394. Information Memorandum From the Assistant Secretary of the Treasury for International Affairs (Petty) to Secretary of the Treasury Kennedy 1

SUBJECT

  • Ministerial Meeting (July 10-11) on the International Grains Arrangement

The International Grains Arrangement (IGA) was negotiated in 1967 in conjunction with the Kennedy Round negotiations. It is essentially a minimum price agreement encompassing different grades of wheat. Because of the unexpected and rapid shift from world-wide shortage of wheat to a world-wide oversupply, there have been problems with the arrangement almost from the start.

The Department of Agriculture and the Department of State believe that the IGA works to the disadvantage of U.S. wheat exports. While the United States has refrained from selling wheat below the minimum price established by the IGA, other exporters have been playing footloose with the arrangement and have been selling below the minimum prices. Forward sales of U.S. wheat are abnormally low. Our share of free-world wheat sales this year have fallen from a traditional level of more that 40% to slightly more than 20%. In particular, the well-established U.S. market for wheat in Japan and Taiwan is threatened by EEC subsidized sales as well as Australian and Canadian shading of the IGA price.

At a meeting in London at the end of June, the U.S. normally proposed suspension of the IGA minimum price schedule but the other exporters were not willing to support us. The Prime Minister of Australia wrote to President Nixon urging that the IGA be kept alive.2 He suggested a meeting of exporters at the Ministerial level to consider the matter. At the invitation of the U.S. Government, such a meeting is tentatively scheduled for July 10-11.

Australia and Canada are believed to be very anxious to maintain the IGA; Argentina has already oversold her crop and is no longer an [Page 991]exporter; but the attitude of the EEC, whose sales policy has been especially disruptive, is not clear. Our objective at the Ministerial meeting is to secure a short-term solution which will enable us to maintain our competitive position with regard to free-world sales of wheat. Moreover, if agreement is not forthcoming at the Ministerial meeting, we want to be in the position of placing the onus for the breakdown of the IGA on other exporters (most likely the EEC).

An inter-agency task force headed by Hank Houthakker has recommended to the President that at the Ministerial as a short-term solution we seek the agreement of Australia and the EEC that they will increase their landed prices.3 The second alternative is unilateral price cuts by the United States. (This was considered the second best solution because it might lead to continued uncertainty in the wheat market and a round of price cuts by wheat exporters with the U.S. bearing the blame. However, there was also concern that it could mean increased subsidy payments and higher budgetary costs.) The most desired long-term solution is a change in the IGA price schedule but this will take more time to negotiate.

  1. Source: Washington National Records Center, Department of the Treasury, Secretary’s Memos/Correspondence: FRC 56 74 A 7, Memo to the Secretary—July-August 1969. Limited Official Use. Drafted by M. Ryss (OASIA/OIEA) on July 7. Copies were sent to Under Secretaries Walker and Volcker. The memorandum is attached to a July 7 note to Secretary Kennedy, presumably from Petty, which reads: “I doubt that Agriculture really believes the IGA is tenable. I think State may have their doubts too but are anxious that onus of break-up fall upon shoulders of others. This consideration probably dictates tactics at Ministerial meeting.”
  2. Presumably a reference to the June 24 aide-mémoire; see footnote 2, Document 398.
  3. See Document 393. A typed note at the bottom of the page reads: “now based upon a U.S. base point and grade of wheat. Other countries, by making allowances for the volatile ocean freight and their judgment of the grade of wheat involved can—and have—rig their pricing against us. JR Petty