MONTHLY REPORT

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-320-4-8-3
• Release Decision: RIFLIM
• Original Classification: C
• Document Page Count: 6
• Document Creation Date: January 11, 2017
• Document Release Date: June 4, 2010
• Sequence Number: 8
• Publication Date: September 16, 1976
• Content Type: MEMO

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DEPARTMENT OF STATE
BRIEFING MEMORANDUM
5/s
CONFIDENTIAL
TO: The Acting Secretary
September 16, 1976
FROM: EB - Julius L. 'v'v ' Designate
ON FILE DOS WAIVER
INSTRUCTIONS APPLY
Monthly Re ort
The LDCs and the MTN
All the noise in the North/South dialogue is
concentrated at the moment on commodities and debt.
These were the contentious issues at UNCTAD IV.
They are the contentious issues that interrupted
the CIEC exercise. They will continue to be trouble-
some now that CIEC has resumed.
By contrast, all is quiet on the trade front, or
so it seems. In fact, an active negotiation is going
on, removed for the time being from the glare of publicity.
More than 70 LDCs; are participating in the MTN. The
tropical products negotiation, of special interest to
LDCs, is furthest advanced of all the activities in the
MTN. The moderates are in control--Brazil, Mexico,
Argentina, India, Singapore, Malaysia. Although many
of their views are unacceptable to us, they are serious
and persistent in pressing their views and interested in
negotiation rather than confrontation--at least at this
time. They see real benefits for themselves and for
LDCs generally from a successful negotiation. They
have been willing to give the MTN a chance--notwith-
standing the long delays in getting the process moving--
with the result that a real dialogue is going on on
substantive issues.
So far, so good. But it is becoming increasingly
apparent that, even in this area, a blow-up could occur
if we do not manage the negotiations well. LDC positions
are diverging from ours at critical points and we will
be under stress this fall and during the course of 1977
when the pace of negotiations will accelerate.
Trade is the area where, objectively, our interests
should converge. Trade liberalization is, as the textbooks
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say, mutually beneficial. For the LDCs, it means
opportunities for growing export earnings that can
finance growing development imports and enhance their
ability. to borrow. It also means exposure to competition
in the wider world market which can spur LDC enterprises
to better performance. The fast-growing LDCs, like
Korea, Taiwan, Brazil, are those that have developed
an export-oriented strategy and taken advantage of
opportunities in the world market. For the U.S., it
means larger export markets--non-oil LDCs take more
than one-fourth of our exports--and the opportunity to
import goods that LDCs can produce more economically
than we. At a time when we are opting for slower growth
at home to avoid reigniting inflation, lower cost
imports are an important counter-inflationary force.
Unlike commodity agreements which we fear LDCs will
pervert from mechanisms for stabilization to mechanisms
for jacking up prices, trade is pre-eminently the area
where we can make offers consistent with our own
economic philosophy, our narrow, as well as broad,
self-interest, and further LDC welfare as well.
LDC Positions in the MTN
1. At the UN Special Session, we called for a
fundamental structural improvement in the relationship
of LDCs to the world trading system. In the earlier
stages of their development they should receive special
treatment, we said--preferences, favorable concessions,
and exceptions which reflect their economic status.
But as they progress to a higher level of development,
they must gradually accept the obligations of reciprocity
and be prepared to compete on more equal terms.
Following up on that principle, we have taken the
lead in proposing ways in which the LDCs can enjoy
preferential treatment---in the tariff area (deeper--than-
formula cuts), in the subsidy area (prohibited subsidy
practices might be allowed for LDC "infant" industries
for a limited period), in the safeguard area (minor LDC
suppliers would get preferred treatment when we restrict
imports because of injury to domestic producers), etc.
But our proposals are conditioned on the principle of
gradual phase-out as LDCs graduate.
The LDCs reject the principle of graduation. They
want permanent preferential treatment in all areas of
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the trading system, and no obligation on them to reci
rocate, More specifically they want GSP to continue in
definitely with permanent preferential margins; they
want to be able to subsidize their exports without
facing countervailing duties; they want no limitations
on their sales even when these sales cause serious
injury to our domestic industries; and they believe
they should not be required to reciprocate by'reducing
their tariffs, which in many cases run 100,200 percent,
or in other appropriate ways.
It is the extreme nature of the LDC position and
not the principle of "special treatment" that gives us
concern. We cannot ask domestic industries that face
injury to sink or swim because the injury comes from LDC
competitors or to be complacent about subsidized exports
because the source is a Third World country. The prim-
ciple of temporary protection in the event of injury is
fundamental. Furthermore, we cannot justify substantial
concessions to LDCs if they are unprepared to open their
markets to U.S. exports. Not all LDC enterprises are
fragile "infant" industries. More fundamentally, for
both political and economic reasons we want to bring
the LDCs into a fuller and more responsible participa-
tion in the world trading system and not divide that
system into two virtually unrelated parts.
Clearly there will have to be some give in the LDC
position. In the crunch, we would expect them to back
down somewhat, but only i.f there was enough in the total
MTN package to make it worth their while.
2. The second point of stress is the strongly
reiterated desire of the LDCs to limit tariff liberali-
zation by the developed countries for products on the
GSP list. They want to preserve their margins of pref-
erence or be compensated for any narrowing of the margin.
We cannot agree that special treatment for LDCs should
restrict the opportunities for overall liberalization.
Were the industrial countries to accede to the LDC posi-
tion in this--and the EC shows signs of willingness to
comply--the scope of the tariff reductions in the Tokyo
Round would be substantially narrowed. We would have
to reduce our offers to the EC, if the EC excluded GSP
items from MFN tariff cuts, in order to assure_roucth
reciprocity. There are, moreover, a number of items
on the Community's GSP list on which we would like to
see the Community reduce its MFN duties. Tobacco, pine-
apple, and citrus are examples.
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If we can persuade the industrial countries to
join us in rejecting extreme LDC positions, many LDCs
might prefer to see the MTN fail since maintaining pref-
erence margins for GSP items might be. judged more bene-
ficial than limited MFN cuts. However, some LDCs such
as,Mexico, Brazil, Hong Kong, Taiwan, and India, which
have not benefited fully from GSP because they are com-
petitive on a number of products and excluded' thereby
from enjoying preference on those products, are inter-
ested in seeing MFN rates reduced in the expectation
that they could increase their sales thereby. In the
crunch, the LDC united front on this issue might break.
But the LDCs could all join in seeking compensation for
erosion of preference margins.
3. The third and critical area is the desire of
LDCs for deep tariff cuts on items not on the GSP list.
This is an entirely legitimate desire and one we should
try to accommodate. It involves two sticky problems,
however. The first is the fact that the key items ex-
cluded from the GSP list are those that are in the main
import--sensitive items such as textiles, shoes, and other
leather goods, consumer electronics, and raw and processed
agricultural items, all of which are difficult, although
.not impossible, for us to liberalize. The second sticky
problem is our desire to have reciprocity which the LDCs
reject in principle. We are facing that problem in the
tropical products negotiation where we have made spe-
cific tariff offers subject to concessions by the LDCs
to which the offers have been made. We accept the prin-
ciple that requests for reciprocity from LDCs should be
consistent with their individual development, financial,
and trade needs. We believe that reduction of their ex-
cessive tariffs, burdensome customs procedures, and
licensing requirements, which we are seeking in specific
cases, would in fact benefit the efficiency of the econ-
omy of theLDCs concerned.
We can probably make satisfactory offers on some
items that were excluded from the GSP list not because
the Trade Act required their exclusion but because the
reduction in duties from their present level to zero with-
out any phasing would have been too deep and too sudden
for the domestic industries to tolerate. We might also
be able to reduce the tariff on textiles which is a major
LDC export item (almost $3 billion in sales to us in 1975
.or 15 percent of their total non-oil sales to us in that
year) because the Multifiber Agreement protects us from
a flood of imports. To do anything in textiles, however,
will require a heroic effort. We could certainly make
MFN reductions on items on the GSP list and bind those
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CONFIDENTIAL .5
reductions to the benefit of "competitive" LDCs, but this,
as noted above, is a controversial matter.
4. The last important area is the desire of the
LDCs to reform the GATT by legalizing permanent prefer-
ential status for all LDCs. Brazil has proposed the
formation of a new negotiating group in the MTN to under-
take this task.
Potential for Confrontation
We have always been aware of the potential for
confrontation with the LDCs when the MTN nears its close.
It has been the slow pace of the negotiation and its
technical nature that has thus far kept the negotiation
from exploding.
Two issues will come to a head in October. One is
the formation of a new negotiating group to reform the
GATT. We want to avoid a blow-up on this issue in Octo-
ber and will, therefore, agree to the creation of such a
group. We will, of course, have trouble in moderating
the extreme LDC position in this group, but we may be
able to keep the discussions going beyond the termination
of the MTN negotiations themselves. Reform of the legal
framework of the GATT is not a necessary part of the MTN
negotiations. Offers can be exchanged and the balance
struck on these offers without changing the GATT charter.
The second issue in October is the meeting of the
Tropical Products group. our offers are on the table and
we are waiting for LDC concessions. The LDCs maintain
they should not be required to say what their concessions
will be, if any, until the end of the negotiations.
The next point of potential confrontation will be
in the early Spring of 1977 when we will be discussing
the tariff formula (our formula is liberal) and the
critical question of exceptions. Here the issue is two-
fold: (i) willwe be prepared to bind the LDC preference
margins (we will not); and (ii) more important, what will
we be prepared to offer in the way of significant MFN
tariff cuts on non-GSP items.
Later in the year we will face the issue of non-tariff
barriers, and in particular, the issue of subsidies.
Our problems here are not solely with the LDCs. We must
come out of the negotiations with a reasonable subsidies
code to which our major trading partners agree if we are
to get congressional support for the MTN results. And
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we must come out with a tolerable grains agreement that
has some liberalizing, as well as stabilizing, features.
On the assumption that we will be successful, as we must,
on both counts, we have the lesser but real problem to
deal with of preferential treatment for LDCs in the
subsidies code.
Confrontation with the LDCs, if it comes,-will come
near the end of the negotiations. Until then, we can
keep talking. At that time, in all likelihood the LDCS
will tote up the gains to them from significant DC offers
and the costs as they see them, in particular the erosion
of preference margins, the requirement of reciprocity,
and the unwillingness of the industrial countries to
accept the principle of permanent preferential treatment
for LDCs across the board. Their choices at that time
will be to take the gains--if the gains are large--or to
walk out of the MTN and take their case to the UN General
Assembly. Our objective will be to present a package of
gains that the major LDC traders will wish to take.
EBStaff
9/15/76; ext. 22175
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