Foreign Relations of the United States, 1977–1980, Volume XXVIII, Organization and Management of Foreign Policy

117. Memorandum From the Director of the Office of Management and Budget (McIntyre) and the Special Representative for Trade Negotiations (Strauss) to President Carter¹

Washington, June 20, 1979

SUBJECT

• Trade Reorganization

We recommend consolidating policy coordination and negotiations in STR and consolidating operational functions in a renamed and revitalized Department of Trade and Commerce (TAC). In addition, the mandate of the Trade Policy Committee should be broadened substantially and a Trade Negotiation Committee should be created to manage all trade negotiations. This arrangement could bring about significant improvement in the management and effectiveness of the Government’s trade activities and in our view comes as close as possible to meeting Congressional and private sector desires for organizational change—if a separate trade department is not feasible.

In addition to deciding whether to adopt our basic proposal, you may wish to review the individual transfers—described in the Appendix²—that would be involved. We believe that most, if not all, of those changes are necessary to make the reorganization viable and acceptable.

The proposal will provide better accountability at home and abroad, and improved consistency and effectiveness in our dealings with Congress, the private sector, and other governments on trade matters. It would lodge in one Cabinet-level official responsibility for the operational side of most Government trade activities while strengthening current Executive Office leadership over trade policy and negotiations. We would also strengthen the interagency trade policy process that assures that different perspectives are represented and that the political considerations are adequately assessed. Finally, this plan provides for an overhaul of industrial analysis capabilities in the renamed Trade and Commerce Department. Better analysis is needed to monitor and anticipate trade problems in particular sectors and to analyze these problems and conflicts among trade and other government policies that impact on such sectors. This would be a positive factor with the business community and would correct serious defects in the existing government organization.

There are negative aspects to this proposal, as there are to all of the other options. On balance, though, this appears to be the best viable, sensible alternative.

BACKGROUND

Major U.S. trade functions are located in a number of agencies (Exhibit I).³ The Special Trade Representative (STR) has a lead role in the trade agreements program, but many trade issues are handled elsewhere. In most instances trade is not the principal concern of agencies where trade functions are located. Our recent trade difficulties and—currently—the submission of the multilateral trade negotiations (MTN) package to the Congress⁴ have heightened public interest in trade and brought demands for changes in our trade organization.

Although the U.S. is the only major industrial nation without a Cabinet-level trade department, organization is not the primary cause of our trade problems. Rather, such competitive disadvantages as higher-cost labor, inefficient facilities, lagging productivity, changing market demands, the attractiveness of the U.S. market, and legal and policy disincentives (e.g., antitrust, minimum wage, tax incentives, concerns for human rights, the environment, and national security) hamper U.S. industries’ efforts to meet foreign competition. Further, some critics of current trade organization seek to move functions in the hope that the new setting will give their concerns a more sympathetic hearing.

On the other hand, reorganization should ameliorate some of the problems and would afford higher priority to trade. Also, with the MTN agreement awaiting approval in Congress, it is important now to signal the Government’s commitment to tough enforcement of the new trade codes in the agreement. There is growing pressure from the Congress and from business to reorganize in the trade area; if we do not act, Congress probably will enact its own version of reorganization, possibly by creating a separate, additional trade department.

POLITICAL ASSESSMENT

Interest Groups

We have consulted intensively with the three major constituencies of trade reorganization—business, labor, and agriculture.

Business. Business groups are primarily concerned about implementation of the MTN agreement. Groups like the Business Roundtable, Chamber of Commerce and Emergency Committee for American Trade (representing about 50 top multinationals on trade matters), as well as the leadership of such major trading industries as aerospace and chemicals, are firmly committed to a strong STR-like entity with policy coordination and negotiation responsibilities. Most business groups would agree with moving countervailing duties and dumping functions out of Treasury. Some also feel strongly that STR should have these enforcement responsibilities, a step we have not recommended. Business groups profess interest in upgrading the Commerce Department, and therefore also support the Commerce enhancements recommended herein. The NAM stands out as the one business group still strongly dedicated to a separate trade department or a Commerce-based trade department having the policy and negotiation functions we have proposed for STR.

While agreeable to the reorganization we are recommending, business groups other than NAM would likely support an independent trade agency built around STR if this became viable on the Hill.

Labor. The AFL–CIO is primarily concerned that enforcement of trade statutes and agreements be kept separate from trade negotiations. They fear a tendency for a negotiator to compromise on matters of compliance to achieve other trade goals. Labor also sees benefits to a stronger sectoral analysis capability in Commerce—a capability they expect will lead to greater sensitivity to domestic opportunities for industrial growth and to domestic impacts of imports. For these reasons, labor would support the recommended proposal, which both separates negotiation from enforcement and strengthens Commerce’s industry analysis capacity.

Agriculture. Farm groups are chiefly worried that agricultural concerns be fairly treated vis-a-vis industrial, international political and other perspectives when it comes to trade policy-making and negotiating. For this reason, they are perhaps the strongest proponents of a “neutral broker” role being played by STR with respect to policy and negotiation. They would be stridently opposed to these two functions being placed in a Trade and Commerce Department, but have no objection to the enhancements of Commerce we are recommending.

Like business, however, agriculture probably would support an independent trade agency if that became viable on the Hill.

There are some nuances in interest group positions on the particular transfers proposed. Those most politically noteworthy are reported in appropriate discussion in the Appendix.

Congressional

There is significant support for trade reorganization in the Senate. Majority Leader Byrd, as well as Senators Ribicoff and Roth are active supporters of a separate Department of Trade (see Exhibit II).⁵ In the House, there is less active support for reorganization. However, as the MTN legislation has moved forward in the House, interest in reorganization has grown. Congressmen Jones of Oklahoma and Frenzel have announced that they will introduce a trade reorganization bill that is similar to our recommendation (see Exhibit II).

In both bodies, there is dissatisfaction with the current operation of certain trade programs—primarily countervailing duties (CVD), antidumping, and commercial officers.

There is a divergence of views among House and Senate members on whether Commerce is a suitable base upon which to build a Department of Trade. There is also dissatisfaction with the way Commerce programs are now run. Senators Byrd and Roth prefer an individual trade agency to the use of Commerce as a base. Congressmen Bingham and Brooks oppose an enhancement of Commerce, although it is not a firmly held view.

Congressmen Jones, Frenzel and Bingham share the view that STR should be preserved and enhanced. Most Senators support moving STR to a new trade agency. Senator Long on the other hand prefers to leave STR within the EOP.

One comment is in order here. Trade interest groups have not yet been very active on the Hill on trade reorganization. Once hearings begin and lobbying pressure intensifies, many Congressmen may shift their views. Very few Congressmen have hardened positions on this issue yet, other than a general feeling that something substantial must be done.

RECOMMENDATION

Discussion

We recommend that STR be made the principal locus for trade policy coordination and negotiation, and that Commerce (renamed Trade and Commerce) become the principal locus for operational trade functions. Further, we suggest that the mandate of the interagency Trade Policy Committee (TPC) be broadened substantially and that a new Trade Negotiating Committee to coordinate trade negotiations be created.

STR would remain in the Executive Office, remain a Cabinet member, continue to chair the TPC, and become a member of the National Advisory Committee on International Monetary and Financial Policies (NAC). With a staff at or slightly exceeding its current level of 59, STR (renamed Office of the U.S. Trade Representative) would assume responsibility for:

• • Trade policy coordination (both industrial and agricultural).
• • The lead role in trade negotiations, including commodity negotiations, East-West trade, and MTN-related negotiations (including GATT representation). To ensure that all negotiations are handled consistently and that our negotiating leverage is used to the maximum extent feasible, a new trade negotiating committee, directed by STR and including State, Agriculture, and Trade and Commerce (TAC), will be created to manage such activities. The committee will be responsible for negotiation of particular issues and will coordinate the operational aspects of those negotiations. The TPC would continue to develop basic U.S. negotiating objectives.

STR would continue to have the lead policy role with respect to discretionary trade relief functions (escape clause, Section 301,⁶ and market disruption).

The Commerce Department would be altered as follows:

• • Its name would be changed to Trade and Commerce (TAC).
• • A post of Under Secretary for Trade would be created.
• • Import relief functions would be transferred from Treasury (antidumping, countervailing duties, embargoes, national security trade investigations), the International Trade Commission (unfair import practices under Section 337 of the Trade Act of 1930⁷), and STR (staffing for Section 301 non-agricultural unfair trade practice cases).⁸
• • The TAC Secretary would become Chair of the Board of the Export-Import Bank.
• • Commercial representation responsibilities would be transferred from State.
• • MTN implementation support, insofar as it relates to nonagricultural matters, would be located in TAC. (Agricultural matters would go to Agriculture.)
• • Commerce/TAC, especially sectoral analysis capability in the Industry and Trade Administration, would be upgraded.

The TPC would add the following to its coordinating responsibilities:⁹

• • Import relief policy (including antidumping and countervailing duties, to the extent legally permissible).
• • Energy trade issues.
• • East-West trade policy, replacing the inactive East-West Foreign Trade Board.
• • International investment policy.
• • International commodity negotiations.

Our proposal has the following pros and cons:

Pros:

• Retains and further consolidates trade policy leadership in the Executive Office.

• Consolidates trade negotiation leadership in one place.

• Strengthens Commerce Department.

• Separates negotiation from “non-discretionary” enforcement (labor insists that this be done).

• Acceptable to business, labor and agricultural interests.

• Will satisfy many in the Congress, with less risk of escalation into a department than the State-Treasury option.

• Creates no new agencies or boards.

Cons:

• Senate may object to the absence of a single trade leader.

• Places operational responsibilities in Commerce, an agency perceived by many as weak.

• While acceptable to most of the business community, NAM may oppose.

• Movement of some import relief functions to Commerce, while likely to be popular on the Hill and among business and labor groups, may be viewed by some as leading to a protectionist bias.

We believe that this proposal is by far the most acceptable to the relevant interest groups and that it has a good chance to succeed on the Hill (it is similar to the approach taken by Congressmen Jones and Frenzel). We gave serious consideration to four other options, but rejected each:

Option 1. A Department of Trade and Commerce including not only the functions listed above, but also negotiating responsibilities and the chairmanship of the TPC. A trade department probably would have a very difficult time coordinating among such powerful peers as State and Treasury. Also, this approach, which is similar to that proposed in the Roth-Ribicoff¹⁰ and Byrd bills,¹¹ would meet very strong opposition from agricultural interests fearful of incorporation into an entity perceived as industry-oriented.

Option 2. A new trade agency, outside the Executive Office and headed by a Special Trade Representative who would also retain his Executive Office hat. This agency would include most of the functions listed above and probably would be well received on the Hill; indeed, the Congress might build substantially upon it and thus present us with a sizeable new bureaucracy, perhaps even an additional Cabinet department. Further, the AFL–CIO, which is dissatisfied with STR and believes that import relief should be separated from negotiating responsibility, would oppose this option.

Option 3. Establishment of a U.S. Export Corporation, with two subsidiary corporations, reporting to the Trade Policy Committee. This option is described in detail in the attached State/Treasury memorandum¹² and is their preferred option.

Pro:

• Could be sold as a novel and creative approach to address our export problems.

Cons:

• Creates two additional units of government.

• Proposal for two corporation boards (one mixed and one full time government) reporting to a corporate shell and then through an interagency committee and the STR to you, creates a cumbersome bureaucratic control system.

• Does not consolidate trade and trade related negotiations and policy coordination.

• Does not address the most widespread and deeply felt political problems of trade reorganization—the intense Congressional and private sector interest in moving Treasury’s antidumping and countervailing duties.

• Strips Commerce of its major trade program and resources.

• Export promotion alone does not satisfy most business and Congressional concerns.

Option 4. An STR supervising two new agencies outside the EOP: a U.S. Trade Policy Administration containing some negotiation, most important relief and MTN follow-up coordination, and the U.S. Export Corporation discussed in Option 3 above. This option, which is described in the attached State/Treasury memorandum, has the following pros and cons. We believe the disadvantages far outweigh the advantages.

Pros:

• Comes close to creating a single trade spokesperson and leader, if STR can control two non-Executive Office agencies (one headed by his “deputy,” the other by a “deputy” and two boards).

• Builds on STR, which has a good reputation among big business and agriculture (but not with the AFL–CIO).

• Gives the enforcement “stick” to our chief trade negotiator (wanted by many business groups).

• May be perceived by Congress as a bolder initiative signalling greater real change than our recommendation.

• Appears to give a new thrust to export promotion programs.

• Satisfies Congressional interest in moving Treasury import relief.

Cons:

• Creates two new agencies and one new board.

• Proposal for two mixed government/private Boards reporting to a corporation reporting to the Executive Office (through an interagency committee), creates a complicated bureaucratic control system.

• If STR controls the U.S. Export Corporation, which is geared to promoting industrial exports, some agricultural groups are concerned that STR may over-emphasize industrial export interests, thus compromising its neutral broker role. Conversely, if STR cannot successfully control the non-EOP agencies, this proposal takes trade almost entirely out of the Executive Office and creates two trade leaders instead of one.

• The AFL–CIO will strongly oppose placing enforcement responsibilities in STR.

• These new trade agencies may be transformed into another Cabinet department in the course of Congressional consideration.

• Eliminates the most promising mission we could develop to revitalize the Department of Commerce and, in fact, weakens Commerce.

• Does not bring international investment policy or energy trade policy under the TPC.

Decision

_______ As recommended by OMB/STR.

_______ As recommended, except for the units expressly excluded in the Appendix.

_______ OMB/STR recommendation not acceptable; decision indicated in Treasury/State memorandum¹³

1. Source: National Archives, RG 364, Special Trade Representative, 1977–1979, Box 45, Reorganization, 1977. No classification marking. Wolff initialed the memorandum on Strauss’s behalf. An unknown hand initialed the memorandum on McIntyre’s behalf.
2. Attached but not printed.
3. Attached but not printed.
4. Carter sent the MTN agreements and implementing legislation to Congress for approval on June 19. For his transmittal message, see Public Papers: Carter: 1979, Book I, pp. 1092–1094.
5. Attached but not printed.
6. Section 301 of the Trade Act of 1974 (P.L. 93–618) deals with the U.S. response to unfair foreign trading practices.
7. Reference should be to the Tariff Act of 1930, also known as the Smoot-Hawley Tariff Act, P.L. 71–361.
8. Agricultural aspects of staffing on Section 301 unfair trade practice cases would go to Agriculture. [Footnote is in the original.]
9. STR recommends that export credit policy be added to the TPC, while OMB believes this policy oversight should continue with the current interagency National Advisory Committee. Page 16 of the Appendix seeks a decision. [Footnote is in the original.]
10. A reference to the International Trade and Investment Reorganization Act, S. 1990 (95th Congress).
11. A reference to the Department of International Trade Act, S. 891 (96th Congress).
12. Not attached, but printed as Document 118.
13. None of the options was selected by Carter.