Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

243. Telegram From the Mission to the European Office of the United Nations to the Department of State¹

Geneva, July 14, 1964, 8 p.m.

Tagg 2169. For Governor Herter from Blumenthal. Following telegram sent action priority Brussels 15 July 12 repeated for your information:

“For McSweeney² from Blumenthal. Deliver 9 AM July 13.

Following is summary of points I made to Spaak. Suggest you transmit these to his office as agreed before his departure for Bonn. Unnecessary words omitted.

1. The Kennedy Round is stalled on issue of negotiating rules for agricultural products. If present impasse is not broken and satisfactory progress in elaboration of rules to govern agricultural phase of negotiations is not made by end of September, success entire KR will be in jeopardy.

2. Reasons for this impasse are two-fold: First, Community has insisted all agricultural products be dealt with in KR through so-called MDS (Montant de Soutien) approach. After thorough discussion and examination, MDS has been rejected as a universal approach for agricultural sector by US and virtually all other KR participants. This situation has been well known for some months.

Second, Community negotiators have equated questions of agreement on rules for agricultural products other than grains with grains problem within Community. Hence in absence of a Community grains price decision, there has been no progress on any KR agricultural negotiating rules. A Community grains price decision now seems likely to be considerably delayed.

3. The urgency in resolving present impasse before October stems from agreement of all participants that KR shall include both industrial and agricultural products, and that exceptions lists shall be tabled November 16. The US will be unable to table its exceptions list on November 16 unless satisfactory progress in elaboration of agricultural negotiating rules is made sufficiently before November to permit agricultural phase of negotiations to proceed in step with industrial. Failure to table exceptions lists on November 16 would be a serious and possibly crippling blow to political will and momentum indispensable for a successful KR.

4. In our efforts to resolve present impasse, following facts must be borne in mind:

(A) US cannot accept MDS as an across-the-board approach for agriculture whether or not Community reaches a grains price decision.

(B) The US recognizes importance of common grains price issue for Community and is aware that such a decision now could be helpful not only for Community but for KR. However, from point of view of negotiating situation in Geneva, it is not essential that common grains price be known now in order to permit agreement on ground rules and conduct of subsequent negotiations on all categories of agriculture products, including grains.

5. To understand reasons for statements in paragraph (4) above, it is necessary to bear in mind following facts about agriculture trade and protection:

Agriculture trade can be grouped in four categories:

(A) Bulk commodities, notably grains, meat and dairy products: It has been agreed that negotiations on these commodities will take place in special groups with objective of negotiating global arrangements. These negotiations will deal with relevant internal policies as well as protection at border. The US is willing to consider including an approach along lines of MDS as an element in negotiation of global arrangements providing there are adequate provisions relating to maintenance and improvement of conditions of access. If negotiating rules along above lines can now be agreed upon, negotiation of most aspects of global arrangements can proceed without a Community common grains price. It is recognized, however, that final agreement on an arrangement for grains may require a common grains price. Such final agreement, however, cannot be expected before closing stages of KR which according to present indications should occur in late 1965.

(B) Commodities other than those in (A) above which are subject to variable levies in Community:

For these products, US and other countries are also willing to consider an approach along lines of MDS as long as negotiations are directed not to mere binding of present support, but to achievement of a significant degree of liberalization and hence increased opportunities for trade.

(C) Commodities on which importing country applies fixed tariffs:

The major difficulty lies in this area because of large export interests of world agricultural exporters including US in agricultural products protected by fixed tariffs. Neither US nor virtually any other country is willing to replace present method of negotiating reductions in fixed tariffs with MDS approach. While a full explanation is technical and complex, in simple terms reason is that MDS provides much greater freedom of action for increasing protection than does a fixed tariff. Moreover, substituting commitment relating to MDS as now defined for fixed tariff would violate tariff bindings negotiated in Dillon Round and other previous negotiations thereby creating problems of compensation which appear insurmountable.

(D) Commodities on which importing country maintains bound duty-free status: These products are not subject to negotiation.

6. In conclusion, there is an urgent need for a Community negotiating position which permits agreement on agricultural negotiating rules. Such agreement must be reached in Geneva not later than the end of September so that countries can prepare their exceptions and offers lists in time to meet November 16 deadline. US cannot move forward on industrial products unless negotiating rules for agricultural products have been defined. The Trade Expansion Act and history of its passage and its support in Congress quite apart from US trading interests and agreement of all GATT Ministers in May 1963 and 1964 make divorcing of agricultural and industrial trade impossible for US.

Minimum that is required in agreeing on ground rules is: (I) An understanding that for categories (A) and (B) in paragraph 5 above, application of MDS concept will involve liberalization creating increased trading opportunities for efficient producers. (II) The Community negotiators be provided sufficient flexibility to agree to modification of Montant de Soutien concept for category. (III) So that meaningful reduction and binding of fixed tariffs together with effective amelioration of other obstacles to trade can take place. (C) The Community undertake to negotiate seriously in agricultural sector, if necessary even in absence of a common grains price.

If these rules can be agreed upon, negotiations can start with offers on November 16 and proceed through 1965 with a view to concluding toward end of that year. Failure to agree on ground rules by late September could lead to a collapse of KR for reasons given in paragraph 3 above. Failure of KR under such circumstances would have ramifications extending well beyond realms of commercial policy.³

Tubby

1. Source: Department of State, Central Files, FT 13–2 US. Limited Official Use. Repeated to Bern, Bonn, Brussels for USEC, Copenhagen, The Hague, London, Luxembourg for USEC, Oslo, Paris for USRO, Rome, Stockholm, Vienna, and Tokyo. Passed to the White House on July 15.
2. John M. McSweeney, Deputy Chief of Mission in Brussels.
3. Spaak reiterated Blumenthal’s points in his conversations in Bonn, and in consequence Spaak “now feels there is some reason for optimism as to German readiness negotiate cereals on price ‘x’ basis. He thinks we will see some movement on this soon.” (Telegram 92 from Brussels, July 22; Department of State, Central Files, FT 13–2 US)