GATT AND THE KENNEDY ROUND

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A004400090002-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 19, 2016
• Sequence Number: 2
• Content Type: REPORT

ase 2006/12/27: CIA-RDP79-00927A0044000900CE45 April 1964
OCI No. 0328/64A
Copy No.
SPECIAL REPORT
GATT AND THE KENNEDY ROUND
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
SECRET
GROUP I Excluded from automatic
downgrading and declassification
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24 April 1964
The Kennedy Round negotiations to reduce trade
barriers, opening in Geneva on 4 May, not only
have high economic stakes but could also have im-
portant political implications for Western solidar-
ity. The negotiations--in particular the US effort
to keep the Common Market open to American farm
exports--will be handicapped by differences among
the Common Market countries themselves over issues
of farm policy. The likelihood is for prolonged
stalemate over agricultural questions, with a pos-
sibility that failure to get agreement on these
questions could torpedo the rest of the conference.
Barring this contingency, the prospect appears fav-
orable for world-wide reductions of industrial tar-
iffs, although the average depth of cut will fall
short of US objectives.
The General Agreement on
Tariffs and Trade (GATT) , which
came into force in 1948, has a
good record of achievement in
working out multilateral tariff
concessions. Five of the ple-
nary conferences of GATT to date
have been so-called rounds, which
have affected tariff adjustments
on a total of almost 65,000
items.
full customs union might work
eventually to the serious dis-
advantage of the Common Market's
traditional trading partners.
The measure of US interest is
the volume of US trade with the
countries of the European Eco-
nomic Community (EEC). These
countries have accounted in re-
cent years for about a sixth
of US foreign trade; well over
a fifth of US farm exports go
to the Community.
In the 1961-60 Dillon Round,
the Common Market agreed to re-
duce the projected level of its
tariff wall in exchange for re-
ciprocal concessions by other
GATT signatories. In all, some
4,400 concessions were negotiated
during this round, covering an
estimated five billion dollars,
worth of trade.
Despite the accomplishments
of the Dillon Round, many gov-
ernments remained uneasy that
the progress by the Six toward
The Trade Expansion Act,
which Congress passed in Octo-
ber 1962, set the stage for the
sixth round--the Kennedy Round--
of tariff reductions. This act
gives the President broader au-
thority in negotiations to re-
duce tariffs than he has ever
had before, with a view particu-
larly to getting reciprocal con-
cessions from the Common Market.
One of the act's major objec-
tives is to help preserve the
economic basis for Atlantic co-
operation, which requires a
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GATT MEMBERSHIP
CONTRACTING PARTIES
Australia
Austria
Belgium
Brazil
Burma
Cameroon
Canada
Central African Republic
Ceylon
Chad
Chile
Congo (Brazzaville)
Cuba
Cyprus
Czechoslovakia
(b2)
Dahomey
Denmark
Dominican Republic
Finland
France
Japan
Kenya
Kuwai t
Luxembourg
Malagasy Republic
Senegal
Sierra Leone
Spain
South Africa
Southern Rhodesia
Gabon.
Germany, West
Ghana
Greece
Haiti
India
Indonesia
Israel
Italy--
Ivory- Coast
Jamaica
Malaysia
Mauritania
Netherlands
New Zealand
Nicaragua
Niger
Nigeria
Norway
Pakistan
Peru
Portugal
Sweden
Tanganyika
Toga
Trinidad and Tobago
Turkey
Uganda
United Kingdom
United States
Upper Volta
Uruguay:
COUNTRIES THAT HAVE ACCEDED COUNTRIES PARTICIPATING IN
PROVISIONALLY (b) SOME OF THE GATT WORK UNDER
Argentina Switzerland United Arab Republic SPECIAL ARRANGEMENTS (2)
Iceland Tunisia Yugoslavia Cambodia Poland
NEWLY INDEPENDENT COUNTRIES APPLYING GAIT RULES PENDING FINAL
DECISIONS ON THEIR FUTURE "COMMERCIAL POLICY (5)
Algeria Burundi Congo (Leopoldville) Mali Ruanda
Common Market tariff that is
tolerable to the US and to the
countries of Western Europe out-
side the EEC.
The record of previous
GATT rounds is limited largely
to tariff reductions in indus-
trial items. International dif-
ferences over agriculture have
been difficult to reconcile,
since nearly every major govern-
ment is committed politically
to support domestic farm in-
comes.
Differences over agricul-
ture have been reinforced by
recent economic and political
trends in Europe. A technolog-
ical revolution in European
agriculture has caused farm
production in the EEC to ex-
pand some four times faster
than the rate of population
growth. Farm interests in
France particularly, which has
the most productive agriculture
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in the Community, now are seri-
ously concerned about emerging
problems of surplus disposal.
When the US and other tradi-
tional suppliers of farm prod-
ucts to the EEC try to get as-
surances in the Kennedy Round
of continued access to the Com=
mon Market, they will run up
against French aspirations to
make France the breadbasket of
the EEC. A common market that
is not virtually self-sufficient
in food, De Gaulle declared last
July, is not a common market.
A further complication for
the Kennedy Round negotiations
on agriculture is the unfinished
business of agricultural inte-
gration in the Common Market.
Integration hinges on the re-
placement of national support
prices by single Community-wide
support prices for grains and
other agricultural products.
The level of protection to Com-
mon Market farmers will be a
derivative, in large part, of
the Community-wide support
prices. The US and other tradi-
tional suppliers therefore want
the Common Market countries to
agree on relatively low supports.
The Six are currently at
loggerheads over a proposal by
the EEC Commission that would
set the Community grain price
between the low French and high
German support prices. This
would make German agriculture
less profitable and enlarge the
Community market for the more
efficient French farmers. EEC
officials want to get this is-
sue settled within the Community
before the Common Market under-
takes commitments on agricul-
tural commerce at Geneva. How-
ever, the German Government,
with an anxious eye cocked on
the farm vote, is resisting the
Commission's proposal. Hence,
the 1965 elections in Germany
come at a bad time for the
Kennedy Round.
The French feel that Ger-
man industry has been the prin-
cipal beneficiary of the Com-
mon Market's success in lower-
ing industrial tariffs on intra-
Community trade. It is time,
they think, for Bonn to recip-
rocate by conceding to France
on agriculture. The continuing
failure of the French to get
satisfaction from the Germans
on the issue of the grain price
could jeopardize the whole
Kennedy Round. At his press
conference in January, De Gaulle
expounded at length on the ne-
cessity of prior agreement on
a common policy for EEC agri-
culture. Only after this, he
declared, could the Six "tackle
the negotiations with other
countries, notably America,on
the question of external trade."
In the context of his re-
marks, this statement may have
implied only French reservations
about the Kennedy Round negotia-
tions on agriculture. Taken
literally, however, the words
convey a warning that the French
could feel it necessary also to
obstruct the negotiations to
reduce industrial tariffs.
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Whatever the French course
of action, the arduous prepara-
tions during the past year in
GATT working groups for the
Kennedy Round leave no doubt
that the negotiations on indus-
trial tariffs will be tough.
US tussles with the Common Mar-
ket on the subject have revolved
around the issue of "disparities"
--instances where the differ-
ence between the US and the EEC
tariff rates on a given product
is large. Although US and Com-
mon Market tariff rates are
comparable on the average, the
US has more rates in very high j
and very low brackets.
The ministerial meeting in
Geneva in May 1963, which tried
to set the ground rules for the
Kennedy Round, could not work
out a satisfactory compromise
for dealing with disparities.
The meeting did adopt a formula
which accorded in general with
the US proposal for 50 percent
across-the-board cuts in tariffs
by the contracting parties of
GATT. It was specified, how-
ever, that the formula would not
apply in the case of "signifi-
cant" disparities, which would
instead be subject to some rule
for lopping off the "peaks."
The issue is complicated by the
interests of third countries,
and the bargaining to work out
a rule for determining "signifi
cant" disparities is taking a
much longer time than was orig-
inally expected.
In addition to the dispar-
ities roadblock, the Kennedy
Round must surmount the issue
of "exceptions"--the lists of
commodities which the contract-
ing parties to GATT will propose
to exempt from the negotiations.
If the exceptions are numerous,
the tariff reductions will aver-
age far less than the 50 per-
cent targeted by the US. Two
months ago, a French official
offered his "personal view" to
a US Embassy officer in Paris
that the best way out of the
Kennedy Round complexities was
to aim for a lower percentage
of tariff reductions.
De Gaulle's Shadow
In January 1963, President
de Gaulle slammed the door on
British accession to the Com-
mon Market. His proclivity
for differentiating between Eu-
ropean and Anglo-Saxon interests
seems also to underlie some of
the French leader's reserva-
tions about GATT and the Kennedy
Round.
Among his more extremist
supporters, the attitude takes
the form outlined by a Gaullist
member of parliament in Novem-
ber to an audience of German
industrialists. The US, in this
exposition, had been accustomed
to seeing Europe in the role of
permanent petitioner. With
Europe's economic resurgence,
the Americans had come to real-
ize that they "are up against
a dangerous rival." The US was
accordingly embarked on a "coun-
teroffensive," one feature of
which was the Kennedy Round, to
keep Europe "a victim of Ameri-
can production."
The tactical implications
of this attitude were illuminated
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last year in a report by a mem-
ber of the French Parliament.
The Common Market is still a
"fragile structure," he said,
and the Europeans will "play
for time" before opening seri-
ous negotiations with the US
to lower trade barriers. He
foresaw only difficult contacts
between the US and the EEC pend-
ing the "maturity of European
institutions."
This sort of commentary
has generated some apprehensions
that De Gaulle might decide at
some point to sabotage the
Kennedy Round altogether.
Paris, however, does not
yet rule out the possibility
that the Kennedy Round can be
turned to some French advantage.
Last fall, a ranking official
in the French Foreign Ministry
tried to enlist US support in
pressing West Germany to move
forward toward a common grain
support price for the EEC. In making
his appeal for US assistance,
he held out the possibility that
the EEC would then be ready to
work out a world-wide trade
agreement on grain in the con-
text of the Kennedy Round. The
French feeling seems to be not
that some achievement in the
Kennedy Round is impossible,
but that it must take second
place to the consolidation of
French economic interests in
the European Community.
For all his influence, De
Gaulle alone does not set the
tone of EEC policy. The first
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tariff reductions on intra-Com-
munity trade, which went into
effect on 1 January 1959, were
extended in large part to all
GATT signatories as well. The
liberal spirit manifested by
this decision remains strong
in the EEC and in favor of the
Kennedy Round objectives.
Despite some misgivings
about lowering trade barriers
on farm products, the prevail-
ing sentiment within Benelux
is for an "outward-looking" Com-
munity. In the aftermath of the
collapse of the negotiations for
British accession to EEC, Bene-
lux has been uneasy about a fur-
ther setback to the liberal
forces in the Community if the
Kennedy Round fails.
Italy presents a more com-
plex picture. A relatively
high-tariff country in past
years, it is wary of bargain-
ing away tariff advantages for
its newly developed industries.
A few of the big firms look in-
creasingly to market opportuni-
ties abroad, but in general
Italian industry is not yet so
large as to feel the urgent
need of sales outlets beyond
the markets offered by the EEC.
The adverse trend in Italy's
balance of payments also rein-
forces protectionist sentiment.
Nevertheless, the Italians have
given strong support to the
Atlantic partnership and are
prepared to make concessions
in the Kennedy Round in the in-
terests of preserving Western
solidarity.
The relatively large share
of German industrial output sold
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outside the EEC disposes Bonn
to favor world-wide reduction
of industrial tariffs. During
his visit to De Gaulle in Febru-
ary, Chancellor Erhard obtained
French professions of readiness
to approach the Kennedy Round in
a "positive spirit." Later,
however, Erhard privately ad-
mitted to "gnawing doubts" about
De Gaulle's true intentions.
Such doubts may derive from un-
easy feelings that German obduracy
on farm policy could be charged
with a good deal of the blame
if the French throw monkey
wrenches into the negotiations.
The German leader understands
that obstruction by Bonn of EEC
progress toward a common policy
for agriculture gives De Gaulle
all the reason he need to be
recalcitrant in the Kennedy
Round.
The Less Developed Countries
GATT is generally unpopular
among the less developed coun-
tries, which are skeptical about
its ideals of freer trade. Their
insistent appeal has been for a
trade organization that would
promote rules committing the
industrialized countries to buy
more at higher prices from Asia,
Africa, and Latin America, while
permitting trade restrictions
in the less developed areas for
the protection of domestic in-
dustries.
Communist propaganda has
made capital of the widespread
antipathy to the free market
forces that GATT encourages.
As one Communist review of GATT
put it, "It has been repeatedly
shown by practice that both the
free operation of market forces
and free competition invariably
strengthen the positions of the
industrially more advanced par-
ticipants and weakens those of
the economically developing coun-
tries and agricultural producers."
The challenge from the left
could sharpen if the less de-
veloped countries come away
deeply dissatisfied by the re-
sults of the Kennedy Round.
The indictment of GATT is
transparently unfair in many of
its points. The General Agree-
ment already provides for some
special preferences to the less
developed countries. In addi-
tion, working groups have been
set up in GATT to study means
of improving the export earnings
of these countries. Most of the
contracting parties to GATT
voted last year to approve a
so-called Action Program, call-
ing for such measures as the
abolition of import duties on
tropical products and for the
progressive reduction by the
industrial countries of tariffs
on the manufactures of the less
developed countries. A good por-
tion of the Kennedy Round nego-
tiations will be directed to-
ward getting agreements to im-
plement these recommendations.
The executive secretary of
GATT once expressed concern that
the General Agreement might break
under the strain if the Kennedy.
Round should fail. The remark
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reflected his anxiety over the
implications of failure for West-
ern solidarity. The less de-
veloped countries would be fur-
ther alienated. There would be
a hardening of the economic
boundary lines separating the
Common Market from the British
and other West European govern-
ments. Fresh fuel might be
added to the controversy within
the EEC between the so-called
inward-looking elements and the
more liberal forces, with jeop-
ardy to the Common Market's
progress toward economic and po-
litical union.
The less developed coun-
tries will not get all they
think is their due in the
Kennedy Round, although they
will probably win concessions
without undertaking correspond-
ing obligations of reciprocity.
In the main area of negotiations
--trade among the economically
advanced countries--the Common
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Market countries are pivotal;
much depends on their ultimate
ability to break out of their
own impasse with respect to Com-
munity policy on farm prices.
They may not be able to do this
until after next year's elec-
tions in Germany.
This means that the Kennedy
Round may have to take a good
deal longer than the ten months
needed to negotiate the Dillon
Round concessions. Once the
Community's farm policy is
clearly defined, however, a ma-
jor reason for French obstruc-
tionism will have been elimi-
nated. De Gaulle will still be
a strong influence for caution
in reducing trade barriers, and
the EEC's agricultural trade with
foreign suppliers will remain
the knottiest of the issues in
the Kennedy Round. The prospects
will nevertheless be improved for
a fairly successful outcome of the
negotiations. (SECRET NO FOREIGN
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