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

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

Geneva, July 29, 1966, 1820Z.

542. GATT—For Governor Herter from Lewis. Subject: Meeting exporters July 25 and meeting of GATT Cereals Group July 26–28, 1966.

1. Exporters at meeting Monday July 25 succeeded in reaching broad measure of agreement on tactics to be pursued in subsequent GATT cereals meeting. US suggestion to focus on usefulness self-sufficiency formula in meeting exporters’ needs of access assurance and food-aid aspects of EEC proposal generally accepted. While Australia raised question of international price levels, readily accepted response of USDel that US not prepared at this time advance position on international pricing beyond that stated US paper presented GATT Cereals Group May 17, 1965² meeting also brought out differences in evaluation long-term market prospects, particularly with Canada. Agreed, however, this did not alter basic exporters’ objectives in cereals arrangement. Exporters agreed to schedule another meeting in September prior to resumption GATT Cereals Group.

2. Summary. Meeting Cereals Group opened July 26 under chairmanship Wyndham White. Major part of sessions devoted to thorough and business-like discussion new EEC proposals. Exporters generally agreed proposals in present form do not have great operative significance and fail provide exporters with access assurances they seeking. Consensus among exporters was that if EEC shows sufficient flexibility new EEC proposals could be made meaningful in trade terms with substantial modification and tightening up. Nevertheless general feeling among exporters which shared by USDel is that proposals are positive contribution to work Cereals Group, that there is flexibility in EEC negotiating position and job now is engage negotiations on basis EEC proposal as well proposals tabled by other participants.

3. WW concluded session Thursday by proposing that at next session to [topic?] will be prepared and circulated by Secretariat in meantime. His suggestion accepted by delegates. USDel stressed that at this time no one proposal had any more significance than another and that in preparing its working paper Secretariat should give due consideration to proposals tabled by other participants last year and subsequent discussions which took place re these proposals as well the new EEC proposal and discussions held this week.

4. Following are highlights of session.

Self-sufficiency rate. EEC del (Malve) made skillful presentation of SSR concept stressing obligation to take corrective measures to withhold excess production from commercial channels. Subsequent questioning however brought out numerous loopholes which make proposal in its present form virtually inoperative particularly from point of view of assuring access to markets of importing countries:

(A) Importing country required to take corrective action only if world surplus has been created and Governing Council of WGA found that surplus caused by that country exceeding its SSR. SSR inoperative if surplus removed by emergence of new markets or increase in bilateral food-aid shipments.

(B) SSR operative only when Cereals Council determines world surplus exists over sum of maximum stock levels bound by each participant. IWC rep’s statement indicated that in view present relatively low stocks considerable buildup could take place before SSR would go into effect. Triggering of any corrective action would be further postponed if allowable level of stocks negotiated under arrangement exceeded normal world carryover. Difficulties of ascertaining actual level of stocks also pointed out.

(C) Lack of provision for corrective action if world demand declines without any participant exceeding SSR.

(D) SSR of 90 percent claimed by EEC exceeds not only recent average (85–86 percent) but also SSR projected by Commission for 1970 under highest production assumption (87.8 percent).

(E) EEC explicitly reserved right to supply any growth in domestic demand, thus negating concept of minimum ratio so far as it applies to itself.

5. EEC del displayed some impatience with critical reception by virtually all participants but suggested that various aspects of proposal (e.g. 90 percent) negotiable. Fairly clear however that EEC views proposal essentially as supply control device operative only in event world surplus and not as market access device operative at all times. US and other exporters focused questions to highlight modifications necessary to make concept useful and effective in latter respect. UK said it would have difficulty accepting concept without modifications to take account of differences in efficiency and level protection. Japan unwilling accept any formal limitation its freedom of action re domestic policies.

6. Supply management. Consensus was that while commercial market likely to continue strong for another 2 years there was no assurance that this would continue indefinitely. EEC most emphatic in stress-ing danger oversupply in light output projections submitted to technical WG last fall. Statements by Canada, Australia and IWC rep confirmed indications of rising exports catching up with commercial demand. Only Canada insisted favorable long-term outlook had so changed picture to make supply management secondary concern. Time had come for us to remove indirect aids to production while continuing production restraints. Australia viewed food aid as principal tool for maintaining supply-demand balance but willing consider SSR mechanism in this context.

US indicated willingness consider all proposals for more equitable sharing of supply management responsibilities but stressed no need for uniform measures applicable to both exporters and importers. Stressed that present world grain situation should confirm value to importers of exporter commitments to carry adequate stocks, and to supply importer access requirements within the price range.

7. Food aid. US welcomed EEC acceptance principle of joint responsibility for food aid, and EEC proposal divert excess production to non-commercial channels, but this not enough meet need for growing and dependable flow of food aid to LDCs unable finance their essential import requirements. US therefore proposed 10 million ton international program to be shared equitably by grain exporting and importing countries, with each country’s contribution in grains or cash based on economic capacity and role in world grain economy. Distribution could be through bilateral or multilateral means subject to guidelines to (A) define terms and conditions, (B) ensure food aid contributes to agricultural development, (C) avoid interference with commercial trade. US reiterated offer to contribute up to 40 percent of international program while continuing substantial US bilateral program. US prepared submit more specific proposal assuming agreement can be reached on above principles.

Australia, Canada, Argentina all supported US initiative, indicating general agreement with approach and principles. EEC holding to its earlier disposal appoach said proposal deserved consideration. Japan modified earlier negative stand and stated willingness cooperate in developing acceptable formula which should take account differences in income and degree self-sufficiency. Only UK reiterated position food aid should not be part of grains arrangement.

8. Domestic policies. EEC del stressed value to importers of 3-year standstill on EEC domestic prices in view rising costs. Consolidation of MDS turned out to be “bold offer” which now widely criticized by Community producers. EEC therefore asking for escape clause, subject to compensation, in event “overriding national interest.” EEC still insisting on corresponding commitments by exporting countries by interest expressed by EEC del in “base price” proposal by US suggests EEC may settle for appearance of symmetry in this area. UK, Argentina said MDS should not apply to them or be subject to broad escape clause. Japan unwilling accept any obligation re domestic price policy.

9. International prices. Australia and Canada welcomed EEC support of higher minimum price while UK, Japan saw no reason for changing present IWA range. US reiterated support of strengthened prices within price range to be set realistically in light other provisions of arrangement and wide enough so that actual price would not be at either end of range except in unusual circumstances. Re differentials, Canada, EEC and UK favored tighter definition “with some flexibility,” while US stressed need for flexibility to reflect changing market conditions. Suggested that if price range adopted problem of differentials would only occur when trading took place at maximum or minimum. Problem might be handled by price equivalent committee acting under agreed upon guidelines.

10. Other Exporters joined in stressing grains arrangement would not be self-balancing and commitments thereunder must have same status as other trade commitments under GATT, i.e. be of indefinite duration rather than limited to 3 years.

Tubby

1. Source: Department of State, Central Files, INCO–GRAINS GATT. Limited Official Use. Repeated to Bern, Bonn, Brussels for USEC, Buenos Aires, Canberra, Copenhagen, The Hague, London, Luxembourg for USEC, Oslo, Ottawa, Paris for USOECD, Rome, Stockholm, and Tokyo and passed to the White House for Herter.
2. Not found.