SPECIAL REPORT OFFICE OF CURRENT INTELLIGENCE THE IMPACT OF FRENCH ECONOMIC POLICY ON US INTERESTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004000020003-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 21, 2016
• Sequence Number: 3
• Content Type: REPORT

29 March 1963
OCI No. 0273/63A
Copy No. 79
OFFICE OF CURRENT INTELLIGENCE
THE IMPACT OF FRENCH ECONOMIC POLICY ON US INTERESTS
US TREASURY DECLASSIFICATION & RELEASE INSTRUCTIONS ON FILE
CENTRAL INTELLIGENCE AGENCY
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THE IMPACT OF FRENCH ECONOMIC POLICY ON US INTERESTS
French economic relations
with the Common Market and the
US are based on intricately in-
terwoven policies that are de-
signed to achieve De Gaulle's
over-all objectives of promoting
French national interests and
his own pretentions to Conti-
nental leadership and of gaining
greater West European independ-
ence from the US. While he has
often expressed disdain for
things purely economic, De Gaulle
is clearly not above using the
the economic weapons at his
disposal to attain these broader
political ends.
Many French decisions on
economic policy, however, are
motivated strictly by national
economic interests. This study
attempts to assess the degree
to which French economic policy
in three specific areas differs
from US interests, and the de-
gree to which it may be moti-
vatedby political rather than
economic considerations. The
three areas discussed concern
the French attitude relative
to (1) the thrust and tempo of
the EEC's internal development,
(2) the scope and timing of
negotiations with the US under
the US Trade Expansion Act, and
(3) the approach to and solution
of the American balance-of-pay-
ments difficulties.
Internal EEC Development
Since rejecting Britain's
bid for membership in the Com-
mon Market, Paris has faced
threats by other EEC members
of a slowdown in internal EEC
development. The French in
turn have warned that unless
the grouping's internal prog-
ress continues as scheduled in
the basic Treaty of Rome and
other EEC agreements, the whole
future of the Common Market will
be brought into question. Paris
has also threatened to veto EEC
participation in the "Kennedy
round" of tariff-cutting negoti-
ations under the Trade Expansion
Act.
Defining what it means by
internal progress, the French
Government has indicated that
the next step toward a full
customs union of the Common Mar-
ket
countries
must
take
place
as
scheduled
on 1
July
1963.
In
addition,
agreement
must be
reached on unsettled portions
of the EEC's common agricultural
policy. Finally, the other EEC
members must stop blocking final
ratification of the agreement
continuing the association of
former African colonies with
the EEC.
De Gaulle is aware that
France's EEC partners all be-
lieve the Common Market has
given them a degree of prosperity
and political influence which
they would not otherwise have,
and that their enthusiasm for
the EEC generally runs high.
lie also recognizes that they
are unsure of his attitude to-
ward the EEC. They remember
the reports of his lack of
enthusiasm for the Common Mar-
ket when it began functioning
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in 1958, as well as his contin-
ued scornful references to its
institutions and bureaucrats.
France's position on EEC
progress therefore derives part-
ly from tactical political mo-
tives. De Gaulle probably antic-
ipates that the other members
will not push to a crisis any
issue which might give him cause
for new opposition to the supra-
national bodies established
with such toil just over five
years ago.
An equally important rea-
son why France is championing
the internal development of the
Common Market, however, is eco-
nomic self-interest. France
under De Gaulle's leadership
has consistently pressed harder
and more successfully for the
internal progress of the EEC
than has any other member
country, and from 1958 at least
until recent weeks, French eco-
nomic objectives in this field
were clearly in tune with US
policy. The US has favored
development of a close economic
union in Europe as a step to-
ward political unification, and
has opposed the concept of a
looser free trade area without
political content.
Leaving aside the question
of political motivation, France
has been America's best ally in
fostering this close economic
union among the Six. France has
always insisted that the Common
Market must be more than a cus-
toms union limited to industrial
goods; that free movement of
agricultural produce among mem-
ber nations must be included in
the EEC's objectives; and that
there must be a gradual coordi-
nation of internal economic
policies as well as trade pol-
icies among the member states.
When the EEC treaty was
negotiated in the mid-1950s,
the French often expressed the
fear that their industry was
generally weaker and less effi-
cient than that of most other
EEC countries,. particularly
West Germany. They believed
that their industry stood to
suffer in conditions of free
competition among the member
states. French agricultural
output, however, was larger
and more efficient than farm
production elsewhere in the
EEC. The French argued that
agriculture must be part-of
the Common Market to compensate
for whatever losses they might
suffer in industry.
Under heavy French pressure,
the EEC finally agreed in January
1962 on the general shape of
and necessary mechanisms for a
common agricultural policy.
While the effects of this policy,
if it were to become increasing-
ly protective, could be injuri-
ous to US interests, it remains,
nevertheless, the most important
measure to date in the develop-
ment of a true economic union
in Western Europe.
French insistence on the
coordination of economic policies
in fields other than trade has
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also been favored by the US in
the interest of closer economic
integration. France has been
motivated by the belief that
its industries could become
competitive with those of other
EEC members only if the stat-
utes, taxes, and subsidies
affecting various sectors of
the economy were made uniform
throughout the Common Market.
The French have always felt
that the Common Market made no
sense unless production condi-
tions in different areas of
the market were equalized, in
part because they believe
their social security and labor
costs are higher than those in
other member nations.
gram have been called "dirigistic"
by some, but French by all ob-
servers.
In sum, French policy has
been consistent with that of
the US in fostering close eco-
nomic integration within the
Common Market. French motives
for pursuing this policy have
sometimes differed from US mo-
tives,but are as much economic
as political. In any case,
French motives are far broader
than purely and simply to force
the other EEC countries to sup-
port France against the "Anglo-
Saxons."
Trade Negotiations
To a greater extent than
its partners, France has sent
top-flight officials and admin-
istrators to man (and dominate)
the EEC headquarters in Brussels.
Close observers have labeled
As a member of the Common
Market, France negotiates
through the EEC and not directly
with the US on trade and tariff
problems. The EEC, however,
can carry on such negotiations
the staff of the EEC's executive under the terms of its founding
commission as French in organ-
ization, outlook, and manage-
ment technique. This staff
is recognized as one of the
most efficient governmental
bureaucracies in existence,
and its vitality has been a
major factor in the success
to date of the Common Market.
Last fall, the EEC Com-
mission and its staff drew up
an "Action Program" of over
100 pages describing in detail
measures necessary for contin-
ued rapid development of the
EEC through 1965. The concepts
of economic planning which are
evident throughout this pro -
treaty only with the unanimous
consent of the members. (Be-
ginning in January 1.966, issues
of this type may be decided by
a qualified majority vote.)
As already shown, the French
Government is trying to use
its position on negotiations
with the US under the Trade
Expansion Act to force further
internal progress in the EEC.
France may even try to use
the US desire for successful
trade negotiations as a lever
to extract concessions from
Washington in other fields.
Foreign Minister Couve de
Murville recently told President
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Hallstein of the EEC Commission
that he recognized negotiations
under the US Act had to take
place, but that "it would not
be possible to settle only the
one sector of the Atlantic
relationship." This may merely
mean that France will attempt
to broaden the tariff reduction
talks to include discussions
of measures to bring US economic
policies in fields other than
trade into line with those of
the EEC. It may also mean,
however, that France will at-
tempt to link forthcoming trade
negotiations to such political
and military questions as
atomic armament in the Atlantic
alliance.
As in the case of internal
EEC developments, however,
France's position on the pending
trade and tariff talks is far
more than an anti-US political
maneuver. The French position
is based at least equally on
economic motives--motives which
at present are encouraging
policies unfavorable to US in-
terests but which have often
produced policies desired by
the US.
sons took a position almost
identical to its present one,
demanding further internal
progress in the EEC before
external tariffs were cut.
France argued that EEC indus-
tries could survive the increased
competition they would face from
"big" US industries only if the
EEC developed its own large
internal market more rapidly
than originally scheduled.
This, it was claimed, would
allow the more rapid emergence
of big, efficient industries
in Europe itself.
The 1960-61 external tariff
cuts of the EEC were much
smaller than those now proposed.
France withdrew its opposition
to these earlier cuts, however,
only when an agreement was
reached within the Common Market
to speed up both the lowering
of the EEC's internal tariffs
and the adjustment of national
tariffs toward the common ex-
ternal tariff. This was another
move toward making the Common
Market a reality which was
instigated by France and sup-
ported by the US.
French industry has his-
torically enjoyed a higher
level of protection than has
industry in most other Common
Market countries, and France
has been a reluctant partner
in most of the earlier tariff-
cutting negotiations during
the past 15 years under the
General Agreement on Tariffs
and Trade. In the last round
of such negotiations (in 1960-
61), France for economic rea-
France's demands today
for further internal progress
in the EEC are, if anything,
milder than its demands at
the time of the 1960-61 tariff
cuts. Paris then wanted an
acceleration of the schedule
for creation of the Common
Market, but now is asking only
for implementation of measures
on which the Six have already
reached agreement. This time,
however, France clearly faces
stronger opposition from within
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the EEC and has less support
from the US.
In agricultural trade,
the economic interests of
France openly clash with those
of the US. France desires
from the Common Market growing
outlets for its increasingly
efficient farm production,
while the US is striving to
maintain its present position
as a major supplier of agricul-
tural goods to the EEC. Major
disruptions are not expected
in the markets for over half
of the $1.2-billion annual
farm exports from the US to
the EEC, because the products
involved are not grown in
volume in the EEC area. But
$500 million of the total, in-
cluding exports of wheat and
flour, feed grains, and poultry
products, will face increasing
competition from EEC domestic
producers whether or not the
EEC's common agricultural
policy provides higher levels
of protection for internal
production.
The French argument on
agriculture is that the EEC's
farm policy is and should be
moderately protective, and
that the US gives its farmers
at least equal protection.
Europe, the argument runs,
should be under no obligation
to provide an expanding market
for US farm surpluses, which
allegedly result from US sup-
port programs and other forms
of protection.
The revolution in mecha-
nization and modern farming
methods which hit the US a
generation ago, producing a
tremendous expansion of yields
as well as lower costs, has
just appeared in Western Europe
in the past decade. French
discussions of agricultural
trade policies often imply
that the European lag in this
area is an historical accident
which has given the US an un-
fair share of European markets,
and that a change must be ex-
pected. France has reacted
against the recent US drive to
assure continued American access
to EEC farm markets by initi-
ating a snide propaganda campaign
in Europe against US farming
and farm trade policies.
However, Paris has also
come up with positive proposals
to help bridge the French-
American differences on agricul-
ture. Since the EEC's trade
in those farm products which
are causing difficulty is reg-
ulated by support prices and
adjustable import levies rather
than fixed tariffs, the tariff-
cutting provisions of the US
Trade Expansion Act are in-
applicable. The French have
played a leading role in
urging that world commodity
agreements be formulated for
these products, which are
important to the national in-
comes not only of France and
the US, but also of Canada,
Australia, New Zealand,
Argentina, and other countries.
The main features of such
agreements would be arrange-
ments to stabilize prices at
levels high enough to assure
fair incomes to producers, and
to hold production down to
levels where supply and demand
are in balance. Agreements of
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this type have also been sug-
gested for some of the basic
raw materials and tropical
products on which many of the
less developed countries depend
for their export earnings.
World commodity agreements
may become a major feature of
the negotiations associated
with the US Trade Expansion Act.
The French have based proposals
for such schemes on their ex-
perience with their former Af-
rican colonies. France has
long guaranteed relatively high
prices for the output of primary
products from these territories,
placing at the same time fairly
strict controls on the level
of production. While recog-
nizing the difficulty of negoti-
ating and enforcing commodity
agreements, the US has publicly
accepted them in principle, as
have Britain, most other West
European nations, and many of
the less developed countries.
France has also played an
important part in efforts to
eliminate so-called nontariff
barriers to trade in fields
other than agriculture. With
general US agreement, France
has urged that the negotiations
on the US trade act should
reach agreement on uniform anti-
dumping laws, customs valuation
regulations, and other procedures
which can vitiate the signifi-
cance of tariff cuts. France
has criticized certain US
practices in these areas, and
is clearly in a mood to bargain
hard on nontariff trade bar-
riers, but the motivating force
seems to be French economic self-
14
interest rather than political
obstructionism.
Recent French-US discus
s ion of possible financial aid
for the US balance of payments
is another subject on which
questions have been raised as
to whether France might be
following a deliberately hostile
course because of political
differences with the US.
Faced with a persistent
balance-of-payments deficit
in recent years, the US has
tried various measures, including
a drive to expand exports, ef-
forts to get certain European
countries to increase their
procurement of military hard-
ware in the US, and requests
that others prepay part of
their debts to the US incurred
in the early postwar period.
In addition, the US Treasury
has promoted two types of agree-
ments with European countries
intended to provide further
stability for the dollar and
to limit at least temporarily
the flow of gold from the US.
One is the so-called "swap"
arrangement whereby the central
banks of the major trading pow-
ers agree to provide, almost
on a moment's notice, certain
funds to any one of their
number which requests assist-
ance to stem a run on its
currency. The second type of
agreement is an arrangement under
which various European countries
make medium-term (15-24 months)
loans to the US, which then
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uses the funds to reduce its
balance-of-payments deficit.
For the duration of the loan,
at least, this eliminates the
possibility that the creditor
nation will ask for gold to
cover that portion of the US
deficit paid off by the loan.
Loans of this type totaling
about $500 million have been
made to the US by Italy,
Switzerland, and West Germany.
France's record of coop-
eration in assisting the US
in its balance-of-payments
difficulties during recent
years is as good as that of
any other European nation,
and better than most. The
French Government has made
prepayments on its long-term
debts to the US of over $400
million, and the French central
bank has cooperated fully in
the "swap" arrangements out-
lined above.
In February 1963 a French
financial official approached
a US Treasury representative in
Paris and indicated that France
would like to do something to
show that monetary cooperation
between the two countries was
continuing despite the differ-
ences in other fields. In the
discussions which followed,
French representatives at the
working level responded favorably
to the suggestion that France
make a medium-term loan to the
US of $100-150 million similar
to the previous Italian, Swiss,
and German loans. US Under
Secretary of the Treasury Roosa
was in Paris for other purposes
at the end of February, and a
meeting was arranged between
him and French Finance Minister
Giscard d'Estaing. At the meet-
ing, the French minister appeared
favorably disposed toward the
loan but said he wanted to study
the proposal further.
The first stories which
appeared in the Paris press on
this question also indicated
that the French minister's
reaction was favorable. In the
next several days, however,
other stories suggested that
the French Government was dis-
turbed because infcrmation on
the discussions had been leaked
to the press. These later stories
intimated that the US side had
publicized the discussions in
order to influence the French
decision and make it more diffi-
cult for Paris to refuse to
grant the loan.
Several recent French press
articles have also linked the
US "request" for a loan to the
problem of US investments in
France, which have lately come
under increasing criticism.
(One of the elements in the US
balance-of-payments deficit has
been US overseas investments.)
The press articles expressed
doubt that Paris should help
Washington defend the dollar,
when this would facilitate further
American investments overseas.
It was suggested that negotiations
on the two subjects might be
conducted simultaneously.
There the situation stands.
The extent to which these press
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reports reflect French Govern-
ment thinking is unknown. On
the official level, the position
of the French Government is that
the loan is still under consid-
eration. In addition, France
did agree in early March 1963
to a doubling of the "swap"
arrangement between the Bank
of France and the American
Federal Reserve from $50 to
$100 million. Although less
significant than the loan would
be, this is still an effort by
the French Government in the
direction of continued monetary
cooperation with the US. The
loan itself may also be approved
after the unfavorable publicity
it has received in Paris dies down.
It may be, however, that
working level officials of the
French Finance Ministry originally
went a little too far in their
enthusiasm for continued finan-
cial cooperation with the US,
and are in the process of being
politely overruled by the polit-
ical level of the government.
It is even possible that the
purpose of the French initiative
was to ascertain whether the US
could be drawn into negotiations
on the problem of American in-
vestments in Europe.
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