1. JULY 11 EDITORIAL BY CHIEF EDITOR EMANUELE
GAZZO IN RESPECTED AGENCE EUROPE ARGUES AGAINST
SIMPLISTIC CLAIM THAT RECENT FALL IN DOLLAR EXCHANGE
RATE REDUCES IMPORTANCE OF RECIPROCAL TRADE
NEGOTIATIONS. WHILE SOME ELEMENTS GAZZO'S STATEMENT
MAY BE QUESTIONALBE, WE BELIEVE HIS MAIN THESIS VALID.
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FOLLOWING IS VERBATIM GAZZO TEXT: (BEGIN TEXT)
(BEGIN UNCLASSIFIED)
EDITORIAL
MONETARY DISORDER AND TRADE
THE DECLARATIONS CONTAINED IN PARAGRAPH 5 OF
THE EXPOSE OF THE MOTIVES BEHIND THE EEC'S GENERAL
CONCEPT WITH REAGRD TO THE GATT TRADE NEGOTIATIONS
(SEE EUROPE/DOCUMENTS NO.750) ACCORDING TO WHICH IT
IS NECESSARY TO MAKE MOVES PARALLEL TO THE NEGOTIATIONS
(SEE EUROPE/DOCUMENTS NO. 750) ACCORDING TO WHICH IT
IS NECESSARY TO MAKE MOVES PARALLEL TO THE NEGOTIATIONS
IN QUESTION TOWARDS THE "SETTING UP OF A JUST
AND LASTING MONETARY SYSTEM" ARE OFTEN INTERPRETED
IN A SIMPLISTIC FASHION, A FACT WHICH NATURALLY HAS
A FAR GREATER EFFECT ON THE MINDS OF A POORLY INFORMED
PUBLIC. IN OTHER WORDS THERE IS A TENDENCY TO STATE
OR GIVE THE IMPRESSION THAT FURTHER DEVALUATIONS OF
THE DOLLAR WOULD MAKE THE SO-CALLED NIXON ROUND
TRADE NEGOTIATIONS USELESS BECAUSE AMERICAN EXPORTS
WOULD BENEFIT FROM INCREASED COMPETITIVENESS WHICH
WOULD CANCEL OUT THE ADVANTAGES WHICH EUROPE (AND
THE UNITED STATES' OTHER TRADING PARTNERS) WOULD
GAIN FROM A LOWERING OF CUSTOMS BARRIERS. FROM
THIS POINT IT IS A SHORT STEP TO "THREATENING"
NOT TO HOLD THE NIXON ROUND AND CERTAIN PARTIES
BELIEVED THEY COULD MAKE THIS STEP.
ONE MIGHT WONDER JUST HOW SERIOUS AND WELL-
FOUNDED SUCH A THREAT ACTUALLY IS. FIRS OBSERVATION:
THE TRADE NEGOTIATIONS DO OFFER -AS IS THEIR BASIC
OBJECTIVE- RECIPROCAL ADVANTAGES. NOT TO NEGOTIATE
IN THE CASE OF A DEVALUATION OF THE DOLLAR
CONSEQUENTLY MEANS ACCEPTING ALL THE DISADVANTAGES
OF SUCH A DEVALUATION AND GIVING UP THE ADVANTAGES
OFFERED BY A LOWERING OF BARRIERS (AND AS AMERICAN
CUSTOMS BARRIERS ARE HIGHER THAN EUROPEAN ONES, WE
WOULD BE LOSING A RELATIVELY GREATER ADVANTAGE.)
SECOND OBSERVATION: THE VERY FACT THAT A
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CURRENCY UNDERGOES A REVALUATION OR A DEVALUATION
ACCORDING TO THE JUDGEMENT OF THE MARKET APPARENTLY
HAS THE SOLE EFFECT OF CURING AN UNHEALTHY SITUATION.
CONSEQUENTLY IT WOULD NOT BE LOGICAL OR POSSIBLE TO
OPPOSE SUCH OPERATIONS. IT IS OBIOUS THAT THE FLOW
IN TRADE AND THE CHANGE IN THE VALUE OF CURRENCIES
ARE TWO PHENOMENA WHICH ARE CLOSELY LINKED TOGETHER
(ALTHOUGH THE EUROPEAN COUNTRIES HAVE ALWAYS DENIED
THIS LINK, SEE LENGTHY DISCUSSION BY REY COMMITTEE
OF THE OECD). ON THE OTHER HAND, IF THE DISMANTLING
OF TARIFF BARRIERS WERE TO BE SYSTEMATICALLY TIED
TO UNDERTAKINGS REGARDING MONETARY STABILITY, THERE
WOULD BE NO MORE NEGOTIATIONS ON TARIFFS. LET US
MERELY RECALL, MOREOVER, THE MONETARY DEVALUATIONS
AND MANIPULATIONS WHICH TOOK PLACE AFTER THE DILLON
ROUND AND THE KENNEDY ROUND. AND WHAT IS MORE NO-
BODY CALLED INTO QUESTION THE RECIPROCAL TARIFF
REDUCTIONS WHICH WERE INTRODUCED. FURTHERMORE, THE
I. M. F. OFFERED A MEANS OF PROTECTION AGAINST
"SUDDEN DEVALUATIONS."
THE DANGER OF THIS SITUATION IS THAT THE
"THREAT" WHICH IS TALKED ABOUT MIGHT BE TAKEN
SERIOUSLY. THUS NOTHING WOULD DTOP THE AMERICANS
FROM ALLOWING THE DOLLAR TO FALL IN ORDER TO ASSURE
CONSIDERABLE ADVANTAGES FOR THEMSELVES ON THE
EXPORT MARKETS (AND EVEN MORE SO IN THAT THE MAJORITY
OF THEIR IMPORTS ARE CARRIED OUT IN TERMS OF DOLLARS
AND HENCE THEY WOULD NOT UNDERGO AN INCREASE IN
COSTS).
THE PROBLEM IS THEREFORE NOT A QUESTION OF
KNOWING WHETHER THE DOLLAR MAY OR MAY NOT BE REVALUED
BUT OF KNOWING WHETHER A SYSTEM OF FLOATING EXCHANGE
RATES IS TO BE RETAINED - WHICH DOES NOT INCLUDE
THE OBLIGATION TO SUPPORT ONE'S OWN CURRENCY, THE
EVALUATION OF WHICH IS LEFT TO THE MARKET, THAT IS
SPECULATION -OR SHOULD IT BE DESIRABLE TO INTRODUCE
A SYSTEM WHICH IMPOSES DISCIPLINES -LIKE THAT OF
BRETTON WOODS - ONE IN WHICH - IN CONTRAST TO
THAT OF BRETTON WOODS -"SYMMETRY" OF OBLIGATIONS
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IS IMPOSED.
PARADOXICALLY, THE EUROPEANS ARE ACTING AS IF
THEY ARE WISHING FOR THE DOLLAR TO TAKE UP ONCE
AGAIN ITS ERSTWHILE ROLE OF EXCHANGE STANDARD WHILST
THE AIM IS PRECISELY TO ABOLISH THIS PRIVILEGE. WE
SHALL RETURN TO THIS QUESTION. (END TEXT) (END
UNCLASSIFIED).
GREENWALD
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