Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

238. Minutes of Meeting of the Trade Executive Committee¹

TEC M–13/64

Washington, October 7, 1964.

Cotton Textiles (continued)

At the outset of the meeting, Mr. Rehm submitted a draft proposal for the United States position on its offer of cotton textiles in the negotiations. Mr. Love also submitted a paper which he proposed as a revision of point 3 in the draft Mr. Rehm put forward.² Mr. Rehm suggested that the essential difference between the two texts was that Mr. Love’s would establish a condition on the offer of a 50% cut on cotton textiles, whereas the text he had presented would not. Therefore, under Mr. Love’s position, cotton textiles would be an exception while under the other formulation they would not be.

Mr. Auchincloss asked whether under the Commerce draft the United States would have the right to withdraw its concessions on cotton textiles without being obliged to pay compensation. Mr. Love said that this was his intention.

Vote on Commerce Draft of U.S. Position on Cotton Textiles

Agriculture and Commerce in favor;

Defense, Interior, Labor, State and the Treasury opposed.

Mr. Shooshan felt strongly that we should face up clearly to the nature of the concessions that we are offering. He had thought that the Commerce draft was perhaps too strong, but in his judgment Mr. Rehm’s draft did not seem to go far enough. To him, Mr. Rehm’s draft would call for the United States to make an offer “under false pretenses”, whereas the Commerce draft was completely clear.

The Chairman urged that the discussion not revolve around points of language, but rather center on the main issue: whether cotton textiles were to be on the exceptions list or not. If a condition were attached to our offer that would have to appear on the exceptions list, then our negotiating partners would probably find our offer not to be very meaningful.

Mr. Ruttenberg contended that the important point was to ensure that cotton textiles not be on the exceptions list in order to strengthen the U.S. position in trying to have the LTA extended. He felt that Mr. Rehm’s draft was an adequate bargaining tool for this purpose. It made clear that the cotton textile offer would be withdrawn if the LTA were terminated prior to the end of the Kennedy Round and that the United States intends to pursue the LTA and will have to take drastic action if it is not renewed.

Vote on Whether Cotton Textiles Should Be on Exceptions List

Agriculture and Commerce in favor;

Defense, Labor, State, and Treasury opposed;

Interior not voting.

Mr. Love then presented an alternative draft under which the United States would reserve the right to withdraw the concession on cotton textiles if it were found that imports were causing serious injury to the domestic industry. Mr. Rehm argued that the United States had this right anyway under Article XIX of the GATT. If we were to attach this explicit condition to our offer it would have to go on the exceptions list, but it would be silly to do so since it is unnecessary. Mr. Love, on the other hand, contended that this would put our position clearly in the open, and that Mr. Rehm’s draft was deficient in that it gave only discretionary authority to our negotiators to make clear the link between our offer and the continuation of the LTA.

Mr. Friedman felt that if Commerce’s concern were valid, it was a problem that could be faced when the issue arises in the negotiations. Mr. Weiss believed that under Mr. Rehm’s draft the negotiators may exercise their “discretion” so as never to make the point that our offer takes into consideration the continuation of the LTA. He felt that that point must be made. He suggested that the draft be amended to remove the discretionary authority. With his amendment, the position would read as follows: (Bracketed words omitted and replaced by underlined portion.)³

• “(1) The United States should exclude all cotton textiles from its exceptions list, thereby subjecting cotton textiles to a 50% tariff reduction.
• “(2) Within the United States Government, it should be agreed that:
  • “(a) In the event the Long-Term Arrangement (LTA) is terminated prior to the conclusion of the Kennedy Round, the United States would withdraw cotton textiles from its offer of a 50% tariff reduction and would put forward alternative proposals; and
  • “(b) In the event the LTA is terminated subsequent to the conclusion of the Kennedy Round, the Executive agencies would consider steps which might need to be taken in those circumstances.
• “(3) The United States negotiators at the Kennedy Round should be [authorized, at their discretion] instructed, at the appropriate time and in the light of consultations or negotiations which may be taking place within the framework of the LTA, to inform other governments that the United States offer of a 50% tariff reduction on cotton textiles takes into consideration the [probable continuation] existence of satisfactory arrangements for the orderly marketing of cotton textiles.”

Mr. Johnson contended that all negotiating countries know that the U.S. offer would be different if there were no LTA. He thought that the threat contained in section 3 would not help the U.S. cause, whether in the Kennedy Round or in the attempt to extend the LTA. It is true, he granted, that if the LTA is terminated we will have a problem with cotton textiles, but restoration of the pre-Kennedy Round tariff rates would probably not be the solution. If it were, we would not have had an LTA in the first place. He was willing to accept paragraph 3 if it solved problems for others, but personally he saw no reason to go beyond paragraph 2.

Mr. Love reiterated the point that many countries would not be clear on what our position would be if the LTA ends unless we stated explicitly in the Kennedy Round. The Chairman asked Mr. Rehm whether Mr. Weiss’ amendment would require that cotton textiles be an exception. Mr. Rehm believed it would not in view of the fact that it does not say that our offer is conditional on the continuance of the LTA. If we wanted to withdraw our cotton textiles concession, we would have to go through all the relevant GATT procedures.

Mr. Bator asked whether the position that we were adopting on cotton textiles would set a precedent for other items on which there are also forms of protection other than tariffs.

Mr. Ioanes noted that there may be similar items in the agriculture field, but it was agreed that this would not present a general problem.

Mr. Friedman wanted it made clear that the language of Mr. Weiss’ amendment required that the U.S. delegates state the point in paragraph 3 explicitly sometime during the course of the negotiations.

Vote on Mr. Weiss’ Amendment to Mr. Rehm’s Draft Position

Agriculture, Commerce, Defense, Interior, Labor, and the Treasury in favor;

State opposed.

The amendment therefore was adopted.

Vote on Mr. Rehm’s Draft Position, as Amended

Agriculture, Defense, Interior, Labor, and the Treasury in favor; Commerce and State opposed.

TEC Recommendation: No exception for cotton textiles, but U.S. offer to be subject to the requirements set forth in the text of the position above.

Wool Textiles

Mr. Love held that the STR paper (TEC D–27/64) made two arguments for cutting tariffs on wool textiles.

(1) That tariff cuts would help speed modernization of the industry.

(2) Tariff cuts would help liquidate the industry.

In fact, he said, the present tariff levels are too low to help speed modernization. With imports already high, there is not sufficient confidence in the industry to bring about re-investment in new equipment, and big companies were already liquidating their plants.

He also disagreed with the paper’s comments on man-made fibers. Competition from synthetics have not reduced the output of wool textile plants. If anything, they have helped the industry. His own figures took production of man-made fibers into account, but even so, they indicated that imports have hurt domestic production.

Finally, he alluded to President Johnson’s recent statement on the importance of maintaining a healthy wool textile industry,⁴ and he doubted that the U.S. Government should do anything at this point to harm the industry’s competitive strength.

Mr. Krause pointed out that the wool textile industry is in the process of change and adjustment. For one thing, consumer’s tastes had changed, and wool textiles had become less fashionable. The closing of textile mills did not necessarily reflect a reduction in capacity, since the parent company often relocates mills elsewhere in the country. In many cases, the adjustment process takes the form of vertical and horizontal integration due to the need for greater resources and to the advantage of greater control over inventory. The tariff structure in fact promotes vertical integration since each stage in the production process enjoys high tariff protection.

In general, Mr. Krause went on, the integrated firms are booming. Sales and profits have greatly expanded. As for the small firms, some of them are holding on, and some are declining. Employment is going up for the textile industry as a whole, though this may not be true for wool, mainly due to the competition with synthetics.

The STR staff proposal, Mr. Krause emphasized, would maintain protection for the industry. He also suggested further adjustments in the tariff that would help the industry, in particular, that part of the industry which had the greatest employment. Most of the employment, he pointed out, was in the manufacture of finished products. He offered the following figures as a rough guide to the breakdown of total employment.

• Apparel-making—55 to 60%
• Weave and finishing—25%
• Spinning—10 to 15%

One of his major concerns, he stressed, was that we should not penalize that part of the industry responsible for most of the labor force in order to help that part with less employment.

He had no intention, he concluded, of speeding liquidation of the industry. But under the TSC proposal, protection would in fact be increased, and this he felt will dissuade the industry from making the adjustments in which lie its only hope of salvation.

Mr. Love took issue with Mr. Krause’s analysis on a number of points:

(1) Mr. Love concluded that the total capacity of the industry has in fact been declining as far as products made on the wool textile system are concerned. He granted that production of wool and synthetics together has gone up, but contended that many synthetics are not in competition with wool products. Mr. Krause noted that he and Mr. Love disagreed on this point, but it would be futile to pursue it here.

(2) Mr. Love argued that to pass on the 50% reduction on raw wool to the compensatory element in the tariffs on wool textiles would reduce protection for the textile industry and would not, as Mr. Krause claimed, maintain protection at the same relative level. His argument was that since much apparel is now made from a wool-synthetic blend, the manufacturer would be able to take advantage of the lower cost of wool only to the fractional extent that he used wool in his blend; whereas the compensatory duty on competitive imports would be cut on the assumption that his product was 100% wool.

Mr. Krause replied that on the other hand this would benefit producers of all-wool goods and strengthen their position in competition with synthetic blends. Mr. Love felt, however, that the main reason for the competitive strength of blends is not their lower price, but their durability and lightness.

Even if we could find some areas where tariff reduction was possible, Mr. Love argued, we would be smart to except those areas as an incentive to the countries which are now resisting our efforts to hold an international conference on wool. As things now stood, it appeared that we would need every incentive we can get.

Mr. Krause turned to the problem of funding the supports to wool growers which come from the duties collected on wool and wool textiles. It is inconceivable, he said, that tariff reductions on wool and wool textiles would affect this fund during the life of the current Wool Act, which expires in March 1966. Even if the act were extended in its present form, he believed that it was highly unlikely that the funds would be exhausted under the tariff-cutting recommendations of the STR staff. However, in the event of unforeseen difficulties, we could presumably get Congressional action to correct any short fall, but he emphasized that he saw no need for this to be done.

Mr. Ioanes said that he did not entirely agree with Mr. Krause’s conclusions about the fund, mainly because the Agriculture Department’s experts believe that the present level of wool prices is abnormally high and will not continue. He also emphasized that the Agriculture Department’s recommendation to cut the tariff on raw wool was contingent on the extension of the Wool Act with the payment program intact.

Mr. Love made clear that the Commerce Department wanted to maintain the compensatory duty, though he admitted that the U.S. may find itself obliged to cut it. Mr. Johnson noted that we have a clear GATT obligation to reduce the compensatory duty on textiles if the raw wool duty is cut.

Mr. Weiss observed that Labor would vote against cutting the compensatory duty largely in order to preserve U.S. bargaining power for an international arrangement on wool textiles. The Chairman raised the question as to whether this would in fact help our bargaining position. It might well do the exact opposite.

Mr. Norwood made clear the TSC position: To offer a cut on raw wool, provided that the U.S. can negotiate its way out of the commitment on wool textiles. Mr. Krause and Mr. Johnson reiterated the point that not to pass on the compensatory cut to wool textiles would be to increase protection for the wool textile industry, particularly large integrated firms.

Mr. Ioanes was prepared to grant Mr. Krause’s point that cutting the compensatory duty would in fact help the industry. However, he felt that with the industry in its present delicate condition, the Government should not be in the position of reducing tariffs, even to a moderate extent. Mr. Pollack interjected that not to cut the compensation duty would be to use the Kennedy Round to increase protection.

Returning to the question of U.S. bargaining leverage, Mr. Krause made the point that our bargaining position internationally would actually be improved by cutting the compensatory duty, since our foreign competitors profit from the high domestic prices on yarns and tops that result from the high duty. Mr. Blackman, on the other hand, felt that if we except wool textiles, the other importers will do the same and this will induce the exporters to agree to an international wool conference. He granted, however, that we would have to give some sort of compensation for not honoring our GATT obligation connecting the duties on raw wool with those on wool textiles. Mr. Nehmer argued that for the United States to increase its wool textile protection at this point would be a major factor increasing hostility against us on the international conference question.

Vote on 50% Reduction of the Compensatory Element in Wool Textile Tariffs

Defense, State, and the Treasury in favor;

Agriculture, Commerce, Interior, and Labor opposed.

The Chairman was anxious to get the views of the agencies on the economic consequences of cutting the compensatory duty. Leaving aside the tactical question, would such a tariff reduction cause serious damage to the domestic industry?

Mr. Love felt it would contribute to the damage now taking place, particularly, Mr. Garland added, in the low price field. Other agencies contended that they had answered this question by their vote. The Interior representative felt there would be injury on some wool textile items, but not on others.

The Chairman asked Mr. Krause to continue discussion of individual wool textiles.

Wool Tops

Mr. Krause explained that this is an intermediate wool product used by the wool apparel makers in their production process. If the tariff is not reduced, he believed, this would mean the death of the independent worsted spinner because integrated plants would be able to get their wool far more cheaply than the small firms that have to pay the market price. The compensatory part of the tariff, he said, is 25%. If the tariff is not cut in half, this would be a windfall of 12–1/2% to the integrated mills. Producers of wool tops, he emphasized, are a very small part of the entire wool textile industry. The argument for making a duty cut at this intermediate stage of production was to pass on the advantage of the reduction on raw wool to the more important higher level of production where most of the employment in the industry was concentrated.

Mr. Johnson asked whether it was true that the foreign price for tops sets the price in the domestic market. Mr. Pollack replied that imports were a substantial enough percentage of domestic consumption to assume that this was the case.

Mr. Blackman felt that we would greatly undermine and confuse our bargaining position if we were to offer to cut the compensatory duty on some products or not on others. He felt that we should treat the compensatory duty on all wool textiles in the same manner.

Mr. Love felt that the effects of a tariff cut on raw wool would be passed on to the spinners regardless of whether we cut the duty on tops and yarns, and that the independent spinners would either survive or die without the tariff on tops having much effect. Mr. Krause noted that if a tariff cut would have no effect, there seemed little reason to add this product to the exceptions list.

Mr. Ioanes believed that Mr. Krause’s economic analysis has raised a valid point, and he would appreciate the opportunity to check into it further with his staff. He wondered whether the decision on this issue could be put off until the following day. The Chairman agreed that in view of the importance of this matter, we would return to it at the next meeting.

Kenneth Auchincloss ⁵
Executive Secretary

ATTENDANCE

• Office of the Special Representative for Trade Negotiations
  • Hon. William M. Roth, Chairman
  • Mr. Bernard Norwood
  • Mr. John B. Rehm
  • Mr. Gerald Pollack
  • Mr. Theodore Gates
  • Mr. Lawrence Krause
  • Mr. Kenneth Auchincloss
• Department of Agriculture
  • Mr. Raymond Ioanes
  • Mr. Richard DeFelice
• Department of Commerce
  • Mr. Robert McNeill
  • Mr. Allen Garland
  • Mr. James Love
  • Mr. Raymond Dickinson
  • Mr. Arthur Tendler
• Department of Defense
  • Mr. Alvin Friedman
• Department of the Interior
  • Mr. John M. Kelly
  • Mr. Harry Shooshan
  • Mr. Morton Pomeranz
• Department of Labor
  • Mr. Harry Weiss
  • Mr. Herbert Blackman
  • Mr. Murray Ryss
  • Mr. Stanley Ruttenberg
• Department of State
  • Hon. G. Griffith Johnson
  • Mr. Joseph Greenwald
  • Mr. Stanley Nehmer
  • Mr. James Lewis
• Department of the Treasury
  • Mr. Ralph Hirschtritt
• Tariff Commission
  • Mr. Thos. W. Hart
• National Security Agency [Council]
  • Mr. Francis Bator

1. Source: Johnson Library, Bator Papers, Kennedy Round (GATT) May 4, 1964 [2 of 2], Box 11. Secret; Limited Distribution. Drafted by Executive Secretary Kenneth Auchincloss.
2. Neither paper has been found.
3. Printed here as italics in paragraphs (1)-(3) below. Brackets in these paragraphs are in the source text.
4. For text, see Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1963–64, Book II, pp. 1143–1144.
5. Printed from a copy that bears this typed signature.