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

326. Circular Telegram From the Department of State to Certain Posts¹

Washington, September 14, 1966, 4:40 p.m.

46760. BUSEC. Ref: London’s 1839 and 1841, September 6² (sent or pouched to all addressees). Coffee.

1. US views recently concluded meetings International Coffee Council as major step toward answering public, Congressional and industry critics of Coffee Agreement and toward making Agreement important instrument for more effective use resources in producing countries.

2. Council passed series of resolutions that should result in most coffee producing countries finally facing up to basic problem of general overproduction and taking measures to speed adjustment their coffee economies to this reality.

3. Effective enforcement measures now agreed by importing countries will make clear that continued production in excess of quotas represents economic waste. In past year, many countries have found loopholes through which to ship large quantities in excess of quotas. Council’s action limiting imports from non-members effective not later than January 1 and setting up arrangements effective April 1 for limiting issuance of Coffee Council stamps to amount of quota should effectively prevent all over-quota shipments except those to “new markets.” Dept. does not believe most new markets can absorb much more coffee for consumption except at sharply declining prices. Member countries have been warned that shipments ostensibly destined for new markets but which show up in traditional markets prior to April 1 will be charged to quotas. After April 1, only shipments with stamps will be admitted into traditional markets. Days of large-scale evasion of quotas should now be over. Coffee in excess of quotas can only pile up in warehouses as visible evidence wasteful use of resources. Therefore all the more necessary for surplus countries to take serious view and prompt action on diversification efforts.

4. Selective system under which quotas of particular types of coffee can increase if market conditions warrant will make operation of Agreement more flexible. Will also serve to defuse much of emotion about issue of revising basic quotas. Important point is that increases in production should not serve as justification for claiming increased quotas.

5. Direct incentives to start diversification programs provided by conditions attached to continuance waivers in third and fourth quarters of coffee year (para 2 reftel).³ The 15 countries and OAMCAF group granted waivers (described in CA-2017, Sept. 12)⁴ must either set aside part of proceeds for diversification purposes or freeze stocks. If they cannot meet either of these conditions they forfeit waiver for second half coffee year. In countries where marketing boards or other government arrangements exist, conditions can presumably easily be met. In other countries, new legislative authority may be required to provide central control of stocks or to put aside revenues in special reserve for diversification—e.g., through higher export levies. In next six months, special ICO group will work out procedures for freezing stocks and using funds held in special reserve for diversification programs.

6. Special group will also be studying general producer-financed Diversification Fund whose resources could be used in conjunction with and supplemented by bilateral and multilateral economic development programs to increase pool of funds needed for diversification and development.

7. Posts are requested to keep coffee developments under close observation, reporting reactions and future plans. In particular, AID missions are urged to take advantage of new incentives toward diversification and development provided by Coffee Council actions to assist in planning and execution desirable programs.

Rusk

1. Source: Department of State, Central Files, INCO–COFFEE 3. Limited Official Use. Drafted by Jack B. Button (E/OR/ICD/TRP) on September 12; cleared by Paul E. Callanan (E/OR/ICD/TRP), William Kling (AF/AFI), and Joseph A. Silverstein (ARA/ECP); and approved by Fried (E/OR). Sent to Bogota, London, and Rio de Janeiro and pouched to 23 other posts.
2. Telegram 1839 from London, September 6, summarized the resolutions adopted at the meeting of the International Coffee Council. Telegram 1841 from London, September 6, summarized the “selective system of quota adjustments” adopted at the end of the meeting of the International Coffee Council. (Both ibid.)
3. Reference is to telegram 1839 from London; see footnote 2 above.
4. CA-2017, September 12. (Department of State, Central Files, INCO–COFFEE 3)