You may have seen this memorandum yesterday at State. Shultz and Flanigan are likely to hit you on it during or after staff
meeting this morning.
Assuming the correctness of the analysis on the effect of delay, however,
there is some2 merit in Peter’s argument that we
should go ahead in the House on the chance that we may be able to reach a
compromise next Spring in the Senate or in conference. If we do not,
however, we are faced either with vetoing the bill and thus publicly
upsetting our major trading partners, or rebuffing the Soviet Union. Either
of these alternatives, it seems to me, is worse than having no bill at all.
The decision, therefore, seems to me to turn really on the judgment of the
likelihood that some compromise would be possible next Spring—and the
affirmative argument seems to rest basically on the feeling that the Jewish
community would back off rather than assume the onus of a veto.
Attachment
Washington, November 28, 1973.
Memorandum From the President’s Assistant for
International Economic Affairs (Flanigan) to Secretary of State Kissinger
SUBJECT
- Effect of No Trade Bill on U.S. Relations with Europe and
Japan
Senator Jackson’s rebuff of your
attempt to work out a compromise now on Title IV
of the Trade Bill poses a major foreign policy problem.
Two Presidential enterprises are at issue. On the one hand, there is the
need to avoid unduly endangering possibilities for constructive
cooperation with the Soviet Union, including chances for a cooperative
approach to establishing a lasting peace in the Middle East. On the
other hand, there is the need to strengthen the marked success of the
President’s initiatives to redress our balance of payments and to carry
forward the momentum thus far achieved toward a lasting reform of the
international economic system. Progress of historic significance has
been made in both endeavors—but a misstep now in the handling of the
Trade Bill would be extremely costly.
[Page 723]
The best time—perhaps the only feasible time—to move the Trade Bill is
now. As the 1974 Congressional elections approach, as U.S. economic
growth slows, with increased unemployment, and as the coalition of
forces supporting the bill erodes from lack of momentum, there will be
less and less chance that the Trade Bill can be passed in 1974.
Moreover, there is little reason to believe the Title IV problem would
be any more manageable in the House in 1974 than it is today. If no
action is taken by the House prior to the Christmas recess, the November
suspension of the trade negotiations in GATT could become permanent, endangering the movement
toward expanded trade in the free world.
Conventional wisdom treats the issue as a trade-off between the Trade
Bill and Presidential authority to extend MFN and credit to the Soviets. The real significance of the
Trade Bill lies in the foreign policy area. Our NATO relations could be
weakened, and the Soviet position throughout the world could be
measurably strengthened if, as a result of our lack of a Congressional
negotiating mandate, chances were aborted for constructive cooperation
with Europe, Japan, and developing countries on trade issues. Both peace
and prosperity are at stake. The international economic issues involve
the jobs and living standards of hundreds of millions of citizens in the
democratic developed world. No issue has a higher general priority
throughout the developing world than improved access to the markets of
the rich countries. If we do not move the Trade Bill through the House,
the fabric of our political and security relations with Europe, Japan,
and much of the rest of the world will be damaged to the long-term
advantage of the Soviets.
In Western Europe, our friends, working for improved relations in the
Atlantic Community and a less protectionist European Community, will be
weakened. Those working for an independent and self-sufficient Europe
discriminating against our trade, our investments, and our dollar, will
be strengthened. Current trade disputes such as those growing out of the
enlargement of the Community, are manageable in the framework of major
negotiations but might well get out of hand in a context where
retaliatory actions seemed to be the only effective response. This could
not fail to complicate MBFR, CSCE, and other negotiations, while
weakening U.S. domestic political support for our military presence.
Working toward a shared economic objective, however difficult to
achieve, is preferable to economic confrontation across the
Atlantic.
In Japan, multilateral trade liberalization is a major national
objective. The political and economic consequences of a forced reversion
to bilateralism are difficult to contemplate.
In Canada, there is a marked reluctance to act boldly on bilateral
U.S.-Canada trade problems but enthusiasm for multilateral negotiations
where solutions may be found.
[Page 724]
In the developing world, deep frustrations over U.S. failure to act on
generalized preferences would cumulate if broader LDC hopes for improved market access also
failed. The reaction in Latin America would be particularly adverse.
In the United States, protectionists would return to the attack with
consequent risks to our political posture in the world. The President’s
signal successes in restoring the strength of the dollar and taking the
initiative from the Hartke–Burke forces4
would be endangered. In trade, if one is not moving forward, special
interest pressures inevitably move the country backward.
Finally, no action on the trade bill contradicts the Administration’s
commitment to 105 nations in the September Tokyo Ministerial Declaration
to proceed with multilateral trade negotiations.5 Passage of the Trade Bill is
essential for meaningful negotiations.
There is an unquestionable risk in proceeding with the Bill in the
certain knowledge that the House will adopt the
Jackson–Vanik amendment, strengthened to include a prohibition
on credit. Against the President’s commitments to trade reform must be
balanced his commitment to the Soviet leaders. However, it should be
possible to explain privately to the Soviets a strategy which includes a
veto of the final bill if a satisfactory compromise is not reached. Your
conversation with Senator Jackson, in which he indicated compromise in the Senate
would be possible, could be cited.6 More
important, the political pressures that will build on the Senator to
avoid responsibility for provoking Soviet repressive measures reducing
Jewish emigration, gives reasonable hope of an acceptable eventual
outcome.
Therefore, I recommend to you the following line of action:
- (1)
- Send a letter from the President to the Speaker of the House
noting that the immediate crisis in the Middle East has abated
and that peace negotiations are likely; asking that the Trade
Bill be scheduled before the Christmas recess; specifying the
concerns over the potential adverse effects on our relations
with the Soviet Union and chances for world peace if the
Jackson–Vanik amendment is adopted; urging that the
statesmanlike thing to do is to put aside Title IV for the
present; [Page 725] and making
clear that if a suitable compromise is not eventually reached
with the Congress on this issue, the Act will be vetoed.
- (2)
- In a Presidential statement make clear to the Nation why it is
essential that the Congress pass a good trade bill without
amendments crippling chances for improvement of relations with
the Soviets, the PRC, and other
Communist States. Perhaps also explain why the
Jackson–Vanik amendment does not
even serve its avowed purpose of advancing freedom of
emigration.
- (3)
- Give the Soviets strong private assurances that (a) the
President is not abandoning his
commitments to them; (b) in your judgment, the eventual outcome
will facilitate U.S.-Soviet trade and credit relations,
especially since without Congressional authority, the President
cannot grant MFN and terminate
U.S. trade practices that discriminate against the USSR; and (c)
the President will veto if, contrary to your expectations, that
becomes necessary.
If, on the other hand, you prefer to continue to defer consideration of
the Trade Bill, notwithstanding the considerations outlined above and
the provisions relating to trade (“active role in GATT negotiations,” “multilateral trade
expansion,” etc.) in the draft U.S.–EC
Declaration of Principles,7 we will
need to develop another scenario for fully explaining our position to
the Europeans and the Japanese.
