ECONOMIC POLICY COUNCIL MEETING ON 1 JUNE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00224R000602040019-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: November 3, 2011
• Sequence Number: 19
• Publication Date: June 3, 1987
• Content Type: MEMO

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ornn~
1 June 1987
MEMORANDUM FOR: Distribution
SUBJECT: Inter-Agency Meeting
TYPE OF MEETING Eco omic Policy Council
DATE Monday, 1 June 1987
TIME 1 15
PLACE Roosevelt Room
CHAIRED BY Baker
ATTENDEE(S) (probable) NIO/Econ
SUBJECT /AGENDA Japanese Semiconductors
N/A
INFO RECEIVED Per Cabinet Affairs, 0910
DCI
DDCI
ExDir
DDO
DDI
Ch/NIC
D/Exec Staff
ES
SDO/CPAS
ER
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CONFIDENTIAL
NATIONAL INTELLIGENCE OFFICER
FOR ECONOMICS
National Intelligence Council
3 June 1987
Executive Staff
Deane Hoffmann
Attached Memo for the Record
I don't think we should bother the Director
with these arcane issues until his involvement
becomes necessary.
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CONFIDENTIAL
The Director of Central Intelligence
Washington. D.C. 20505
National Intelligence Council
NIC 02331-87
3 June 1987
MEMORANDUM FOR THE RECORD
SUBJECT: Economic Policy Council Meeting on 1 June
1. The Economic Policy Council (EPC) met on June 1 to review three
trade issues relating to participants in the Venice Summit: (a) the
semiconductor dispute with Japan, (b) possible trade retaliation against the
European Community should it enact a large tax on "fats and oils," and (c) a
brief tour d'horizon of the US-Canada free trade discussions.
2. Japan Semiconductors. Secretary Baker asked for a review of
Japanese performance on the two main points of contention: selling prices
of Japanese chips in third country markets and the US market share in
Japan. It was agreed to wait until after the Venice Summit to review again
the data before possibly making a recommendation to the President on lifting
the penalty tariffs against Japanese exports. (This issue will not be
decided on its merits. Japan cannot meet US demands and will be let off the
hook only when the EPC decides Tokyo has been sufficiently punished for its
sins on several trade issues.)
3. EC Fats and Oils. The arcane title belies the importance of this
issue. The EPC asked the trade policy community to firm up a list of trade
retaliation items for US cabinet makers to use in discussions with their
counterparts at Venice to demonstrate US resolve in retaliating should the
EC enact the tax. The tax would do an estimated $1.8 billion in damage
against US exporters; hence, the retaliation list will be huge encompassing
most EC agricultural products and, likely, some industrial items. The EC
vote on the tax hinges on West Germany's decision. Italy and France want
the tax, so the provisional retaliation list is tilted toward products in
those countries with some German manufactured products thrown in for good
measure.
CL BY SIGNER
DECL OADR
CONFIDENTIAL
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SUBJECT: Economic Policy Council Meeting on 1 June
4. Canada-US Free Trade. The US negotiator, Peter Murphy, gave a
realistic rundown on the status of the negotiations and asked Cabinet
members not to respond to possible Canadian requests at Venice to elevate
the talks to the head-of-state level. Given the difficulties ahead, the EPC
agreed to continue negotiations at the current level.
Deane E. Hoffmann
National Intelligence Officer for Economics
Attachment:
Early Draft of Fats and Oil Paper, 26 May 1987 (C)
cc: L D/. *ec Stoff
Exec Reg (w/o att.)
C/NIC
VC/NICs
D/OGI (w/o att.)
D/EURA
D/OEA (w/o att.)
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CONFIDENTIAL
TPRG DISCUSSION OF FATS AND OILS TAX RETALIATION
ISSUE:
On March 4, the TPRG agreed that the U.S. would take retaliatory
measures against EC imports if the European Community enacted the
proposed tax on fats and oils. The TPRG also directed the TPSC
to develop an action plan to dissuade EC member states from
approving the tax. It now appears that the European Community
will decide within the next month on an agricultural price
package which may contain a fats and oils tax. The issues now
before the TPRG are:
1) What guidelines should be used in drawing up a retaliation
list?
2) What further messages should we convey to EC officials
concerning the U.S. intent to retaliate in the event the tax
is passed?
3) What common script should Cabinet members use in the event
the tax is passed?
BACKGROUND:
USEC reports that one of the goals of the Belgian Presidency is
to obtain passage of an agricultural price package, including a
fats and oils tax, before July 1.
The member state agricultural ministers met on May 18-19 to
consider a series of Belgian compromise proposals but adjourned,
without reaching a decision, to accomodate the Franco-German summit
scheduled for May 21-22. The group began meeting .again on
Sunday, May 24, but adjourned on Tuesday when it became apparent
that significant differences remained among the member states.
Reportedly, France is insisting that any agricultural package
include a tax on fats and oils.
The agricultural council will not meet again until after the
British and Italian elections on June 11 and 14. The final
decision may go to the European Summit meeting of heads of state
on June 29-30.
MEMBER STATE POSITIONS:
Rumors on who will bend under pressure are rife. Although the
French and Germans apparently did. not reach agreement on the fats
and oils tax at the May 21-22 summit meeting, rumors have been
circulating for weeks that Germany could drop its opposition to
the tax in return for less reform of Monetary Compensatory
Amounts (MCAs) and/or grain prices. We have heard that if the
Germans cave, so will the Dutch.
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Other member states who have voiced opposition to the tax appear
similarly shaky. Portugal and Spain have opposed the tax because
it would raise olive oil prices, with inflationary effects on
their consumers. However, we have heard that the Belgian presidency
has proposed the inclusion of certain sweeteners for Mediterranean
products in the price package, and that Spain and Portugal may
drop their opposition to the tax. The Danes are also reported to
be wavering, since their opposition is based on the inclusion of
marine oils which now may be exempted in some way from the full
impact of the tax. This leaves only the British firmly in the
opposing camp.
PROPOSED ACTION PLAN:
In addition to the three issues set out below, the TPRG should
discuss whether to approve the attached action plan. The TPRG
should also decide when to bring this matter to the EPC. Among
other things, the EPC will need to discuss a second round of
retaliation, since the Community will mirror our actions no more
than a few days after the announcement of our retaliation.
The goal of the proposed action plan is two-fold: to deter the
member states from approving the tax by focusing their attention
on the effects of such a decision and to implement the retali-
ation swiftly, in the event the tax is passed.
USEC advises that we maintain our low-key stance in the press
while the measure is under consideration in Brussels. They
recommend that discreet demarches be made in Washington at the
Ambassadorial level to outline one last time the U.S. x'esolve to
retaliate if the tax is passed. Suggestions for possible meetings
between Ambassador Yeutter and member state ambassadors are
contained in the action plan. Also attached is an update of
actions taken to date on this issue both in Washington and overseas.
OPTIONS:
Guidelines for Retaliation
Meeting on Friday, May 22, the TPSC agreed on the following
general guidelines for a retaliation:
1) Action should be taken pursuant to a Presidential determination
under section 301 that the ..fats and oils tax is an unfair
trading practice.
2) The retaliation should affect EC imports on a non-MFN basis.
COMEICFNTIAL
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n ,.tc1ng1TIQL
3) The proposed retaliation list should cover approximately
$4 billion in trade, which is twice as much as the amount of
U.S. exports that would be affected by the tax; public
hearings should be held to assist the TPSC in choosing
appropriate items from this list.
Issues on which TPRG guidance is requested are:
A) The trade coverage for the retaliation:
1) Under one option, we would calculate the trade-weighted
ad valorem equivalent of the tax on U.S. exports (which
amounts to 35%), and apply this tariff to an equivalent
level of EC imports.
2) Alternatively, we could apply a higher tariff to a
smaller level of EC imports, based either on the estimated
fall in U.S. exports or on the projected amount of
revenue generated by the tax on U.S. exports. The
rationale behind this option is that a higher tariff on
a smaller value of imports may have a greater impact on
EC trade.
The tariff level at which the U.S. retaliation begins to
have a significant effect may depend in large part on the
items chosen for retaliation. We recommend that the notice
of public hearings on a retaliation list request suggested
tariff increases on each item.
In addition, we recommend that the TPRG provide for a
periodic review of the level of the U.S. retaliation, since
the effect of the fats and oils tax will vary, depending
upon the level at which the EC sets the tax. The TPRG may
also wish to direct that the level of the U.S. tariff be
revised upward to reflect any decline in the volume of U.S.
exports that occurs over the next several years as a result
of the tax.
B) The level of U.S. exports affected by the fats and oils tax:
1) One option is to use a base period of 1984-1986, in
deference to the GATT practice of basing trade damage
calculations on the most recent three-year period.
U.S. exports to the EC of oilseeds, vegetable and
marine oil in this period averaged $1.8 billion.
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CONFIDENTIAL
2) Alternatively, we could use a base period of 1981-1985,
which is the period that the EC used in calculating the
level of the fats and oils tax. U.S. exports of
oilseeds, vegetable and marine oil averaged $2.2
billion in this period.
In the dispute over EC enlargement, we based our estimate of
trade damage on 1984-1985, because the EC had not yet
provided us with trade data for 1986.
C) Inclusion of industrial products:
In the dispute over EC enlargement, we included only agri-
cultural items on our proposed retaliation list, since the
U.S. exports at issue were all agricultural. In this case,
it may be impossible to avoid including industrial items.
The TPSC agreed that the following agricultural items should
be excluded from the retaliation list:
1) items on which tariffs remain unbound pursuant to the
enlargement settlement;
2) products subject to quotas as a result of the Portuguese
oilseed consumption quota dispute;
3) products proposed for tariff reductions pursuant to the
citrus agreement; and
4) products for which the U.K. is a primary supplier (e.g.,
Scotch and gin), since the U.K. is the only EC country
that has demonstrated unwavering opposition to the tax.
If the TPRG agrees that these items should not be included,
there will be less than $1 billion in EC agricultural
imports from which to choose. Although we could retaliate
on less than the full trade coverage if we choose a higher
tariff level, a retaliation based solely on agricultural
products could leave virtually all EC agricultural imports
subject to trade restrictions. Moreover, it may be beneficial
to include industrial products on the retaliation list; the
German industrial federation has been lobbying against the
tax due to their concern that the U.S. will retaliate
against industrial products. Therefore, we recommend that
the TPRG approve the inclusion of industrial items on the
retaliation list.
CONFIDENTIAL
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Messages to EC Officials
Although we have made numerous representations to EC officials to
communicate the strength of U.S. opposition to the tax and our
intention to retaliate in the event the tax is passed, we believe
there may be some question as to whether certain member states
are taking this position seriously. Therefore, it may be useful
to let key member state officials know that the U.S. is drafting
a retaliation list. The TPRG should consider how many details of
the proposed retaliation it may be useful to communicate to the
EC (e.g., the trade coverage of the proposed list or items that
we are considering for inclusion).
U.S. Response in the Event the Tax is Passed
In the event the EC approves the tax, TPSC members agree that it
would be useful to have an agreed U.S. response prepared.
Possible points for inclusion in such a response are:
-- The U.S. believes that the fats and oils tax is inconsistent
with the EC's GATT obligations.
-- The tax will have an adverse effect on $1.8 of U.S. exports.
-- The U.S. plans to take action under section 301 to protect
its trade rights. Hearings will be held on a proposed
retaliation list covering $4 billion in EC imports. The
U.S. retaliation, which will be in the form of a surcharge
on EC imports, will take effect on the date of implementation
of the fats and oils tax.
COUNTER-COUNTER RETALIATION:
The EC is certain to respond to any announcement of U.S. retaliation
against the fats and oils tax with an announcement of its intent
to counter-retaliate against U.S. exports. A likely candidate
for retaliation is non-grain feed ingredients. If the EC approves
the tax in late June, an announcement of EC counter-retaliation
is likely to come in the middle of the conference on the trade
bill. Therefore, it would be useful for the TPRG to indicate its
willingness to meet on short notice to consider counter-measures
to any EC counter-retaliation.
COFnTI I ENAL
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PROPOSED ACTION PLAN FOR
FATS AND OILS TAX RETALIATION
May 22: TPSC review of guidelines for retaliation
(Action: Don Phillips)
May 26-29: Creation of a retaliation list on a non-MFN basis
(Action: Doug Newkirk/Chris Marcich)
Approval of retaliation list and talking points by
the TPRG (Action: Don Phillips)
June 1-5: Ambassador Yeutter to call in selected EC Ambassadors
(including Belgium, and possibly either proponents
of the tax such as France and Italy, or opponents
such as the FRG, Denmark and the Netherlands)
(Action: Jim Murphy/Carmen Suro-Bredie/Laura Kneale)
Interagency approval for a U.S. Government statement
in the event the tax is passed (Action: Jim
Murphy/Carmen Suro-Bredie/Laura Kneale)
July 1, or
whenever the
tax is passed: EPC meeting on the fats and oils tax
Meeting with the European Economic Counselors to
discuss the specific steps the U.S. Government
will take (Action: Jim Murphy/Carmen Suro-Bredie/
Laura Kneale)
Presidential determination that the fats and oils
tax is an unfair trading practice under section 301
(Action: Judy Bello/Chip Roh)
Cables to Embassies describing Presidential action
(Action: Jim Murphy/Carmen Suro-Bredie/Laura Kneale)
3 weeks later: Public hearings on the retaliation list
(Action: Don Phillips)
TPRG approval of final retaliation list
(Action: Don Phillips)
Prior to
October 1: Presidential Proclamation
(Action: Chip Roh)...
coNFieLEUriaL
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COJ'!F!DEWTIAL
UPDATE OF FATS AND OILS TAX ACTION PLAN
May 22, 1987
Actions Taken
March 2 - USTR released a statement by Ambassador Yeutter
stating U.S. opposition to the tax and our intention
to "protect our trade rights."
March 4 - TPRG agreed unanimously to retaliate against the EC
in the event the tax is passed.
March 10 - USEC provided USTR with statistics on EC imports
of vegetable and marine oils, by country, for use
in identifying potential allies.
March 12/13 - Posts in all twelve EC capitals delivered letters
from Secretary Shultz to EC Foreign Ministers and
from Secretary Lyng to EC Agriculture Ministers
reiterating U.S. opposition to the tax.
March 18 - Ambassador Smith held a meeting with EC Economic
Ministers from Washington embassies to stress the
magnitude of the problem the tax would create and
explain the reasons for U.S. opposition. Position
papers on the U.S. position were distributed, as
was a copy of the Congressional resolution opposing
the tax.
March 20 - Jim Murphy and Suzy Early conducted a background
briefing for European press in Washington to
explain the reasons the tax would adversely affect
U.S. exports and violate the EC's GATT obligations.
Reporters were provided with a copy of the U.S.
position paper, as well as a fact sheet on the
effects of the tax.
March 23 - USDA conducted a briefing for inter-agency group
on the effects of the EC's oilseed supports on
U.S. trade, and the projected impact of the tax on
future trade patterns.
March 27 - John Baize, of the American Soybean Association,
held briefing for inter-agency group on ASA's
meetings with EC officials in Europe.
March 27 - USTR sent EC posts a reporting cable on Ambassador
Smith's meeting with EC Economic Ministers. Cable
also contained text of position paper distributed
at meeting.
GUi'iHDET
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March 27 - USTR sent a cable instructing USEC to share
information and coordinate responses with third
country representatives in Brussels.
April 10 - USDA and USTR drafted a detailed fact sheet,
containing responses to arguments put forth by the
Commisson and including recent trade and price
data. Fact sheet was sent to U.S. posts in the EC
and interested third countries for use in conver-
sations with host government officials.
USTR sent cable to Bonn, requesting information on
groups and individuals supporting and opposing the
tax in the FRG.
USTR sent letters from Ambassador Yeutter to all
EC Trade Ministers reiterating U.S. opposition to
the tax.
State (Assistant Secretary McMinn) called in
representatives from the FRG, the Netherlands and
Denmark to reiterate adverse impact that passage
of the tax would have on U.S.-EC relations.
May 22 - USDA and State drafted a detailed response to
Prime Minister Chirac's paper laying out France's
arguments that the tax would be GATT-legal and
have minimal effects on imports.
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First Cut
The attached list has been drawn up as a first step in identifying
a retaliation package against any EC tax on fats and oils. The
list is deliberately broad ($ 4.5 billion) to permit interested
agencies to drop certain items before the list is made available
for public hearings. The objective is to have a list covering
approximately $4 billion for the public hearings which would
serve as a basis for developing the final list covering 1.8 to
2.2 $ billion, depending on what base period is chosen.
The list was developed, inter alia, based on some or all of the
following criteria:
1- there is evidence of significant EC12 trade;
2- the products involve "sensitive" EC exports;
3- the EC trade shows evidence of growth in recent years;
4- other sources of supply will readily make up for the EC;
5- agriculture products already on another list (XXIV.6 or
citrus) were excluded;
6- an effort was made to focus the coverage on France, Italy
and on the FRG, while also including the rest of the Member
States;
7- agricultural products were examined first and included on the
list to the extent they do not conflict with other criteria;
8- priority was given to oil or oil-based products from the EC.
CONFIDENTIAL
CLASSIFIED BY
DECLASSIFIED ON ---
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DESCRIPTION IMPORTS, EC12
($ 000,000)
Agricultural
10640
1073525
12510
12534
12584
12641
13250
14165
14166
14192
14729
14610
15303
15630
16610
16710
1673030
16740
17629
17630
17633
18220
18838
19221
Pork,frozen
Canned Hams,>31bs
Lily bulbs
Bulbs, herbaceous perennials 18
Live plants
Flower seeds
Potato starch
Tomato paste
Tomatoes, prepared
Artichokes
Oranges,mandarines
Apples
Strawberry jellies
Chocolates,$4/gl
Vermouth
Olive oil
Olive oil,>40lbs
Palm kernel oil
Biscuits
Gums
Fresh cut flowers
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11282 Sardines,in oil
49312 Casein
Non Agricultural
25605
Wallpaper
65
33720
Woven fabrics, of silk
76
36624
Cotton towels
8
37320
Silk ties
2
37322
Silk ties,n/Orn.
33
38183
Men's wool suit coats
119
40110
Benzene
60
40174
Xylenes
25
40488
Amines
19
43782
Vitamins, synthetic
73
47470
Titanium dioxide
152
51951
Coated Abrasives
33
53487
Smokers articles
35
54620
Crystal
105
54660
Glassware
42
67434
Boring machines
135
67442
Nonmetalwkg machine tools
134
68037
Ballbearings
87
68039
Ballbearings
78
68049
Gearboxes
109
68260
Generators
275
68458
Telephone sets
34
68459
Telephonic apparatus
11
CONFIDENTI AL
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68590
Switching equip.
424
70074
Espadrilles
6
70801
Opthalmic lenses
69
70845
Eyeglasses
55
71249
El. measuring devices
551
77251
Tires
378
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