ECONOMIC POLICY COUNCIL MEETING - SEPTEMBER 5, 1985 2:00 P.M. - ROOSEVELT ROOM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00759R000200200032-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: March 24, 2010
• Sequence Number: 32
• Publication Date: September 3, 1985
• Content Type: MEMO

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THE WHITE HOUSE
CABINET AFFAIRS STAFFING MEMORANDU
Date: 9/3/85 Number: 3169Rnc,A Due By:,
Subject:
Economic Policy Council Meetinct - September 5. 19R5
2:00 P.M. - Roosevelt Room
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ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Justice
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Agriculture
Commerce
Labor
HHS
HUD
Transportation
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Chief of Staff
Education
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REMARKS:
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There will be a meeting of the Economic Policy Council on
Thursday, September 5, at 2:00 P.M. in the Roosevelt Room.
The agenda and background papers are attached.
RETURN TO:
Alfred H. Kingon ^ Don Clarey
Cabinet Secretary ^ Rick Davis
456-2823 ^ Ed Stucky
(Ground Floor, West Wing)
Associate Director
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WASHINGTON
September 3, 1985
MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
FROM: EUGENE J. MCALLISTERC~V
SUBJECT: Agenda and Papers for the September 5 Meeting
The agenda and papersfor the September 5 meeting of the
Economic Policy Council are attached. The meeting is scheduled
for 2:00 p.m. in the Roosevelt Room.
The first agenda item is a proposal to establish a $300
million "war chest" for tied aid credits, to be used as negoti-
ating leverage to eliminate foreign predatory tied aid credits.
A paper prepared by the Treasury, outlining the proposed war
chest, is attached.
The second agenda item is a plan for a multi-pronged negoti-.
ation strategy. At the May 16 Economic Policy Council meeting,
the President approved a three-pronged trade negotiation strategy:
multilateral, plurilateral, and bilateral. The Working Group on
General Trade Negotiation Strategy has outlined an operational
"road map" for implementing this strategy. A paper describing
this road map is attached.
Confidential Attachments
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WASHINGTON
ECONOMIC POLICY COUNCIL
September 5, 1985
Roosevelt Room
AGENDA
2. Trade Negotiation Strategy
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War Ches for Tied Aid (Mixed) Credits
Summary of Recommendation
The United States needs a credible threat to bring France
to the negotiating table on improving discipline on tied aid
(mixed) credits. As an interim step,-immediately, following EPC
approval, Eximbank will begin aggressively offering tied aid
credits to capture traditional French markets, drawing down its
capital and reserves. To minimize these losses, the Administra-
tion will seek legislation as quickly as possible to establish a
"war chest" of appropriated monies to increase our negotiating
leverage to eliminate predatory tied aid credits. The war chest
should be structured as an offensive trade weapon to be used
between now and the French elections in March, but we should
avoid creating a tied aid credit entitlement program for U.S.
exporters. This initiative would show that the Administration
is concerned and prepared to take an aggressive stance. By
encouraging a war chest, however, we will be triggering poten-
tial budgetary costs of $300 million, which will require a sup-
plemental appropriation.
Rationale for a War Chest
-- A war chest would be an important, aggressive trade policy
initiative by the Administration to counter congressional
perceptions that the Administration "has no trade policy."
Strong congressional support is expected.
-- U.S. competitors, notably France, are increasing the use of
tied aid credits to promote exports and penetrate markets.
The number of tied aid credit offers with low grant elements
has doubled since 1982, and the OECD predicts the amount of
such offers will increase to $6 billion in 1985.
-- In spite of the OECD Ministerial mandate to increase disci-
pline over tied aid credits, it is becoming increasingly
evident that the European Community will not be prepared to
accept a significant increase in the minimum permissible
grant element. Even the resolve of our "allies" (UK, FRG,
Canada) is weakening.
-- Selective matching under existing Eximbank and USAID pro-
grams does not present a credible threat to the French. In
the past, both agencies have been reluctant to authorize
stied aid credits because costs are borne either by USAID's
budget or by Eximbank's capital and reserves.
Classified by John D. Lange. Jr.
ENTIRE TEXT CLASSIFIED Office Trade Finance
CONFIDENTIAL Declon August 29. 1986
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-- As an interim measure, Eximbank is now prepared to aggres-
sively target French markets, drawjig down its own capital
and reserves until legislation appropriating monies for a
tied aid cre Es `-aFdriest is passed.
-- Since Congress is expected to introduce its own version of a
war chest this fall, an Administration war chest proposal
would shape the outcome and preempt efforts to establish a
tied aid credit entitlement program.
Potential Risks of a War Chest
-- An Administration proposal for a war chest could contribute
to the protectionist momentum in Congress, perhaps becoming
the "Christmas tree" for other protectionist trade legisla-
tion.
-- A credible war chest will require appropriations of $300
million (without fiscal year limitation) and may be per-
ceived as undermining Federal budgetary discipline.
-- Congress may be tempted to decrease funds available for
bilateral and multilateral (i.e., MDB) development assis-
tance programs in favor of a war chest for tied aid credits.
-- We will be temporarily expanding the tied aid credit war in
international trade.
-- U.S. exporters will likely lobby to transform any war chest
proposal into an entitlement program for big business, even
if we are successful in getting tighter discipline.
An Effective, but Controllable War Chest
-- Maximization of negotiating leverage requires:
(a) a credible threat. A $300 million war chest in appro-
priated monies (without fiscal year limitation), used as
grants in combination with Eximbank or private sector loans,
cou support p to $1.0 b_ill__ionin tied aid credit authori-
zations.
(b) targeting. The war chest should target France. There
is no need to tell France it is being targeted as our intent
will soon become apparent. The war chest should not be used
to match precisely tied aid credits from all countries;
precise matching leaves the trade advantage with the
initiating country.
(c) an offensive war chest: The United States should use a
war chest i to initiate tied aid credits in sectors and
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markets of particular importance to France, (ii) in a
matching situation, to overmatch (i.e., outbid, rather than
match precisely) offers by other governments in order to
cause them to match us, thus increasing their cost of tied
aid credits.
-- Avoidance of an open-ended entitlement program requires:
(a) Clearly defined purpose. The purpose of a war chest
shou be explicitly tied to negotiations for increased
discipline, and not to the protection of U.S. exporters.
(b) Treasur control. Treasury (as lead agency in the nego-
tiations should control the use of the war chest, with the
advice of the agencies in the National Advisory Council on
International Monetary and Financial Policies.
(c) Sunset provision. The program should end on a specified
date September 30, 1987) unless expressly renewed.
(d) Limitations on matching. The war chest should never be
used for exact matching. Exact matching may support U.S.
exporters, but is not sufficiently painful to our competi-
tors to advance negotiating objectives.
-- The budgetary impact could be limited by:
(a) Funding the war chest through a direct appropriation to
the Department of the Treasury, rather than to Eximbank or
USAID. This approach would avoid undermining the primary
functions of these organizations, i.e., to promote exports
and to promote development respectively.
(b) Using a grant structure. The war chest would be struc-
tured as grants (to be blended with normal Eximbank financ-
ing) rather t an an interest rate buy-down program, in order
to minimize the long-term impact on the budget. On a net
present value basis, an interest-rate buy-down and a grant
are exactly the same. Since appropriations are done on a
nominal basis, however, a grant now will always cost con-
siderably less than buying down the interest rate throughout
the maturity of the loan.
(c) Citing projected savings in Eximbank's net outlays.
Recent budgetary savings caused by a decrease in Eximbank's
net outlays are sufficient to cover a war chest from a
budgetary perspective and thus limit the risk of depleting
other development assistance programs. The drop in demand
for Eximbank's regular export financing has decreased
Eximbank's net outlays by about $1.0 billion since 1984.
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The FY 86 budget, which authorizes direct lending up to $1.2
billion (with a reserve of $600 million), has further
reduced net outlays by an additional $1.7 billion during the
next three years.
-- To increase negotiating leverage until a war chest is
enacted, the following interim tied aid credit policy should
be implemented:
(a) Announcement of the Administration's War Chest Proposal
as part of this autumn's legislative initiatives.
(b) Aggressive Eximbank tied aid credits against France.
Until the war chest is enacted, Eximbank should aggres-
sively target tied aid credits against the French, either
by overmatching French offers, or initiating such credits.
In the interim, these credits could be funded from the
Bank's capital and reserves. Our immediate objective is to
ensure that France will have difficulty winning even one
competitive deal between now and their March elections.
(c) Until the war chest is enacted, selective use of USAID
concessional financing in conjunction with Eximbank financ-
ing targeted against France.
Classified by John D. Lange, Jr.
Office Trade Finance
Decl on August 29, 1986
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MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
FROM: WORKING GROUP ON GENERAL TRADE NEGOTIATION STRATEGY
SUBJECT: Action Plan for Multi-pronged Trade Policy Strategy
At the May 16 EPC meeting, the President approved a trade policy
strategy consisting of three basic elements: (1) the launching
of a new round of multilateral trade negotiations -- as the
highest priority, (2) the organization of plurilateral negotia-
tions in certain sectors if full GATT participation cannot be
obtained, and (3) the pursuit of bilateral/regional negotiating
opportunities. The EPC requested that a Working Group be estab-
lished to further elaborate that strategy.
This memorandum, which was prepared by that Working Group, provides
a sort of operational "road map" of the actions which should be
taken to implement this strategy -- both in terms of international
initiatives and internal preparations.
The basic relationship between the three elements of the multi-
pronged strategy is as follows:
The strengthening of the multilateral trading system, through the
initiation of a new round of multilateral trade negotiations, is
our highest priority. Plurilateral negotiations should be
subordinated to broader, multilateral approaches but we should be
prepared to explore them where the GATT, or a significant part of
the GATT membership, is unwilling to deal effectively with issues
of major significance to the United States. Our bilateral
negotiating efforts should both parallel and stimulate our
multilateral initiatives -- by improving U.S. access to foreign
markets, by providing for a greater degree of multilateral trade
negotiations than is possible in multilateral negotiations, and
by spurring currently reluctant countries to greater support for
multilateral liberalization.
Multilateral Negotiations
We should seek to meet the following timetable for the opening
of the new trade round: (1) convening of a special session of
the Contracting Parties in September 1985 to begin formal GATT
discussions of the content, structure, and timing of the new
round; (2) a commitment by GATT members at the regular November
session of the Contracting Parties to a new round along with the
establishment of a formal preparatory group and general agreement
on a "critical mass" of agenda items; and (3) completion of the
work of the GATT Preparatory Group by late spring with the
opening of negotiations in mid-1986.
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o At this point, the most serious obstacle to meeting this
timetable is the obstructionist tactics of a group of
developing countries led by India and Brazil. Along with
our Quad partners, we have launched a diplomatic offensive
to ensure that we have. the necessary votes to convene a
September meeting of the GATT Contracting Parties.
should develop, through the interagency process, a comprehhen-
sive action plan to build international support for our new
round objectives and to ensure that the India/Brazil faction
is not successful- in blocking new round progress. The Seoul
meeting of the Trade Ministers, which can be held when
needed, and the scheduled 1986 meeting of the Quad will also
provide key opportunities for advancing this plan.
o An enormous amount of preparation will be required to
conduct new round negotiations effectively. USTR will be
developing, through the established interagency structure
detailed position Rapers on all issues proposed for
inclusion
either by the United States or other countries. These
papers should clearly define U.S. objectives in each area
and outline a strategy for their achievement. This strategy
should include a plan for the coordination of -bilateral and
plurilateral efforts and a consideration of the leverage
available to the United States -- including the use of
U.S. trade laws and other actions to advance our objectives.
These papers should be completed by the end of the year. .
o As part of the above exercise, a U.S. position on the
structure and agenda of the new negotiation will also be
developed. In particular, we need to consider whether to
propose a new process of "rolling negotiation," which would
allow the introduction of new subjects at a later stage in
the multilateral negotiations and the conclusion of the
various elements of the negotiations at different times.
The ways in which plurilateral and bilateral negotiations
can be linked to the achievement of our multilateral objec-
tives also needs to be considered. A decision on the
Administration's -basic stance with regard to rolling . ,a
Round discussions -- and, in an case ear y s ge in New
GATT meet ~ g. y prior to the Nov mbar
o A major effort must be made to develop domestic support
for a new round. Key elements of this effort are a new
statement of overall U.S. trade policy (currently being
reviewed by the EPC); development of an Administration
response to initial private sector comments on the new round
(now being prepared by USTR); and close consultation with
the private sector and Congress in the development of the
detailed new round position papers. An important factor in
building domestic (and international) support for a new
round will be the Administration's success in articulating
macro economic policies conducive to the promotion of free
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trade -- especially with respect to third world dent,
exchange rate problems, and the promotion of convergent
of national economic policies.
o We need to consider when to seek new legislation for the new
round. The Administration will need tariff-cutting authority
and an extension and expansion of existing negotiating
authority on non-tariff barriers. However, we will be
facing major Congressional efforts to enact protectionist
legislation. A policy-level review of our Congressional
strategy for the new round should be conducted this fall.
Plur;lateral Negotiations
o Further work needs to be done in developing the possible
shape of plurilateral sectoral agreements for such areas as
s
This will b ervices, investment, high tech, and intellectual property.
undertaken in the preparation of the interagency
position Papers.
o Given our preference for the multilateral approach, a decision
on plurilateral sectoral initiatives at this- time would be
premature. This question should be reviewed, at the latest,
the November ,PTT mee inq with the aim of deter
nC y such initia
tives at that time.
Bilateral/R !/Regional Initiatives
o Further opening of the Japanese market should continue to
be our number one priority. The progress of the MOSS app oath
,ihould evaluated prior to the ant c gated mee ings betty en
Preqid-e4t and October)Shultz and Minister nr. (September) an th
Prime Minister Nakasone (October), A final
(
evaluation o MOSS should be undertaken-by the end of the
proves unsa i sfar? ory, alternative gpprnachoc
should be considered.
o Efforts to improve access to the markets of our major
trading partners, especially Taiwan, Korea, and Brazil, and
their treatment of intellectual property, should also have a
high priority. In some cases, self-initiation of Section 301
cases should be considered as a means of putting additional
pressure on these countries. USTR should develop an
li-st of bilateral issue wi h the principal
NIC's on which the Una sera Sta es should exert , m?m
Pressure in 1-9-8-.
o The renewed and revised GSP program will also provide a
useful tool for U. S. objectives in the area of improved market
access and intellectual property protection. Review of this
program and of the national policies of beneficiary countries
is required to be completed by the end of 1986.
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o We expect to receive a proposal from the Canadian Govern-
ment on the negotiation of a free trade arrangement (FTA)
this fall, possibly as early as mid-September. USTR will
conduct an interagency examination of the economic value o
such an agreement to the United States the areas such an
agreement should cover and the timetable for n go ;at;on~
with th-e aim - of presenting C his issue for p 1 ; Cy t eye
discuss on at an appropriate time this fall.
If it is agreed to move ahead with FTA negotiations, the House
Ways and Means and Senate Finance Committees must be notified
under Section 102 of the Trade Act of 1974. If they do not
disapprove such negotiations within 60 days, the Administra-
tion may proceed. Thus, negotiations could begin by the end
of the year.
o In February 1983, then-USTR Brock proposed that ASEAN and
the United States explore the phased elimination of all
barriers to trade between them. It is possible that the
ASEAN countries may present us with a proposal for moving
ahead in this area; they appear to be thinking of an "um-
brella" agreement covering such areas as services, with
parallel (and reciprocal) tariff agreements negotiated
separately with each of the six ASEAN countries. We will
need to examine their proposal and decide how to proceed.
o At this point, the Administration need not make a decision
on other possibilities for FTA-type arrangements. However.
we should be able to articulate our general policy with
respect to such arrangements. It is recommended that the
attached draft statement of this policy be app -roved. This
statement might be used as part of an Administration pro-
nouncement on negotiations with Canada in September or in
the context of a more general statement on trade policy.
o Because Mexico is not a GATT member and there is no formal
mechanism governing our commercial relations with that
country, we are seeking to negotiate a framework of principles
and procedures for trade and investment. Congressional and
private sector consultations will begin in the near future;
we should seek to conclude the negotiation by early 1987.
o Bilateral relations with the EC are likely to focus on crisis
management, tariff negotiations resulting from the enlargement
of the Community to include Spain and Portugal and the
coordination of new round policies and strategies. Trade
liberalization outside the framework of the new multilateral
trade round will, therefore, be difficult. The U.S. should,
however, seek to engage the EC in a more constructive
dialogue aimed at reducing impediments to, or distortions
of, our bilateral trade (for example, in the
telecommunications sector).
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Draft USG Statement on FTA's
While our highest priority remains the improvement of the world
trading system through a new round of multilateral trade negoti-
ations, the United States remains interested in the possibility
of achieving further liberalization of trade and investment
through the negotiation of bilateral free trade arrangements
such as the one recently concluded with Israel. We believe
that, under certain circumstances, such agreements could complement
our multilateral efforts and facilitate a higher degree of liberali-
zation, mutually beneficial to both parties, than would be possible
within the multilateral context.
The United States will give careful consideration to any serious
proposal to enter into the negotiation of such agreements.
The paramount factor in evaluating such proposals will be their
economic value to the United States; we will not pursue any
agreement which is not clearly in our economic and commercial
interest. Deliberations on these proposals will also be guided
by the need to respect our GATT obligations. Finally, the prospects
for significant progress in a new round of multilateral trade
negotiations will also influence our deliberations on such bilateral
initiatives.
In the case of Canada, the Administration has examined the criteria
set forth above and believes that further exploratory talks
are warranted. Both governments have announced their intention
to pursue such talks. (Note: Assumes statement would be released
after an announcement is made on Canada.) Other possibilities
will be considered on a case-by-case basis.
The Administration will consult closely with Congress and with
representatives of the private sector before making any decision
with respect to prospective bilateral free trade agreements
and it will notify Congress of its intentions in accordance
with Section 102 of the Trade Act of 1974.
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