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

95. Memorandum From the President’s Assistant for Domestic Affairs and Policy (Eizenstat) and Robert Ginsburg of the Domestic Policy Staff to President Carter¹

Washington, January 9, 1978

SUBJECT

• Strauss Memorandum on Steel Decisions

Section 301 Complaint

We agree with the unanimous recommendation of Ambassador Strauss and the interagency committee that the STR discontinue its review of the steel industry’s Section 301 complaint.²

The essence of the complaint is that the EC/Japanese voluntary restraint agreement on steel has caused the diversion of a substantial amount of Japanese steel exports from the EC to the U.S. However, the interagency committee has not found a causal relationship between that agreement and the sharp increase in Japanese steel exports to the U.S. in 1976–1977—that increase seems to have been more the result of dumping and stronger demand for steel in the U.S. than elsewhere.

In his memorandum to you, Tony Solomon concurs with Ambassador Strauss’ recommendation for discontinuance but disagrees with the proposed rationale, i.e., that the trigger price system can handle any unfair burden resulting from the EC/Japanese agreement.³ We understand that Treasury and STR have since worked out mutually acceptable language (which we will review) for announcing this decision—so there is no longer any disagreement.⁴

Specialty Steel Quotas

We also agree with Ambassador Strauss’ recommendation that the specialty steel quotas be retained at their current levels (Option I).

In addition to the reasons given by Ambassador Strauss (the domestic industry has not recovered fully, the political cost would far outweigh any benefit, etc.), we are concerned that liberalization of the quotas would again subject the Administration (unfairly) to charges of inconsistency in our economic actions—on the one hand, we develop a trigger price system to protect the domestic steel industry from foreign competition in basic steel and on the other hand, we reduce the amount of protection the steel industry has against foreign competition in specialty steel.

We also agree with the unanimous interagency recommendation to remove two minor products available only in limited quantities from American manufacturers—chipper knife steel and RM81 band saw steel—from coverage under the quotas.

However, we do think it would be worthwhile to let the specialty steel industry know that we expect its continuing economic recovery to be based on the expansion of production and not just inflationary price increases. A substantial part of the industry’s present recovery is due to price increases. While this should be no surprise under a quota system, it is not inevitable and we do not have to give the impression that we are indifferent to the industry’s aggressive pricing practices. Accordingly, we recommend that you instruct Ambassador Strauss to reflect our concern about inflationary price increases either in his formal announcement of this decision or in private communications with the specialty steel manufacturers.⁵

1. Source: Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 283, Steel (O/A 6237). No classification marking. Ginsburg did not initial the memorandum.
2. See Document 90.
3. Possibly a reference to Solomon’s memorandum of December 28, 1978; see footnote 17, Document 90.
4. The White House announced the dismissal of the Section 301 complaint on January 18. (“U.S. To Keep Quotas For Steel Imports,” The New York Times, January 19, 1978, p. D3)
5. The White House announced the retention of the specialty steel quotas on January 18. (“U.S. To Keep Quotas For Steel Imports,” The New York Times, January 19, 1978, p. D3)