COPPER

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000100100005-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: September 2, 2010
• Sequence Number: 5
• Publication Date: September 5, 1984
• Content Type: MEMO

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Number: 169058CA Due By:
CABINET AFFAIRS STAFFING MEMORANDUM
Date: 9/5/84
Subject:
CCCT With the President, Thursday, September 6, 1984 - 2:00 P.M.
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
O
CIA '
UN
USTR
GSA
EPA
NASA
OPM
VA
SBA
REMARKS:
-- Briefing on Copper and Steel
FYI
0
0
CEA
CEQ
OSTP
Baker
Deaver
Darman (For WH Staffing)
Mc Farlane
Svahn
Chapman
Executive Secretary for:
CCCT
CCEA
CCFA
CCHR
CCLP
CCMA
CCNRE
The President will chair a meeting of the Cabinet Council on
Commerce and Trade on Thursday, September 6, 1934, at 2:00 P.M.
in the Cabinet Room.
Attached is the background material for the briefing on the
copper issue. No papers will be forthcoming on the steel issue
for this meeting.
RETURN TO:
^ Craig L. Fuller ^ Don Clarey ^ Tom Gibson Larry Herbol
Assistant to the President Associate Director
for Cabinet Affairs nffica of C'ahinn+
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_ .`r r r r Q'T'e N' _
Ian
THE UNITED STATES TRADE REPRESENTATIVE
WASHINGTON
20506
September 5, 1984
MEMORANDUM FOR THE PRESIDENT
FROM: William E. Brock-
SUBJECT: Copper
By September 14, 1984, you must decide whether to grant import
relief to the domestic copper industry. On June 14 the USITC
unanimously (5-0) found that imports are a substantial cause
of injury to that industry. Subsequently, two Commissioners
recommended imposition of a 5-cents/lb. tariff for five years;
two Commissioners recommended imposition of a 5-year annual
import quota of 425,000 short tons; and one Commissioner recommended
against import relief.
A thorough review of this issue and of the options available
to you has been conducted by the inter-agency Trade Policy Committee
(TPC), which met on this issue August 30. Pursuant to Section
202 of the Trade Act, this Committee has examined the effect
of relief on consumers and on the international economic interests
of the United States, the probable effectiveness of import relief
in promoting industry adjustment, and other relevant factors
cited in the Act. The results of this examination are encompassed
in the attached report.
The Committee focused on the following options: the tariff and
quota actions recommended by the USITC Commissioners, the possibility
of negotiating restraints on foreign production, and no relief.
Representatives of the U.S. copper industry have expressed a
strong preference for pursuit of the second option, arguing
that its problems stem primarily from the depressed level of
world copper prices which, in turn, is essentially due to worldwide
overproduction. The conclusions reached in deliberating on
these options are outlined below.
option 1 - Import Relief
The major objection to the tariff and quota proposals of the
USITC, or to any other restrictive import measure, is that they
would make U.S. copper prices higher than world prices and undermine
the competitiveness of our copper-fabricating industry. Employment
in the fabricating industry was estimated at 106,000 in 1983
Y 1'
CLASSIFIED
DECLASSIFIED ON
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as compared to an estimated 26,000 employees involved in copper
production. Moreover, the U.S. fabricating industry has no
significant technological edge over its foreign competitors
and, on average, nearly half of its costs of production are
accounted for by the cost of copper. Thus, imposition of quotas,
or increased tariffs, on copper would seriously disadvantage
the U.S. fabricators. Analysis done by the TPC shows that any
job gains in copper production resulting from import relief
would be more than offset by job losses in the fabricating sector.
Import relief would adversely affect the export earnings of
the copper-producing countries (many of which, such as Chile,
Zambia, and Zaire, are heavily indebted and highly dependent
on copper exports), and it would cause problems in our relations
with Canada, which is one of the major suppliers of the U.S. market.
It would also reflect unfavorably on the commitments you made
at the London Economic Summit to withstand protectionist pressure.
None of the agencies support such import relief action. (Interior
favors the negotiation of orderly marketing agreements under
Section 201--but with the primary objective of negotiating voluntary
and temporary production restraints.)
Option 2 - Negotiation of Restraints on Foreign Production
The negotiation of production restraints could be pursued either
within the framework of Section 201, or outside that framework.
The first approach would entail a Presidential determination
that import relief should be granted and a directive to seek
orderly marketing agreements (OMA's). Commitments on production
could then be sought as the central feature of these agreements.
Interior, which favors this approach, has further suggested
that you direct the TPC to advise you, within 75 days, as to
what other form of relief should be imposed if such negotiations
fail. While this approach would require you to impose some
form of import relief if we were unable to negotiate OMA's within
90 days, such relief could be set at such a level (low tariff
or high quota) as to have little or no impact on U.S. imports.
The threat of import restrictions if OMA's could not be negotiated
would, presumably, give us negotiating leverage.
The second approach would entail a Presidential determination
that none of the relief measures provided by Section 201 are
appropriate, coupled with an expression of deep concern about
the state of the U.S. and world copper industry and a directive
to me to initiate discussions with key copper producing and
exporting countries aimed at improving the supply/demand balance
on the world market. Such discussions would be held entirely
outside the purview of Section 201. The inherent "foreign affairs"
power granted to the President under Article II of the Constitution
would provide sufficient legal basis for the pursuit of such
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outside the purview of Section 201. The inherent "foreign affairs"
power granted to the President under Article II of the Constitution
would provide sufficient legal basis for the pursuit of such
agreements. While Interior prefers the first approach, they
could also support this approach.
The objective of negotiated production restraints would be the
same under either approach--to secure commitments from key foreign
countries to cutback production or defer expansion in order
to raise world copper prices significantly above their currently
depressed levels. Such a result would not create a gap between
U.S. and world prices and, thus, would not disadvantage the
domestic copper fabricating industry. However, if such restraints
were effective in raising world prices, they would improve the
financial situation of the U.S. copper industry and, presumably,
prevent a further decline in U.S. production. Representatives
of the U.S. copper industry have proposed that the U.S. should
try to negotiate a 5-year arrangement with foreign countries
providing for initial cutbacks in foreign production in the
neighborhood of 300,000 tons annually and a commitment that
production increases in the later years of the arrangement would
track increases in consumption. Interior believes that such
restraints would work down excess stocks, permitting the price
to recover over the next 2-3 years and that a carefully structured
allocation of production cutbacks could actually improve the
export earnings of participating countries.
The most serious objection to this option is that it is grossly
inconsistent with the basic policy stance we have taken on inter-
national commodity agreements, producer cartel actions, and,
more generally, with our efforts to persuade other countries
to place more reliance on market forces. It would be widely
portrayed by the press and by other countries as an effort to
establish a producer cartel in the world copper market and,
consequently, might engender resentment among copper-consuming
countries such as Japan and the European Community.
Secondly, there is a serious question as to whether we could
actually negotiate any meaningful commitments on production.
Even the threat of import quotas would, at best, provide us
with only minimal leverage; it might even be counterproductive
and stiffen resistance to U.S. overtures. We would have to
be able to convince foreign producers that such commitments
were in their own economic interest or offer them concessions
in other areas.
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Finally, most economists, both within and outside the Administration,
doubt that negotiated production restraints would be effective.
Any initial success in boosting prices would tend to be undercut,
over time, by increased production in the non-participating
countries and by reduced demand. Given the idle capacity that
now exist in the world copper industry--especially in the United
States, offsetting production increases could be called forth
rather quickly.
Option 3 - No Relief
Under this option, you would determine that relief is not in
the national economic interest, citing the arguments against
relief previously enumerated. At the same time, you could direct
the Secretary of Labor to give expeditious consideration to
the granting of adjustment assistance to workers, although it
should be recognized that the practical effect of this directive
would be very modest.
It is difficult to assess what would happen to the U.S. copper
industry in the absence of relief. Mine production in the U.S. fell
by 28 percent over the 1979-1983 period, from 1.6 million to
1.15 million short tons, while employment in all facets of copper
production fell from 43,000 to 26,000. Some of the mine closings
effected over the past few years (involving production of about
200,000-300,000 short tons) are regarded as permanent. Thus
far in 1984, U.S. production has been running at an annualized
rate of about 1 million short tons.
The likelihood of further decreases (or of a recovery) in U.S. pro-
duction depends essentially on the evolution of world copper
prices--and the forecasting of price trends for this volatile
commodity has been notoriously unreliable and generally overopti-
mistic over the past 10 years. Representatives of the industry
claim that a further decline in production to about 650,000
short tons, and a correspondingly steep decline in employment,
will occur if no relief is granted. Certainly, if the extremely
low prices of recent months (about 60 cents/lb.) persist, an
even more drastic shrinkage in U.S. production would occur.
The Bureau of Mines estimates that at these price levels, only
about 230,000 short tons can be produced at a profit in the
United States.
However, current prices are not considered to be viable; they
are below the production costs of nearly all major copper producers
except Chile. Moreover, there has been a marked decline in
the stocks overhanging the world market in the first half of
1984. A recovery in prices is expected to occur and most observers
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foresee prices in the range of 70-80 cents/lb. prevailing in
the short to medium term. (I should note, however, that the
recovery predicted earlier this year did not materialize--instead
prices dropped to record lows.) Even prices in the 70-80 cents/lb.
range would be low by historical standards, reflecting a continued
excess of world production capacity over demand. At such price
levels, U.S. copper production would still probably decline
moderately from current levels. The Bureau of Mines estimates
that at a price of 80 cents/lb. approximately 975,000 short
tons of U.S. copper could be produced at a profit or with breakeven
costs covered--only 50 percent of estimated 1983 mine capacity.
Although this outlook is basically not encouraging for the
U.S. copper industry, it does not seem that either import relief
action or efforts to negotiate restraints on foreign production
offer viable methods of redressing this situation. Moreover,
it is difficult to see how such measures would significantly
promote the adjustment of the U.S. copper industry to foreign
competition or enhance its ability to compete in future periods
of low world prices. Although the industry appears to have
made significant progress in cutting costs over the past few
years, its competitive disadvantage vis-a-vis most foreign producers
results primarily from the low grade of domestic ores and high
labor costs rather than from any lack of technological prowess.
New investment in the U.S. copper industry will depend much
more on investor perceptions of the long term evolution of the
market than on their expectations of government action.
With the exception of Interior, all agencies agree that relief
is not in the national interest. I concur in this majority
view and recommend that you approve Option 3.
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OPTIONS
option 1
Provide import relief in the
form of:
(a) tariff increase of 5 cents/
lb. for 5 years; or
(b) a 5-year annual import quota
of 425,000 short tons.
Opt! ion 2
Negotiate voluntary production
restraints either:
(a) in the context of orderly
marketing agreements under
Section 203; or
(b) outside Section 203
pursuant to your inherent
Constitutional authority.
option 3
Provide no relief (recommended)
PRESIDENTIAL ACTION REQUIRED
Transmit letters by Sept. 14,
1984, to the Speaker of the
House and the President of
the Senate notifying Congress
of your decision to grant
relief.
a. Transmit letters by Sept. 14,
1984, to the Speaker of the
House and the President of
the Senate notifying Congress
of your decision to grant
import relief and seek OMA's.
b. Transmit letters notifying
Congress of your decision
to deny relief, but to seek
voluntary production restraints
under your inherent Constitutional
authority.
Transmit letters (attached)
by September 14, 1984, to
the Speaker of the House
and the President of the
Senate notifying Congress
of your decision to provide
no relief.
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Approve Recommendation (Option 3)
Disapprove
(Approve Option )
Discuss with me
Attached for your signature, if you approve Option 3, are:
1. Memorandum to the United States Trade Representative
2. Letters to Vice President Bush and Speaker O'Neill transmitting
your decision.
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