MONTHLY REPORT

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-320-4-3-8
• Release Decision: RIFLIM
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: January 11, 2017
• Document Release Date: June 4, 2010
• Sequence Number: 3
• Publication Date: February 14, 1976
• Content Type: MEMO

No Objection to Declassification in Full 2010/06/04: LOC-HAK-320-4-3-8
DEPARTMENT OF STATE
BRIEFING MEMORANDUM
S's FEB
FROM: EB - Joseph .A. / Gxeewald
CONFIDENTIAL
TO: The Secretary
Monthly Report -
Protectionism in an Election Year
It is a truism in the trade area that standing
still'is not an equilibrium position; either we move
forward or we will be pushed back. At the present
moment, the balance is tilting backward. While we
are inching forward in the multilateral trade nego-
tiations in Geneva, the pressures to push usback at
home are strong.
Petitions to restrict imports will be decided
this year in cases that. ira olve more t: ;an. $ZO bill ion
b'f "trade 'and affect our "principal trading partners in
Europe and Japan, and important developing countries,
Brazil, Korea, Taiwan among them.
Trade quarrels can be bloody. Some cases in the
past involving import restrictions, such as bicycles,
carpets, glass, and cheese, and the notorious chicken
war, were poisonous to our foreign relations. Even
when at long last these cases were terminated, a
residue of bitterness has remained.
The cases awaiting decision-this year-involve
major domestic industries like steel, as well as
traditionally weak and sensitive industries like
shoes. How these cases are decided can affect not
only the tone of our relations with the countries
concerned, but also, in the case of Europe and Japan,
their cooperativeness in the Multilateral Trade
Negotiations and their continued observance of the
OECD trade pledge. Pressures for protection are no
less strong abroad than here and U.S. weakness in
the face of these pressures will make it harder for
others to resist. In the case of the developing
countries, adverse decisions can dull the luster of
the Seventh Special Session and give aid and comfort
to the radicals in the North/Scuth dialogue.
CONFIDENTIAL
GDS
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CONFIDENTIAL
- 2 --
waived in six, most importantly in the cheese and
ham cases against the European Community. The U.S.
International Trade Commission in its first three
decisions on petitions for relief from increased
imports found no injury to'U.S. industry as a result
of imports. And only one anti-dumping case was
decided adversely, Polish golf carts, and that only
after extensive discussions with the Poles which
moderated their unhappiness.
In short, the U.S. performance in 1975 demonstrated
the ability of the Administration to exercise its powers
under the Trade Act reasonably.
The experience last year was favorable not-
withstanding the great concern of our trading partners.
The number of petitions to restrain imports under the
various provisions of the Trade Act -- escape clause,
countervailing duty, anti-dumping, unfair trade
practices -- led our partners to believe that the
long awaited Trade Act was simply a vehicle for pro-
tection. In fact, of thirty-four countervailing
duty cases decided in 1975, duties were imposed in
only four, and the imposition of duties was temporarily
Experience in 1975
Favorable Factors in 1976
Thew turn in the U.S. economy appears to be
broad-based and sturdy. With the prospect -- and the
fact -- of increasing sales in the domestic market,
U.S. firms will be less impelled to hit out against
imports. We can expect the number of new complaints
which U.S. industry will file under various pro-
visions of the Trade Act to be lower this year than
last.
Moreover, the trade surplus of 1975 -- in excess
of $11 billion -- was the largest in our history and
?attributable to our competitive strength in manufacturing
as well as tt our good performance in agricultural trade.
With the recovery of the U.S. economy, imports will increase
and the trade surplus diminish, of course, but the price
-position of U.S. manufacturers compared to their
major competitors is, much 'more -?favorable--
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now than in past years. The greatly improved com-
petitive position of U.S. producers of manufactures
should, make the U.S. market less vulnerable to import
? pressures in the upturn.
Furthermore, the trade surplus in 1976, while
less than in 1975, should still be substantial.
Psychologically, a large trade surplus is important
for business and labor confidence. The declining
trade surplus in the late 1960s and the traumatic
trade deficit in the early '70s -- first in this
century -- led to widespread defections of labor
and business leaders from the cause of free trade
and swelled the clamor for permanent import quotas
and "orderly marketing arrangements.
The fact that the Multilateral Trade Negotiations
are in progress may also be a plus. It can be argued
that protectionist action would hurt the negotiations.
.In addition, it gives us a forum for consultation and
resolution of especially difficult. cases --- steel may
..-be such a case.
We also have going for us the commitment of the
President at Rambouillet. In talking to the other
Heads of State about domestic pressures for import
restraint, he said, "Where flexibility exists under
domestic law and procedures, I am prepared to exercise
it". In the same context he said, "We should agree to
resort to limited emergency trade measures only in
particularly acute or unusual, circumstances". These
commitments by the President should strengthen the
State Department's hand in interagency negotiations
and give added weight to foreign policy considerations.
1976 .-- An Election Year
This is, however, an election year and in an
election year.,foreign policy considerations tend to be
less compelling than near-term domestic concerns.
One of the most serious problems we will face
this year will be pressure within the Administration
for actions aimed at short-term political gain rather
than at achieving the long-term economic and foreign
CONFIDENTIAL
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cUNr'1WZNT1iUj
0. 4
policy objectives of the, United States. We'have only
begun to hear from some quarters that there will be
a political need "to do something" for the. parties
at interest in several cases during this election
year.
Congressmen will be on the hustings and will
find it irresistible to espouse the cause of their
labor and business constituents and to make promises
.on their behalf. While the President can discourage
and veto -- special interest bills that Congressmen
may drop in the hopper, he will himself find it harder
to resist the pressures.
Moreover, the Trade Act gives the Congress important
new powers to override the Executive. Thus, in escape
clause cases, if the President does not follow the
recommendation of the International Trade Commission,
his decision can be overturned by a simple majority
of both Houses of Congress. In countervailing duty
cases, the Secretary of the Treasury may waive the
duties under certain circumstances (as he did in 1975)
but either House of Congress can by majority vote
override a Treasury waiver. In an election year, the
Congress will be under pressure to-use its power to
override.
The Tough Cases_'
The most serious cases we will face this year -
filed in 1975 -- are shoes and steel.
Shoes: On February 20, 1976, while you are in
Latin America, the International Trade Commission will
decide, on the petition for import relief filed by the
U.S. shoe industry. The petitioners have a strong
case. Imports have increased steadily since the early
1960s,,and since 1968 domestic production has declined
here, total employment has dropped, and plant closings
have far exceeded openings.
The principal suppliers are Italy, Spain, Taiwan,
Brazil, and South Korea. All told more than thirty
countries are exporters of shoes to this market. The
value of the trade involved, more than $1 billion in 1975,
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-W 5 --
is,by far the largest in any escape clause case.
The Commission is almost certain to find
injury and recommend relief. The domestic industry
maintains that adjustment assistance -- our preferred
solution -- will not solve its problems. A positive
finding by the Commission calling for tariffs or
quotas will provoke an immediate adverse reaction
of major proportions in the exporting countries.
The International Trade Commission on January
16, 1976, found injury to U.S. industry and recommended
quotas- limiting stainless and alloy tool steel imports.
The President must decide by March 16 whether to
-support, reject, or modify the Commission's recommenda-
tions. The Congress can override a Presidential
decision that differs from the recommendation of the
ITC.
The value of trade involved is $185 million; --
the'countries affected are Japan, Sweden, Canada,
France, Belgium, the UK and West Germany. They are
of the unanimous opinion that the alleged difficulties
of the U.S. specialty steel industry have not been
caused by import competition but by the cylical nature
of the steel industry to which foreign as-well as
-domestic producers are subject. In our view the ITC
recommendation is not economically justified.
The specialty steel case cannot be looked at in
isolation. U.S. Steel is intending to challenge in
court the refusal by Treasury to hold that the
remission by the EC of the value-added-tax on steel
exports is a subsidy. (We too remit indirect taxes
on our exports.) U.S. Steel may well win in the lower
court. After an adverse finding in the lower. court,
this $2 billion steel trade would be seriously disrupted.
Some elements of the EC steel industry are pressing for
protection. The Japanese have their problems and have
agreed to restrain steel exports to the EC market.
It may be that the steel,sector is in need of international
attention.
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CONFIDENTIAL
Conclusion
There are many more cases than these that are of
lesser trade magnitude but that cumulatively could
reinforce or undercut our foreign policy purposes,
depending on how the President uses the leverage
and discretion he has. In inter-agency councils,
we hope Elliot Richardson will make the Commerce
Department less protectionist. We can expect help
from the Treasury in those cases that do not involve
the application by them of the law (anti-dumping
and countervailing duty cases require Treasury
findings). In the final round with the Pred'.ident,
BrentScowcroft can'be helpful behind the scenes.
.But the main burden will necessarily fall on you
to defend our foreign policy interests in an election
year.
Drafted By:
EB Staff
2/14/76
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