To the Congress of the United States:
I transmit herewith to the Congress copies of trade agreements with the European Economic Community, the United Kingdom, Norway, and Sweden, including schedules which my duly appointed representatives signed on behalf of the United States on March 5 and March 7, 1962.
Section 4(a) of the Trade Agreements Extension Act of 1951 requires that I report to the Congress on those instances in which I have departed from the "peril point" findings of the Tariff Commission. Annex A, attached to this message, lists and gives the reasons for the instances in which I decided, in the interest of concluding trade agreements advantageous to the United States during the Geneva Tariff Conference, to accord tariff concessions going below the levels found by the Tariff Commission.
At this time, when the Congress is considering a major new trade law, I wish to provide a detailed account of the circumstances in which I instructed our negotiators to make such concessions.
Most of these concessions were negotiated with the European Economic Community. When the so-called Dillon round, or, the phase for new reciprocal concessions, of the Geneva Conference opened on May 29, 1961, the EEC offered concessions following along the lines of its decision of a year earlier to reduce industrial tariffs across the board by 20 percent, a decision that was conditional on reciprocal concessions from other nations, and especially the United States. The EEC offers involved concessions affecting American exports to the EEC countries amounting, on the basis of 1958 figures, to $846 million. Of this total, $422 million represented exports on which the United States had asked for concessions, $337 million being offered in the name of the United States as the principal supplier, and the remaining $85 million in the name of third countries from which the United States would also receive substantial benefits.
It was the American negotiating objective to take advantage of the initial EEC offers and also to seek additional concessions. We were being offered tariff reductions having large potential value to our export trade. Furthermore, the emerging European Community was proposing to take a first long step toward making its trade policy an outward looking one. Our interest was to assure that we obtain these new opportunities for our exporters and, in the process, that we help to mold the EEC's external trade policy along liberal lines.
Our negotiators, however, were grievously short of bargaining power. The instructions under which they were authorized to proceed fell well short of matching even the initial offers of the EEC. The EEC offer to reduce industrial common tariff rates by 20 percent directly affected United States trade of $846 million (1958) and was responsive to about 60 percent of our requests to the EEC for tariff concessions. In contrast, our offers consisted of:
(a) $41 million of offers to bind rates of duty at present levels;
(b) 190 million of offers of duty reductions requested by the EEC (about 20 percent of total EEC requests); and
(c) $396 million of offers involving duty reductions not requested by the EEC.
The manner in which the United States came to this negotiating position is important for an understanding of the trade agreements just concluded and for its bearing upon the new trade legislation that I have recommended to the Congress.
Prior to the Geneva Conference, the EEC had filed requests with the United States for concessions accounting for a trade volume in 1958 of $451 million. Our inter-agency screening process eliminated from the original "Public List" a number of articles, concessions on which would have been responsive to requests from the EEC. The trade volume involved was $128 million. These articles were those on which tariff concessions, in the judgment of the inter-agency committee, might give rise to serious competitive .problems for American industries.
Under Section 3(a) of the Trade Agreements Act, the Tariff Commission was then required to study further the list of potential concessions approved by the inter-agency committee and to establish "peril points" for each article included.
The Commission found that of the concessions asked by the EEC, articles having a trade volume of $220 million could not be made the subjects of downward tariff adjustments without causing or threatening to cause serious injury to the domestic industries concerned. Coverage of the EEC request list was thus reduced to $103 million, less than one-fourth of the list. The Commission made the same finding on articles having a trade volume of $113 million among items not on the EEC request list but which the inter-agency committee had selected in order to strengthen the United States negotiating position.
I believe that we must recognize that under the law the Tariff Commission was required to make hasty predictions as to future market conditions for thousands of individual articles. These predictions were necessarily superficial. Even if there had been available, and there was not, a full range of data for production, trade and prices on all these articles, the Commission's task was a highly speculative one. This was particularly true with regard to items exported from the Common Market countries. These countries are going through revolutionary changes in their trade patterns, attendant upon the development of a new internal market of unprecedented proportions. In some cases, products which were previously available for export to other countries will find their future markets within the area. In other cases, products which had not previously been exported will appear as new export specialties.
In this situation, given the tenor of the provisions under which it operated, the Commission understandably resolved any doubts by establishing peril points on the products concerned at the existing tariff level. Peril points were found at the existing rate of duty on a range of articles, for a large number of which the maintenance of existing tariffs clearly was unimportant. In many instances tariff reductions of even a few percentage points were precluded. In others peril points were found at existing duty levels for specialty commodities not competitive with domestic production. Similarly, peril points at the existing duty level were set for basket categories of many items even though the situation as between items in the category might differ markedly. Tariff reductions were precluded in cases where imports represented only a minor fraction of domestic consumption. The result was to give our Delegation at Geneva a very limited bargaining package and minimum room for negotiating maneuver.
It was with many misgivings, therefore, that I had authorized our Delegation in Geneva to make a counter-offer to the EEC along the lines of the outstanding instruction. This original instruction scrupulously avoided any offers of reductions below peril point findings of the Tariff Commission.
The response of the EEC was to announce a withdrawal and reconsideration of its offer. The six EEC nations indicated they were not prepared to conclude an agreement on the basis we had proposed and that they would have to withdraw the concessions that had been offered because of the gross disparity between our offers and theirs. It was clear that we were faced with a potentially irretrievable situation. If the EEC had decided to abandon its across-the-board proposal, it would have been necessary to obtain unanimity among the six member nations to maintain on an item-by-item basis some of the elements of the original offer. This was not possible. To adhere to our original position would have been to reject the EEC proposal.
The loss to our export trade from such a sequence of events would have been substantial, for we stood to gain most from the EEC offer. Far more important would have been the long term consequences of our action. The EEC necessarily looked to the United States, the world's greatest trading nation, for a sufficient measure of reciprocity to enable it to carry through its provisional decision to reduce the common external tariff of the Community. If that decision had been withdrawn, the road would have been opened wide to the formation of a number of trading blocs in the free world set off from one another by high barriers to trade.
We could not permit this to happen.
Accordingly, after months of negotiation and when no other recourse was available to save the situation, I authorized our Geneva Delegation to offer new concessions on a number of items at rates below peril point findings. In selecting these articles, two criteria were used: their potential value in obtaining or maintaining concessions from our negotiating partners, principally the EEC, and the extent of the competitive adjustment likely to be placed on American industry by tariff concessions.
In taking this step, we avoided the collapse of the Geneva talks and we held open the way to a future of economic cooperation, not separation, between the two common markets, the one in Western Europe, the other the United States.
Our action salvaged and revived the Geneva Conference. It did not involve serious competitive risks for American industry. We granted concessions to the EEC at rates below peril points on articles having a 1958 trade value of $76 million. Apart from such concessions to the EEC, we also made concessions of this character to the United Kingdom on items having a trade volume of $7 million. (Co-offers of concessions on four items, contingent upon confirmation of the of the Presidents same concessions to the EEC, were made to Norway and/or Sweden. These were in the amount of $437 thousand).
The total of our concessions, indeed, would not in itself have been sufficient to recover our position. The EEC, however, was acutely aware of the limitations under which the United States was negotiating. Within the Community, the forces favoring a liberal trading policy were greatly strengthened by the evidence that we were serious about bargaining down trade barriers. Once we had made our move, this phase of the negotiations proceeded expeditiously to a conclusion. That conclusion was highly advantageous to the United States.
--The EEC maintained most of its across-the-board offers on industrial products. The only significant exception was in the field of chemicals, an area where, because the offers by the United States represented only $24 million of trade, the EEC cut back its offers to the United States from $172 million to $93 million;
--The EEC added to its initial offers concessions involving trade of $100 million in the previously excepted agricultural chapters and another $33 million of formerly reserved automobile parts, and on miscellaneous commodities accounting for another $5 million of trade;
--finally, the successful conclusion of the US-EEC negotiations opened the way for negotiations between third countries and the EEC, which had been marking time awaiting their outcome. From the resulting negotiations of others with the EEC, U.S. exports stand to receive substantial additional benefits because of our right to such concessions.
The United States thus can take satisfaction from the outcome of the Geneva negotiations. We advanced our trading interests and we maintained progress toward economic cooperation within the Western world. But these accomplishments were made, in large part, in spite of hampering features of the trade agreements law. And we had the sufferance of our major trading partners.
We cannot be expected to bargain effectively in the future under the limitations of the present law. If we are to lead, as we must, we must have the means for the exercise of leadership. The Trade Expansion Act which I have recommended to the Congress will provide these means.
In an accompanying message, I am reporting to the Congress under Section 4(a) of the Trade Agreements Extension Act of 1951 on the disposition of the cases in which the Tariff Commission in 1960 found peril points higher than the existing rate of duty.
JOHN F. KENNEDY
To the Congress of the United States:
This report, supplementing my report on reductions made at the 1960/62 Tariff Conference in excess of peril-point findings, is further in compliance with Section 4(a) of the Trade Agreements Extension Act of 1951.
During the usual peril-point investigation of the items included in the Public Notice issued in connection with the negotiations, the Tariff Commission found that the perilpoint was higher than the present rate on nine widely varied products. The Trade Agreements Extension Act of 1958 provides that in such instances the Tariff Commission must institute an immediate escape-clause investigation with respect to the articles involved. Accordingly, the Commission undertook the required investigations with the following results:
(1) On baseball and softball gloves, ceramic mosaic tile, and sheet glass, the Commission recommended to me that existing duties be increased.
(2) On tennis rackets and creeping red fescue seed, the Commission terminated the investigations without recommendation.
(3) On ultramarine blue, rolled glass, plastic raincoats and cellulose filaments, the Commission found that increases in the duties were not necessary.
The law provides that, if the President does not negotiate the increase of duty indicated by the Commission's peril-point findings, he shall report his reasons therefore to the Congress.
This is to advise that no such increases in duty were negotiated at the 1960/62 conference. The recitation of the Tariff Commission's further investigation of these nine cases, as above given, suggests why the negotiation of higher rates was not undertaken. In six of the nine cases the Tariff Commission, upon a fuller study of the facts than had been possible during its peril-point investigation, did not recommend an increase in duty. In the other three, I was not satisfied that all of the applicable facts had been fully canvassed in the Commission's subsequent investigations; consideration of the appropriate rate of duty was consequently still pending as of the time our negotiations at the 1960/61 conference were being completed. I now have supplementary reports of the Tariff Commission before me. My decision on the three cases is pending.
I append a list defining more precisely the nine commodities mentioned above.
JOHN F. KENNEDY
NOTE The "Trade Agreements With the European Economic Community, the United Kingdom, Norway, and Sweden, including schedules signed on behalf of the United States on March 5 and March 7, 1962," and the report on "Products on Which Tariff Regulations Were Made Below Peril Point Levels 1960-61 GATT Tariff Conference" are printed in House Document 358 (87th Cong., 2d sess.). The supplemental "Report in Compliance With Section 4(a) of the Trade Agreements Extension Act of 1951" is printed in House Document 357 (87th Cong., 2d sess.).
On the same day the White House, in announcing the conclusion of the conference, released a summary of the tariff negotiations.