265. Memorandum From the Agricultural Trade Representative, Office of the Special Representative for Trade Negotiations (Hedges) to the Special Representative for Trade Negotiations (Herter)1
SUBJECT
- U.S. attitude toward grain price unification
As you pointed out in the memorandum handed Erhard in June,2 the problem of grain price unification cannot be seen in isolation.
The French appear to have made agreement on grain price unification indispensable to progress on agriculture in the Kennedy Round. Unless as a result the Community is willing to negotiate access arrangements for grains and reductions in trade barriers for other products, the grain price decision alone will not advance the Kennedy Round.
The wrong posture on our part could tend to freeze the Community in its present rigid position which prevents effective negotiation on agricultural products. We should therefore continue to emphasize the inter-connection between grain prices and the decisions needed to advance agriculture in the Kennedy Round.
- 1.
- The grain price levels under consideration are so high as to stimulate Community grain production at the expense of imports. Some sort of access arrangements would be required, therefore, to assure continued grain imports by the Community, as you told Erhard in June.
- 2.
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The Community position. The Commission has repeatedly stated that price levels within the Community are the key to access to its market. Their negotiating proposal consists of an offer to bind (under the narrow conditions they prescribe) their level of domestic prices, product by product, after such prices have unilaterally been agreed upon among the member states. Mansholt recently said the Commission’s negotiating mandate is predicated on price. It cannot be changed.
Unqualified U.S. support for grain price unification would likely be interpreted by the Commission as acceptance of their negotiating proposal and would encourage them to hold rigidly to their present position.
- 3.
- Italian situation. Unconditional U.S. support of grain price unification would make it all the more difficult to secure Italian cooperation in negotiating agricultural trade liberalization.
Mansholt grain price proposals would raise Italian feed costs at least 40 per cent with disastrous effects on Italian production and consumption of livestock products. They are bitterly opposed to the levels proposed for feed grains. U.S. unconditional support would undermine the Italian position. We also have a strong interest in feed grain prices being set at levels substantially below what has been proposed by Mansholt.
The Italians already feel they are penalized by the Common Agricultural Policy. Italian agricultural exports are mostly horticultural. These were bound at fixed tariffs in the Dillon Round whereas the principal agricultural production of the other member countries enjoys the greater protection of variable levies. It is the Italians primarily who have already blocked the Community from showing any willingness to negotiate reductions in fixed tariffs. Indeed one of the results of the Community negotiating proposal would be to extend the variable levy system to the present fixed tariff items. If they are forced to again be penalized by higher feed grain prices, the Italians will oppose all the more firmly any liberalization in other sectors.
- Source: Kennedy Library, Herter Papers, Grain Negotiations, Box 9. No classification marking. The source text bears Herter’s initials.↩
- Reference may be to Document 239, although no other evidence has been found to indicate that a copy of that document was given to Erhard.↩