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

96. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, January 18, 1978

SUBJECT

• Tokyo Round

The United States and other countries participating in the multilateral trade negotiations are scheduled to table their detailed tariff-cutting offers in Geneva this Friday.² Bob Strauss’ status report is attached.

The working hypothesis of the tariff negotiations is that each country will make offers to cut its tariffs an average of 40%, with high tariffs to be cut proportionately more than the low tariffs. The US offer about to be tabled would reduce tariffs on the average by about 45 percent. If the other countries were to match our offers, the negotiations would result in deeper cuts than the Kennedy Round (35 percent). This is not likely to be the case, for reasons indicated below:

The Council of the European Community agreed yesterday to indicate that the EC would be prepared to begin negotiations on the basis of an average tariff reduction of 38 percent. But the Council qualified this statement by making an entry in the Council minutes indicating that the reduction of the EC external tariff should be between 25 and 35 percent.³ This means that the EC, prodded by the French, will be looking for excuses to back off from its initial offer.

The US offer will provide opportunities for the EC to do this.⁴ Because of political sensitivities in this country, about 8 percent of US total dutiable imports of non-agricultural and non-petroleum products will be excepted from the initial US offer, and another 5 percent will be subject to less than 40 percent tariff cuts. These exceptions will be mainly apparel, leather, electronic, and other light manufactured products. Some of these products are of interest to EC member states. Thus France and others will be able to insist that the EC respond to these US exceptions by pulling back on some items of interest to the United States. This will probably mean that the tariff-cutting results of the Tokyo Round will be less far reaching than realized in the Kennedy Round.

Developing countries will argue that the US offer fails to give them the special and differential treatment agreed on in the Tokyo Declaration. They will also point out that the US offer would result in an average cut of about 33 percent on products of primary interest to them, substantially less than the offer we are making on products of interest to the industrialized countries.

In reply, US negotiators will cite the limited reciprocity offered by the developing countries and stress that our tariff-cutting offer on items of interest to the LDS,⁵ other than textiles and light manufactures, will range from 46 to 77 percent. Nonetheless, we can expect the LDCs to take every opportunity to put pressure on us to be more forthcoming.

I see no practical alternative to going ahead on the current basis. Even if we had enough time to improve our offer marginally, and even if this could be done without unacceptable domestic political risk, the overall configuration would not be altered materially. Thus I conclude that the US offer, as it now stands, should be tabled in Geneva this Friday.

Attachment

Memorandum From the Special Representative for Trade Negotiations (Strauss) to President Carter ⁶

Washington, January 9, 1978

SUBJECT

• U.S. Offers in the Multilateral Trade Negotiations

This is a brief report on the status of the multilateral trade negotiations (MTN) in Geneva, particularly with respect to the tabling of U.S. and other countries’ offers in mid-January, which will mark the beginning of the negotiating stage. You will recall that last summer we agreed with the European Economic Community (EC) to a timetable for getting the negotiations under way.⁷ This timetable required that offers on tariff and nontariff measures would be tabled during the week of January 15, 1978. The tabling of such offers would set the stage for the months of hard bargaining that will be necessary to conclude an agreement.

The countries participating in the MTN have agreed that offers on agricultural tariffs and nontariff measures would be made in response to specific requests from other countries. Offers on particular industrial nontariff measures would also be made in response to such requests and would be additional to multilateral negotiations that are directed toward the development of general rules or codes on government procurement practices, subsidies and countervailing duties, product standards, customs valuation, quantitative restrictions, and import licensing. Outlines or texts of draft agreements on these subjects have been developed to serve as negotiating documents.

An informal understanding has been reached that tariff offers by developed countries on industrial products would be tabled according to a harmonization formula proposed by Switzerland that requires larger reductions on high rates of duty than on low rates of duty and that would result in an average tariff cut of 40 percent. It appears, however, that the EC will not be in a position to table a detailed offer to achieve this result. In fact, as you know from your discussions last week in Paris and Brussels,⁸ the EC’s ability to table any tariff offer, in the light of the French elections in March, will depend on the outcome of a Council of Ministers meeting on January 17. However, we anticipate that Japan and Canada will table a detailed and comprehensive offer at the same time as the United States.

During the course of the negotiations there will undoubtedly be some slippage from this 40 percent average cut. The Kennedy Round, for example, resulted in an average cut of 35 percent even though the original objective was 50 percent.

Over the past several months we have been preparing the U.S. offers to be tabled during the week of January 15. These offers have taken into account the recommendations of the industrial, agricultural, and labor advisory committees; the advice of the U.S. International Trade Commission with respect to economic sensitivity; the public hearings conducted by this Office; consultations with Members of Congress; and various correspondence from the private sector. They are now being reviewed and within a few days should be approved by the interagency Trade Policy Committee structure.

U.S. offers will be well within the authority granted to you by the Congress under the Trade Act of 1974.⁹ Careful account has been taken of the potential effects that these offers, if implemented, would have on U.S. production and employment. As required by the Trade Act, no tariff ofers will be made on petroleum and petroleum products, certain ceramic dinnerware, stainless steel and alloy tool steel, ball bearings, non-rubber footwear, and color television sets. Because of their economic sensitivity, no offers, or very limited offers, will be made on many textile, glass, and leather products. Furthermore, for various reasons offers are being deferred on benzenoid chemicals and rubber footwear, which are subject to the American Selling Price basis of customs valuation, and on all pending escape-clause cases—ferrochromium, nuts and bolts, stainless steel flatware, CB radios, and slab zinc.

The U.S. offers to be tabled during the week of January 15 will mark only the beginning of the negotiations. In addition to receiving overall reciprocity from other countries, the maintenance of many of these initial offers is conditioned on receiving specific tariff and nontariff concessions. Consequently, some U.S. offers will undoubtedly be withdrawn during the course of the negotiations. Additional U.S. offers might also be made in response to the requests of other countries in exchange for additional trade concessions on their part.

During the next few months I shall try to work out the best possible deal. Before concluding any agreement I will consult closely with the Congress and will submit the final package of U.S. and foreign tariff and nontariff concessions to you for your approval.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 40, Japan: 1–5/78. Confidential. Sent for information. Carter wrote at the top of the page: “ok. J.”
2. January 20.
3. Telegrams 994 and 1016 from Geneva, both January 17, reported on the EC Council decisions on the multilateral trade negotiations. (National Archives, RG 59, Central Foreign Policy File, D780025–0714 and D780025–0655, respectively)
4. Dodson noted in a January 11 memorandum to Hutcheson that “State, Treasury, and CEA are suspicious of the EC’s intentions and are concerned that the U.S. not table an offer that will make it easy for the EC to pull back from its agreement in principle to table an average tariff cut of 40 percent.” (Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 89, Economics/International: 1/77–7/78)
5. Carter underlined the abbreviation “LDS.” “LDS” appears to be a typographical error and should read “LDCs.”
6. Limited Official Use. Carter initialed “C” at the top of the page.
7. See Document 43.
8. Memoranda of conversation of Carter’s meetings with Giscard in Paris and Jenkins in Brussels, both on January 6, are in the Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 36, Memcons: President: 1/78.
9. Among other things, the Trade Act of 1974 granted the President the authority to negotiate changes in tariff and non-tariff barriers and conclude trade agreements with foreign countries.