Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

210. Telegram From the Mission in Geneva to the Department of State¹

Geneva, March 20, 1964, 1325Z.

TAGG 1899. For Governor Herter from Blumenthal. Holding press backgounder on Cereals Group and Agriculture Subcommittee meetings 11 am March 21. Following is text of statement which will be distributed at that time on non-attibutions basis:

Press Background Statement on Cereals

The US this week submitted proposals to the GATT Cereals Group outlining a world grains arrangement. (The Cereals Group is one of the specific negotiating bodies in which the Kennedy Round is being conducted.) The US proposal can be considered to open the substantive phase in the negotiation of international trading arrangements for grains. The main objective of such arrangements would be to assure the beneficial expansion of trade and access to commercial markets while at the same time affording reasonable protection of farm incomes in exporting and importing countries.

In May 1963 the Ministers of the nations participating in the Kennedy Round specifically directed the negotiators to seek acceptable conditions of access to world markets in furtherance of a significant development and expansion of world trade for agricultural products including grains.

The Cereals Group has held previous meetings in June and November 1963 in which various elements which might be included in a world grains arrangement were discussed.

The United States has now made the following specific proposals on the content of a world grains arrangement:

1. Domestic policies. It has been widely agreed that certain national domestic agricultural policies have a significant impact on international trade. In fact internal farm policies are frequently of primary importance in determining trade opportunities for grains. The US has proposed that relevant domestic agricultural policies in grains exporting and importing countries be subject to negotiation.

Domestic price and income support measures have a particularly important impact on trade opportunities. Higher returns to producers tend to encourage more rapid increases in production particularly through more rapid or intensive adoption of modern agricultural technology. Higher prices also tend to retard growth in demand particularly in the case of feed grains. Such accelerated production increases or retarded growth in demand can reduce the market normally supplied by imports or can produce burdensome surpluses.

Specifically therefore the US would be willing to consider reciprocal commitments with respect to limits of price supports, maintenance of production controls, management of stocks, reduction of export subsidies and other domestic policies which would contribute to the objectives of a world grains arrangement.

2. Access assurances. In addition to negotiations on domestic policies the US proposal includes a second major element—assurances of access into traditional world markets. It is clear that those adjustments in domestic grains policies which are likely to be negotiable will in themselves not be adequate to achieve an orderly expansion of trade. In this situation more precise trade commitments—in the form of access assurances—will become necessary. The objective would be to assure the sharing of markets on a fair and reasonable basis between domestic production and imports.

3. International prices. Provisions regarding international grains prices should form a part of an international arrangement. These provisions should have as their primary objective the stabilization of world grain prices within an equitable range and guarantees that grain will be made available to importing countries within these prices. The present general level of world prices provides a useful starting point for discussion of future world cereals prices.

4. Assurance of supply. Provisions regarding the establishment and maintenance of reserve stocks by Contracting Parties should be included in a grains arrangement. Such provisions should have as their objective the maintenance of stocks in amounts necessary to facilitate the fulfillment of other provisions of the arrangement and to assure importers of sufficient supplies.

In addition to these elements the US has suggested inclusion in the grains arrangement of provisions relating to non-commercial distribution commodity coverage and various technical and administrative procedures.

The US also indicated that the EEC proposal involving measurement of the “Montant de Soutien” from a “reference price” might have a place in a grains arrangement. This role would be to facilitate the binding of the levels of producer price supports for grains. But world trading prices must remain flexible enough to facilitate commercial trading. Rigidly fixed world prices would not be acceptable.

Negotiation of a world grains arrangement is an ambitious undertaking. Technical complexities and economic and political difficulties are considerable. The proposal the US has submitted represents the first major step in the negotiation of the grains arrangement. While these negotiations will be lengthy they must progress in phase with other elements of the Kennedy Round.

Press Background Statement on Agricultural Negotiations

The United States today formally responded to the EEC’s proposal for a negotiating plan for the agricultural phase of the Kennedy Round. In February the Community proposed that negotiation on agricultural products should not consist of traditional reductions in tarriffs but should aim at the consolidation of the amount of domestic price support measures. This “Montant de Soutien” approach was considered more appropriate by the EEC because of the various measures other than tariffs affecting agricultural trade.

In its response the US recognized that for certain agricultural products trade opportunities are determined by measures other than tariffs. An approach along the lines of the “Montant de Soutien” may be appropriate in some of these cases in facilitating the expansion of trade provided reductions in protection can also be negotiated. On the other hand very significant volumes of world agricultural trade occur in instances where the tariff is of primary importance. About half of US agricultural exports to the EEC (about $500 million excluding cotton) take place over zero duties or fixed tariffs which are the sole or major barrier to trade and are bound as a result of GATT trade agreements. The US and other nations agricultural exports to other importing countries are also largely subject to traditional tariff or duty free commitments undertaken in the GATT.

The US made it clear the negotiations must be based on the continuation of existing bindings. A general application of the “Montant de Soutien” approach would impair these bindings. Moreover the variety of agricultural products and the complexities of agricultural production and trade policies make an across the board application of the “Montant de Soutien” approach unworkable. Mere binding of margins of support would not achieve the objectives agreed to by the GATT Ministers in May 1963 specifically to provide acceptable conditions of access to world markets for agricultural products in furtherance of a significant development and expansion of world trade in such products.

In this week’s meeting of the Kennedy Round Agriculture Subcommittee the US indicated that it was prepared to accept a pragmatic approach to agricultural trade problems with a view to securing an orderly expansion of agricultural trade while remaining cognizant of the need to maintain farm incomes in exporting and importing countries. Such a pragmatic approach could include a sector by sector examination of agricultural trade to see which negotiating methods appeared likely to offer the best prospects for success for each particular sector. In a few areas an approach similar to the “Montant de Soutien” may be appropriate. In other sectors traditional tariff reductions or other methods may offer the best prospects for successful negotiations. In any case any participant would be free to make any proposal he saw fit as to methods to be applied to agricultural products.

The US has proposed that the Agriculture Subcommittee promptly undertake this pragmatic examination of which negotiating methods to apply to the various agricultural sectors with a view to assuring that a basis for negotiation on agriculture exists prior to the May 4 formal opening of the Kennedy Round.

Tubby

1. Source: Department of State, Central Files, INCO–GRAINS GATT. Unclassified; Priority. Repeated to Bonn, Brussels for USEC, The Hague, Luxembourg for USEC, Paris for USRO, Rome, London, Buenos Aires, Canberra, Ottawa, and Tokyo and passed to the White House.