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

313. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) and the President’s Special Counsel (McPherson) to President Johnson¹

Washington, February 2, 1966, 3 p.m.

SUBJECT

• Textile Import Policy

The textile industry continues to push us hard to restrict imports of wool and artificial fiber, and to keep a low ceiling on cotton imports through tight administration of the International Cotton Agreement. The industry is basing its case on your conditional pledge of September 1964 to restrict imports—and on the Kennedy commitment of 1962. They ignore the fact that the conditions which led you and President Kennedy to offer help: idle capacity and large-scale unemployment, have long disappeared.

The textile industry is booming. Every indicator—profits, return on investment, dividends, employment—confirms that the industry no longer needs special help. The real problem with textiles, as with copper and shoes, is to offset shortages and pressure on prices. (A memorandum on textile prices, profits, imports, investment, and employment is at Tab A.² An earlier, more detailed, Ackley memo is at Tab B. Your two 1964 statements on textiles are at Tab C.)

The Government has not adjusted its textile policy to the new situation either. We continue (i) to restrict cotton imports under the international agreement much more tightly than a fair reading of it would support; and (ii) on wool, we keep telling the industry that we will make every effort to get Italy, Japan, the UK and the other producers to agree to quotas. The result is bad economics, bad foreign policy, and bad domestic politics:

1. The policy will not buy us peace with the industry—at least not for long.

• —An international wool agreement is not negotiable. By continuing to announce our determination to get an agreement (Jack Connor last did so just three weeks ago), we confirm the industry’s view that we owe them something. As it becomes clear that we cannot deliver, the industry will start pressing us to impose quotas unilaterally. This would be exceedingly costly. Under GATT rules, we would face compensating tariff increases on some $300 million worth of trade in other items. And our Kennedy Round negotiating hand would be seriously weakened.
• —On cotton, the international agreement expires in September 1967. If we continue to exploit the fine print, renegotiation could become very tough. A number of governments believe that we have violated the spirit of the agreement, and are most reluctant to renew it. No doubt we will succeed in getting some kind of renewal. But unless we ease up on imports during the next few months, we probably won’t be able to get as good a deal as we have now. And the industry will blame us. (In the meanwhile, the textile people are expanding capacity at break-neck speed on the assumption that tight restrictions will continue.)

2. We are hurting ourselves in the fight against inflation. Cotton textile prices have been rising—one wholesale index, for cotton fabrics, rose by 6% during ’64-’65—despite the equalization payments to the mills under the ’64 one-price program, which should have led to a sharp cut in prices. The industry is operating at 96% of capacity; the trade news indicates widespread shortages of yarns and fabrics; bookings for future delivery are piling up; and the Defense Department is having trouble filling orders quickly on a number of items.

3. We are paying a foreign policy price in our relations with textile producing countries. Singapore is a recent example. We are about to impose quotas on their cotton-good exports. (Until separation, they came under the Malaysian ceiling.) The resulting unemployment is likely to lead to anti-U.S. street agitation and strikes. Bill Bundy is rightly worried. The British have serious doubts already about being able to maintain their important base; anti-western rioting is not going to help. On the other hand, if we make an exception of Singapore, we will get into trouble with Taiwan, Japan and Korea—they are angry at us already about textiles—and risk the erosion of the entire textile control structure.

The question is how to get off the hook without a major row with the textile people and their friends on the Hill. At Tab D is a good memorandum from Chris Herter which makes the case for a change in policy, and suggests a procedure to minimize the pain. The procedure is designed to make it clear that you intend to keep watching the textile situation and to help when help is needed, but that your 1964 statements were based on economic conditions in 1964, and textile policy in 1966 must be based on conditions in 1966.

The Herter procedure would involve:

1. Adding Ackley and Schultze to the Cabinet Textile Committee chaired by Jack Connor. The Committee is now divided between those primarily concerned with foreign policy (Herter and Tom Mann) and those who properly worry mainly about the textile industry and textile labor (Connor, Wirtz, Freeman and Udall). Adding Charlie and Gardner would ensure that the Committee would look at the effects of textile policy on the economy as a whole.

2. On cotton imports, a signal to the Committee to take the general economic situation into account and to live up to the spirit as well as the letter of the International Cotton Agreement.

3. On wool, stopping our foredoomed efforts to get international agreement to impose quotas, until and unless the study now under way clearly indicates that such quotas would be justified and negotiable.

4. Setting up a special Defense Department reporting arrangement to keep the Cabinet Committee informed about bottlenecks of textile needed by Defense.

Schultze, Ackley, Herter and the two of us can make a strong case that these steps are justified—and that now is the time to move, if ever we are to extricate you from the corner into which the industry has been trying to paint you. But the textile people would be very unhappy, and even Jack Connor would not be pleased. (Industry and Hill pressure, and his own textile staff, have forced Jack far out on a limb in promising further special help. The Herter procedure is designed in part to put some distance between the White House and some of the more extravagant Commerce promises. It would also take some of the heat off Jack.)

On Congressional reactions, you know the situation far better than any of us. Bill Roth’s memorandum at Tab E gives his assessment. Our line of counter-attack would be that you are not going back on your 1964 promise, but that the industry’s situation has changed—it no longer needs to be “restored to good health.” But there is no question that we would have to take a lot of heat.

The political case for going ahead nevertheless, is that our present policy will get us into even more trouble as soon as it becomes clear that we can’t deliver on wool and will have to compromise with the foreign producers to save the cotton agreement.

The Choices: If you agree that we should shift our direction, and that the new procedure is right, you could:

1. Simply approve the Herter memorandum. However, Jack and perhaps Tom Mann would be concerned that you did not give them a hearing. (To avoid any chance of a leak before you have made up your mind, we have not talked about this to anyone except Schultze, Herter, and Bill Roth. Tom, incidentally, is likely to be ambivalent. He understands the foreign policy case for shifting our ground, but is likely to be worried about Congressional and industry reactions.)

2. Instruct Connor—or instruct us to ask Jack on your behalf—to have the Cabinet Committee prepare recommendations for presidential decision, with or without participation by Ackley and Schultze. The trouble with this is that your instruction would leak as soon as it reached the staff people concerned with textiles, and Pastore, Talmadge and the rest would be on the telephone within hours.

3. Call Connor (or ask us to do it), and tell him that you have been thinking about a procedure like this, and that, unless he can make a strong case to the contrary, you want to put it into effect. (You might wish to give him a chance to sleep on it, or suggest that he talk to the two of us, but instruct him not to say anything to his staff.)

Our vote goes for #3. It gives Connor his say without prematurely stirring up the industry.

If we do go ahead with the Herter procedure, you will wish to consider how to break the news on the Hill. One possibility would be to call in, for coffee and a talk, Pastore, Muskie, and a few of the others who might listen to reason, and have Mann, Connor, Fowler, Ackley, Herter/Roth, Schultze, etc., explain what we have in mind. (On the other hand, it would be important not to over-dramatize the change.)

• Harry C. McPherson
• Francis M. Bator ³

Approve Herter Memorandum (#1)

Have Cabinet Committee (plus Ackley and Schultze?) prepare recommendations (#2)

I will talk to Connor (#3a)

McPherson/Bator talk to Connor (#3b)

Talk to me⁴

1. Source: Johnson Library, National Security File, Name File, Bator Memos [2 of 2], Box 1. Sensitive. Drafted by Bator.
2. None of the tabs is printed.
3. Printed from a copy that bears these typed signatures.
4. None of the options is checked.