that are now in the process of being prepared. The Justice Department felt strongly that no such assurances can be asked on legal grounds. Companies could not be asked to forego their legal rights in return for this system. However, presumably the course taken by the industry on anti-dumping suits would be a factor in the Treasury’s determination as to the length of time the price should be maintained. Tony Solomon has implied to them, as strongly as he can within legal bounds, that the Administration cannot be expected to simultaneously pursue this “fast-track” reference price system and the more laborious investigation of anti-dumping actions.⁵

3. Legal Issues Regarding Reference Price—There are essentially two legal issues involved, which the Department of Justice had not had the opportunity previously to explore. First was the authority of the Secretary of the Treasury to self-initiate a dumping investigation, which is a key ingredient in this fast-track reference price proposal. While the Justice Department does not yet have a formal opinion, the Assistant Attorney General for the Office of Legal Counsel indicated that he thinks (as does the Treasury Department) that a strong case can be made that the Secretary does have such authority. He will be able to give a favorable formal legal opinion next week.

The second major legal issue regarding the reference price is whether it is violative of the antitrust laws. The Assistant Attorney General for Antitrust, who was at the meeting, indicated that the reference price system, in its general concept, could probably sustain legal challenge, although there might be some judges who would call this an illegal parallel pricing agreement by industry. He made it clear that he could not give a better opinion at this time until he saw the actual numbers which would be used for setting the reference price. The actual reference price will not be available for several months.⁶

4. Limitation to Steel Industry—The question here was whether or not the reference price system would have to be extended on equity grounds to other industries. Dick Cooper made it clear that if other industries fit the criteria he would have no objection to their applicability to other industries. Treasury maintained, seemingly to the satisfaction to the group, that a strong case could be made that there are unique circumstances here, both due to injury involved to the steel industry from imports and the large number of anti-dumping cases which are straining Treasury’s resources. Thus, this reference price system is merely an administrative method of expediting the handling of these cases, which are largely concentrated in the steel industry.⁷

5. Multilateral Discussions—As you are aware, STR had raised the issue of including in the report and the announcement an indication that multilateral solutions would continue to be sought to steel trade problems. Treasury and Charlie Schultze felt strongly that no language should be included which implied multilateral negotiations would be forthcoming toward an agreement. A compromise was reached where language would be used favoring the need for continued consultations on a multilateral basis.⁸

6. Inflation Impact—I raised the question of whether the inflation impact for this program could be known at this time, before the actual reference price was set. Charlie Schultze indicated that it could not be known but that this reference price system would be less inflationary than the other major options—quantitative restrictions on steel imports or allowing the massive number of anti-dumping suits to proceed.

7. Quid-Pro-Quo On Price-Wage Behavior—This was one of the most disappointing parts of the meeting for me. Treasury felt quite strongly that if we attempt to tie this program to wage and price moderation that the industry would balk and simply continue to file anti-dumping cases. The most we could get agreement on was that the report would reference the fact that the steel industry’s problems were not solely due to imports but that costs were also a factor and some very general language would be put in about costs. In addition, the statement will be made that it is the hope of the Administration that the reference price system will be used for increased production, with the implication that it should not be used for price increases (although Charlie Schultze feels that the industry will use this to increase their profit margins). Barry Bosworth pointed out that since the reference price is based on the cheapest foreign production costs, there is a built-in pressure on price restraint.⁹

8. Shift to Fabricated Products—In its memo STR raised the concern that since the reference price would not apply to certain steel imports, such as carbon steel plate and fabricated steel products, foreign governments would simply shift their imports to these lines.¹⁰ It was agreed that a general statement would be made in the report concerning a monitoring effort by Customs on such products.

9. Exchange Rates—OMB in its memo had raised the question of whether the recent changes in exchange rates may reduce the need for industry protection.¹¹ It was felt that the reference price system was still needed but that exchange rates would be one of the factors that would be reviewed when the reference price was evaluated.¹²

10. Fixing the Reference Prices—After the meeting, Tony Solomon indicated that he had reasonable confidence in the ability of Treasury to fix the “right” level of reference prices. They will use data developed by COWPS in their study of the steel industry.¹³

II. DOMESTIC PROPOSALS

1. Reduction in Guideline Life—Questions had been raised about reducing the guideline life of steel equipment from its current level of 18 years to 15 years. You had questioned its impact on other heavy industry in your note.¹⁴ Treasury mentioned the following:

a.) This report would merely recommend that the IRS study the possibility of reducing guideline life.

b.) Different industries now had different useful lives for their equipment so that there would not be an impact on other industries by changes here.

c.) Reasonable assurances of modernization by the industry would help give a justification for reducing the guideline life.

2. EDA Revolving Fund of $215 million—As you are aware, OMB had significant problems with the use of a revolving fund since they correctly believe that this is contrary to good budget management and simply guarantees continuing loan guarantees with little oversight. Indeed, OMB in 1973 essentially stopped the use of this revolving fund. After a good deal of discussion it was agreed that the report would simply mention, without a dollar figure, the general use of EDA loan guarantee authority. This would permit the use of existing authority and the regular appropriations process, rather than a revolving fund.¹⁵

3. Joint Venture-Merger Guidelines—Treasury has accepted the revised language which has been drafted by the Antitrust Division of the Justice Department. There are now no disagreements in this area.

4. Tripartite Committee—You had questioned this.¹⁶ This had been suggested by the Department of Labor. Barry Bosworth was not terribly favorable to it but no one had strong objections. Tony Solomon made an excellent point that since his draft report has leaked with this recommended committee in it,¹⁷ it might seem odd to pull back on such an innocuous recommendation.

5. Other Points—You also had question marks by several of the recommendations on community and labor assistance. The $20 million from EDA is for planning grants to combat unemployment in the affected steel communities and is generally consistent with our recommendations in the trade adjustment assistance area. The recommendation regarding communities and/or worker takeover of abandoned steel facilities is merely a commitment to evaluate the results of a study proposed by certain Church groups in Youngstown and involves no commitments of funds by the Task Force.¹⁸

III. TIMING OF RELEASE

Treasury would like to release it tomorrow because of their fear of further leaks. However, most of the substantive information is unfortunately already in the papers and if you feel that a few extra days is necessary, Tony Solomon believes it would not be a tragedy to release it Monday or Tuesday.¹⁹

Tony has indicated that he has consulted widely with Congress, although, of course, he has not been able to give them the final results for the report. I have talked to Frank Moore about congressional consultations. A release early next week would allow for more time for Congressional briefings. Frank indicated that if he knows in the morning that you have approved the report, he could get together at least a small group of the steel caucus (most Congressmen are out of town at this point and will be back Tuesday) for a pre-press conference briefing around 1:00. He could get a larger group together Tuesday, when the House comes back in session.

Jack Watson and I believe releasing it early next week will give everyone a chance to review the final report, which no one will have seen until tomorrow morning. We feel there is little to lose by a few extra days delay and much that can be gained by a careful review of the report.²⁰

1. Source: Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 284, Steel/Chrome (CF, O/A 24) (2). No classification marking. A stamped notation reads: “The President has seen,” and Carter wrote at the top of the page: “To Stu & Tony. JC.”
2. See footnote 2, Document 79.
3. No minutes of this meeting were found. On November 23, Blumenthal sent a summary of the Steel Task Force’s recommendations to Carter for his approval. Carter sent Eizenstat Blumenthal’s cover memorandum on which he wrote: “Stu—You, Solomon & others work out differences. Then submit to me,” adding as a postscript “Expedite.” (Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Subject Files, Box 81, Steel (7)) A copy of Blumenthal’s November 23 memorandum to Carter, without Carter’s comments but with the summary of the Task Force report attached, is in the Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Subject Files, Box 81, [Steel] [6].
4. Carter wrote “I agree” in the margin adjacent to this paragraph.
5. Carter highlighted the final sentence of this paragraph and wrote “good” in the adjacent margin.
6. Carter wrote “Be careful about this” in the margin adjacent to this paragraph.
7. Carter wrote “Temporary nature of reference price can help here” in the margin adjacent to this paragraph.
8. Carter wrote “ok” in the margin adjacent to this paragraph.
9. Carter wrote “Business-Labor-Govt task force should address productivity question” in the margin adjacent to this paragraph.
10. The STR memorandum was not further identified; however, Strauss discussed his concerns about the Steel Task Force report in a November 29 memorandum to Carter. (Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Subject Files, Box 81, [Steel] [6])
11. The OMB memorandum was not further identified.
12. Carter wrote “Don’t eliminate this factor” in the margin adjacent to this paragraph.
13. Carter wrote “Consult & let me see ref price & comments” in the margin adjacent to this paragraph.
14. Not further identified.
15. Carter wrote “Loans should be sound” in the margin adjacent to this paragraph. He also underlined the last five words in the paragraph, “rather than a revolving fund,” and wrote “good” in the adjacent margin.
16. Not further identified.
17. On November 30, for example, The Wall Street Journal printed an article on the unreleased Steel Task Force report that referred to the formation of a joint labor/management/government committee. (David Ignatius, “Carter Weighs Plan to Revive Weak Steel Mills,” The Wall Street Journal, November 30, 1977, p. 2)
18. Carter underlined the words “no commitments of funds” and wrote “good” in the adjacent margin.
19. December 5 or 6.
20. At the end of this paragraph, Carter wrote: “Fri, Sat, Mon or Tues ok w/me.” At the bottom of the page, he wrote: “Press release should emphasize a) Minimum inflation impact b) No violation of anti-trust laws c) Pollution standards upheld d) Budget impact small e) Modernization/productivity f) Maintains competitive market forces.” Next to this note, Carter added: “If ready Fri afternoon, go ahead—I have no preference. J.” On Tuesday, December 6, the White House announced that Carter had approved the recommendations contained in the Solomon Task Force’s “Report to the President—A Comprehensive Program for the Steel Industry.” See Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book II, p. 2083.