Foreign Relations of the United States, 1977–1980, Volume XXVIII, Organization and Management of Foreign Policy

118. Memorandum From Secretary of State Vance and Secretary of the Treasury Blumenthal to President Carter¹

Washington, June 21, 1979

SUBJECT

• TRADE REORGANIZATION

BACKGROUND

Function follows form. The organization of our trade policy apparatus will shape that policy for years to come.

In broad outline, OMB recommends that you: (1) concentrate all operational trade responsibilities in one agency—the Commerce Department; and (2) centralize all trade policy and negotiating authority within the Office of the Special Trade Representative.² The first recommendation invites two criticisms:

• The proposal shifts responsibility for administering all import relief mechanisms into one agency. In the best of circumstances that agency would come under a protectionist siege. But the OMB proposal places all administrative responsibility in an agency—Commerce—with a proven inability to resist protectionist forces. This shift in administrative responsibility foreordains a slide into protectionism thereby building an inflationary bias into our trade policy.

• We must make a determined effort to increase our exports, both by overcoming inertia in the private sector and by removing disincentives created by government. Otherwise we will be forced to rely on tight money, slow growth and unemployment to safeguard the dollar. To avoid this dilemma, we need a fresh and energetic approach to our export promotion efforts. We cannot rely on the Commerce Department which has long employed the largest trade bureaucracy in Washington with the least enviable track record. Shifting additional export responsibilities—such as the highly regarded Export-Import Bank—to the Commerce Department will be seen as building on weakness, not strength.

In light of these criticisms, we suggest two quite different approaches. Our preferred approach, Option 1, would not disturb the administration of import relief functions. Rather, trade reorganization energies would be channeled where they are most needed—into a lively new organization designed to energize our export promotion efforts.

Our fallback approach, Option 2, is offered in the event you believe that the political case for reorganizing import relief functions has now become overwhelming. In that event, the trade interests of the nation would best be served by concentrating import relief functions in a non-constituent agency, reporting to the Special Trade Representative who, with an extremely small staff, would continue to be located in the Executive Office and would remain responsive to a senior policy board composed of Cabinet members.

The attached charts illustrate Options 1 and 2.³ Both options involve little or no net expansion of government personnel; in both cases the major components are drawn from existing staff.

OPTION 1

U.S. Export Corporation

To provide for more effective export promotion, a new U.S. Export Corporation building on the existing Eximbank would be established outside the Executive Office. It would have two arms: a U.S. Export Service responsible for export promotion activities and the Eximbank responsible for official export financing. The senior executive of both arms would be the President of the U.S. Export Corporation. The U.S. Export Service would have a mixed government/private sector board of directors. The Eximbank Board would remain as it is now constituted. The corporation would receive policy guidance from and report to you through the Trade Policy Committee which would continue to be chaired by your Special Trade Representative.

U.S. Export Service

The U.S. Export Service would be responsible for the full range of export promotion activities: commercial centers overseas, trade fairs, market research, trade missions and business services. Its overseas personnel would assume the purely commercial functions and services now provided by our embassies. The staff would be drawn from the private sector and from the State Department commercial attaches (about 100). These staffs would operate out of business-oriented offices separate from the distractions of embassy life but under the authority of the ambassadors.

The Export Service would use the existing Commerce field offices to reach businesses across the country.

The necessary Washington and field staff would be transferred from Commerce to the Export Corporation.

An Office of Special Projects would be established in the Export Service’s headquarters to handle large overseas projects that involve purchases of a broad spectrum of goods and services and require penetration through layers of government regulation here and abroad. Export project managers would be appointed to assist U.S. firms in competing for these projects.

Eximbank

No change is proposed in Eximbank’s operating procedures, or the composition of its Board of Directors. The Eximbank would continue to respond to the broad policy guidance of an interagency export finance group chaired by the Treasury.

Administration of Import Relief

Under Option 1, the existing administration of import relief cases would not be disturbed. The present pattern of administrative responsibility means that there is no single agency that can easily be co-opted by those seeking relief. Thus, STR would continue to coordinate policy advice to the President on escape clause cases, and handle the investigation of unfair trade practice cases. Treasury would continue to administer national security cases and countervailing and antidumping duty cases. These last-named cases are the most contentious aspect of the whole reorganization debate.

Much of the frustration directed at Treasury’s handling of countervailing and antidumping cases reflects discontent, first, that Treasury has not always sided with those seeking relief, and second, that administrative procedures are too slow.

If the antidumping and countervailing duty laws are fairly administered, some petitioners will always go away empty-handed. But Treasury has taken steps to speed up the administrative process: significantly more personnel are now budgeted to handle the case load. Moreover, the new law imposes considerably shortened time deadlines.⁴ Thus, in our judgment, discontent with Treasury’s performance will soon decline.

Meanwhile, a strong argument can be made for leaving the administration of these cases in Treasury. More than 80 percent of the workload is handled by the Customs Service, with policy direction and final decisions supplied by a small corps of Treasury officials. The Customs officers assigned to these cases also handle regular Customs work. Significant management inefficiencies would arise if transfer of the Customs officers caused them to concentrate solely on the uneven flow of countervailing and antidumping cases. On the other hand, if policy guidance were shifted out of Treasury, and if the Customs officers were not also transferred, other management inefficiencies would arise from the problems of coordination between two different agencies.

Trade Negotiations

Under all options, including those offered by OMB, the conduct of trade negotiations would remain under the STR. Recent successful completion of the MTN indicates that policy formulation for and conduct of trade negotiations is highly satisfactory under the present system.

OPTION 2

We recommend Option 2 if you believe that a drastic reorganization of our trade apparatus is required. The approach we offer would consist of both a U.S. Trade Policy Administration to formulate, negotiate and administer trade policy and the U.S. Export Corporation outlined in Option 1. These two organizations would be located outside the Executive Office and would report to the STR through two Deputy STRs. Both organizations would be staffed by existing personnel drawn from STR, State, Treasury, and Commerce.

U.S. Trade Policy Administration

A U.S. Trade Policy Administration (USTPA) would be established outside the Executive Office. It would be headed by an Administrator who would be a Deputy STR with ambassadorial rank. The USTPA would assume all current operational functions of the Office of the Special Trade Representative, plus responsibility for implementing U.S. trade agreements and for administering the antidumping and countervailing duty statutes.

Our preferred approach would leave antidumping and countervailing duty cases in the Treasury. But if political considerations dictate that this administration must be shifted, we think it is vital that the administration not be shifted to a constituency agency—the Commerce Department. Rather, these cases should be handled by an independent administration, free of protectionist bias, reporting to the STR in the Executive Office and to a broad-based Trade Policy Board (TPB).

The Trade Policy Administrator’s responsibilities would also include: interagency coordination; trade and textile negotiations; liaison with private sector advisory groups; monitoring compliance and enforcement of U.S. rights under MTN codes; implementing Sections 201 (escape clause) and 301 and 337 (unfair trade practices) of the Trade Act of 1974; and representing the United States in meetings of the GATT.

The staff would include the present STR plus existing staff drawn from Treasury to administer antidumping and countervailing duty statutes.

U.S. Export Corporation

As in Option 1, this option also contemplates a new U.S. Export Corporation, built around the existing Eximbank. The only difference is that, in Option 2, the President of the U.S. Export Corporation would be a Deputy STR with ambassadorial rank, reporting to the STR.

FUNCTIONS NOT INCLUDED IN REORGANIZATION

Neither the mood of the country nor good policy demand that all trade activities be combined into one agency. To do so would create a vast and cumbersome bureaucracy. Both Options 1 and 2 leave many functions where they are.

Agriculture Department

The export promotion activities of the Foreign Agricultural Service and the Commodity Credit Corporation are effective and enjoy support from Congress and the public. They should not be moved from Agriculture. Agricultural trade negotiations would continue to be conducted by the STR. The Commodity Credit Corporation would receive general policy guidance from the TPB and more specialized guidance from an export finance subgroup.

State Department

Lead responsibility for commodity policy and negotiations remains in State since these matters are the political heart of the North-South dialogue. East-West trade negotiations, jointly managed by State and Treasury and now in a delicate stage with active normalization of economic relations with China and Russia, remain at the discretion of the President.

Commerce Department

The technical issues involved in export control are best handled by the industry experts at Commerce. Industry analysis, a central interest of Commerce which deserves greater attention, remains in that department. Trade adjustment assistance responsibilities and administration of the textile program both benefit from the industry expertise of Commerce and should remain there.

Treasury Department

Investment policy revolves around financial and tax issues of primary concern to Treasury. Foreign assets control primarily involves financial and enforcement questions, not trade issues.

EVALUATION

Option 1 best responds to the real needs of the nation: an energetic export drive, not a concentration of import relief under one roof. If you give this approach your strong endorsement, we believe that we can gain the support of the country and the Congress.

The approach outlined in Option 2 would guard against a protectionist tilt in the administration of import relief actions, safeguard our international economic interests, and—most importantly—lay the groundwork for an energetic export drive. The approach would be warmly received by the Congress and by business.

Three important objections can be raised against these options. First, they do not answer Labor’s devout desire to design a more restrictive trade apparatus. Second, they would not serve as a vehicle for bolstering the Commerce Department. (Indeed, Commerce, like Treasury and State, would contribute substantial staff to the new apparatus.) Third, these approaches might be derided as government proliferation, even though (like the OMB approach) they merely reorganize existing units and add few, if any, new government personnel.

We think these various objections must yield to far more weighty national policy goals—an aggressive export drive integrated into a coherent and liberally-oriented trade policy.

OPTION 1: Create a new U.S. Export Corporation building on the existing Eximbank. Leave trade policy coordination, trade negotiation, and countervailing and antidumping responsibilities where they are.

Recommended by: State and Treasury

Approve_______ Disapprove_______

OPTION 2: In addition to the new U.S. Export Corporation, create a new U.S. Trade Policy Administration under the direction of STR and a reconstituted Trade Policy Board, both of which remain in the Executive Office.

Acceptable to: State and Treasury

Approve _______ Disapprove _______⁵

• Cyrus R. Vance
  Secretary of State
• W. Michael Blumenthal
  Secretary of the Treasury⁶

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Box 90, Economics/International, 1979. No classification marking.
2. See Document 117.
3. Attached but not printed.
4. Presumably a reference to S. 1376, Trade Agreements Act of 1979, signed into law on July 26 as P.L. 96–39.
5. Neither of the options was selected by Carter.
6. Vance signed “Cy” and Blumenthal signed “Mike” above these typed signatures.