359. Summary Record of the National Security Council Meeting0

Proposed Sale of U.S. Wheat to the USSR and Soviet Satellites

Secretary Freeman summarized the Canadian-Soviet wheat negotiations.1 He then gave the latest information about a group of grain traders [Page 775]who are interested in selling U.S. wheat to the USSR. He called attention to the purchase by the USSR of flour from West Germany which had been milled from wheat sold to the West Germans by the U.S. He said the U.S. had ample surplus of wheat to sell the three million tons which the Russians allegedly are interested in purchasing. He was ready to make the sale if the President decided to do so.

In response to the Presidentʼs question, Secretary Freeman estimated that the Russians were interested in purchasing between $150 million and $200 million worth of wheat at present prices—approximately three million tons. In response to a second question by the President, Secretary Freeman said we had no indication that the Russians were interested in purchasing other commodities, such as cotton or oil.

Acting Secretary Ball reported on his appearance before a Senate Committee yesterday in which he set forth the pros and cons of a U.S. wheat deal with the USSR. He said that even the Senators favorable to a wheat deal are concerned about Congressional reaction if the Administration agreed to a wheat deal without regard to the Latta amendment.2 This amendment states that it is the policy of Congress that sale of agricultural commodities are to be made only to “friendly nations.” Those Senators favoring the sale believe that the Administration will be criticized because of acting contrary to this statement of Congressional policy. Mr. Ball said we could say that conditions have changed since 1961 when the amendment was approved and that the deal we were making with the Soviet Union was a single sale. The question remained, however, as to how to deal with a Congressional statement which seeks to limit the Presidentʼs area of decision. Mr. Ball stated the pros and cons of the wheat deal from the international political viewpoint:

1.
The purchase by the USSR of large amounts of wheat can be portrayed as a failure of Communism. The Soviet system is unable to provide sufficient food for its citizens and has to come to the West in order to meet its food needs.
2.
The purchase of U.S. wheat diverts Soviet resources from arms to food. Soviet monetary reserves are not unlimited. In order to pay for the wheat, the USSR would have to use gold, which costs the Soviets about $65 an ounce to produce and is worth only $35 an ounce on the world market.
3.
We have a long tradition of helping the Russian people in periods of famine. Mr. Harriman recalls comments by Russians made to him during World War II about the Hoover food relief campaign of World War I. If we turned down the Soviet deal, we would be breaking this tradition.
4.
During the months it would take to deliver the wheat to the Soviet Union, the Soviet Government would be prompted to maintain a status quo lest the wheat delivery be halted.

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Mr. Ball said the arguments against the deal are:

1.
The Soviets have grain resources and therefore are not in absolute need of U.S. wheat.
2.
Some of the wheat sold to the USSR would undoubtedly be shipped to Soviet satellites.
3.
If we engage in trade of this magnitude with the USSR, it will be difficult for us to continue to urge the underdeveloped nations to avoid becoming economically dependent on theUSSR. The result would probably be that underdeveloped nations would increase their trade with the USSR.

In response to a question, Secretary Freeman said that we had sold very little to the USSR primarily because the Soviets had never asked to purchase our grain. Secretary Hodges commented that during 1962 we had sold approximately $62 million worth of food products to all the satellites. Mr. Ball said the Russians knew that we would have sold food products to them if they had asked us.

Secretary Hodges said he believed we should sell the wheat to the USSR. On the basis of his appearance yesterday before the Senate Committee, he thought that those who opposed the wheat deal do so on a partisan basis. He noted that the Commerce Department would receive today a request from a U.S. trader for a license to sell three million tons of wheat to the USSR. Czech Government officials have called on him twice. In talking to the Czechs, he had tried to discuss the immediate spot grain situation. However, the Czechs kept talking about trade relations with them in the future. He said one way to proceed would be to decide what we would do with a request for a license to ship wheat then wait thirty days to see what Congressional reaction would be. The President read the following extract from the attached memorandum from Assist-ant Secretary Dutton, dated September 30:3

“As a procedural matter, the wheat sale should not be consummated until the Administration has obtained formal action by both Houses reconsidering the so-called Latta amendment to the Agricultural Act of 1961, expressing the sense of Congress that subsidized commodities should not be sold to theUSSR.” The President asked whether formal action by the Congress was necessary. Both Secretary Hodges and Secretary Freeman said they did not think formal action was required.

Secretary Ball commented that in 1961 Congress could have included in the Agriculture Surplus Law the statement contained in the Latta amendment. Congress, however, did not do so, but chose rather to state merely the policy it thought should be followed. The Congress did not choose to tie the Presidentʼs hands. The President, therefore, could act in the national interest as he saw fit. He could say that he had decided [Page 777]to sell wheat to the USSR after consultation with the Congress and on the basis of public support. He repeated an earlier statement to the effect that Senator Ellender,4 who favored the deal, acknowledged that there would be Congressional grumbling if the President chose to act contrary to the Congressional statement of policy.

Secretary Freeman said that Senator Ellender had told him last night that he did not want the Administration to ask for Congressional action. Senator Ellender favors the sale and had meant to make clear during the afternoon hearing merely the Congressional sensitivity involved in dealing with the Latta amendment. Secretary Freeman said that the people who are against the wheat deal will use the Latta amendment as the basis of their opposition, but that the overwhelming majority of the Congress would favor the wheat sale.

Acting Secretary Gilpatric5 said that the Joint Chiefsʼ view and his and Mr. Nitzeʼs personal view was that there was no military or strategic objection to the sale of wheat to the USSR as a one-shot operation.

In response to the Presidentʼs question, Secretary Freeman said that the price of wheat sold to the Russians would be the same as that offered to any buyer. The wheat would come out of CCC stocks and would be sold at 105% of the loan rate. The transaction would be negotiated and implemented by private traders. The Government would not get into it because it was not staffed to do so. The private traders would be pleased to have the business and the farmers would be pleased because they would expect that a sizable sale would have an eventual beneficial effect on wheat prices. Secretary Freeman said the Soviets may ask for a fixed price. Possibly we could agree on a price ceiling. In other words, we could merely announce that licenses will be issued to traders who wish to sell U.S. wheat to the USSR and the Soviet satellites, or we could officially negotiate with the Soviet Government on a flexible price. Secretary Freeman opposed a fixed price. If a private trader negotiated the price and undertook to deliver the wheat, their profit margin would be narrow because the wheat trading business is highly competitive. There is no danger of profiteering or windfall profits. Mr. Sorensen added that under certain circumstances the traders could even take a loss on the deal.

In response to the Presidentʼs question, Under Secretary Murphy6 said he had nothing to add to what had already been said and he noted that although the economic and commercial pros of the wheat deal are important, they are not of sufficient importance to override any cons based on national security considerations.

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Secretary Freeman thought that the deal would have a beneficial political effect in U.S. wheat growing areas.

Under Secretary Harriman said that George Meany was strongly opposed to trading with the USSR but approved the sale of U.S. wheat. Secretary Hodges said he had talked to Meany, who had agreed not to oppose the deal for the time being and to hold off efforts to encourage longshoremen to refuse to load U.S. wheat going to Russia.

Mr. Harriman noted that we may get a request from the Soviet Union for the extension of credit. Secretary Freeman pointed out that we could extend regular commercial credit up to eighteen months.

Mr. Harriman commented that the Soviets will get the wheat they need one way or another. If we do not sell it to them, they will always be in a position to buy U.S. wheat which we have sold to European States.

The President commented that if we decide to go ahead with the wheat deal we should make clear in any statement issued at the time that the Russians would be able to get U.S. wheat whether we sold it to them or not.

Secretary Freeman said the Russians could obtain 300,000 tons of flour from West Germany, most of which was milled from U.S. wheat. The President asked whether we would sell to the Germans if we knew in advance that they were going to resell the wheat to the USSR.

Secretary Freeman replied that we would be happy to make such a sale to the Germans. He went on to say that when he saw Khrushchev,7 the Soviet leader did not raise the purchase of wheat and said that the USSR would not buy food. The Russian crop was said to be normal. Secretary Freeman commented that the recent grain purchases had apparently been decided upon after he had been in the Soviet Union and presumably after the Russians had realized the extent of their crop failure.

In response to the Presidentʼs question, Acting CIA Director Carter said he had no comment.

Governor Herter pointed out that in the State Department memorandum there was mention of the possibility of prohibiting the resale by the Soviet Union of U.S. wheat to Communist China, Korea, Vietnam and Cuba. He felt that if this could be done, the reaction in Congress would be beneficial. Secretary Hodges replied that such limitations on resale could be accomplished by including this requirement in the U.S. license for the sale.

The President asked what was the next step; would we merely announce that we were granting licenses for the sale of wheat to the USSR and that the traders could apply for license?

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Secretary Freeman said that an effort had been made by the private U.S. traders to organize a group to deal with the Soviet negotiators in Montreal. However, the group broke apart primarily because the traders thought they might do better operating alone. The competition for the grain deal would be cutthroat. The licenses would merely be issued to the traders.

  1. Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSC Meetings. Secret. No drafting information appears on the source text. A tape recording of the meeting is ibid., Presidentʼs Office Files, Presidential Recordings, Tapes 113.5 and 114/A49.
  2. On September 16 the Soviet Union and Canada completed an agreement for the sale of 5.3 million tons of wheat.
  3. For text of the Latta amendment, see Section 2(c) of the Agriculture Act of 1961, 75 Stat. 294.
  4. Not found.
  5. Allen J. Ellender, Chairman of the Senate Agriculture and Forestry Committee.
  6. Roswell L. Gilpatric, Deputy Secretary of Defense.
  7. Under Secretary of Agriculture, Charles S. Murphy.
  8. See footnote 7, Document 341.