395. Action Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • U.S. Position for the Ministerial Meeting on Wheat

Issue

The Ministerial Meeting on the International Grains Agreement (IGA) takes place here in Washington on July 10-11. You decided that we should avoid any unilateral price reductions, which could break up the Agreement, without a Ministerial to attempt to find a cooperative solution to the problem.2 Secretary Hardin heads the U.S. delegation.3

Attached at Tab A is a paper, prepared by the Agricultural Trade Task Force chaired by Hendrik Houthakker, which presents our options for the meeting and recommends a U.S. position.4 It has been signed by Acting Secretary of Agriculture Campbell, Deputy Under Secretary of State Samuels, Acting Special Trade Representative Evans, and Paul McCracken.

All agencies agree that the United States is seriously disadvantaged by the present Agreement. Our wheat sales are off drastically from historical levels. We must therefore take a tough line at the Ministerial to assure restoration of our traditional position in the world wheat market. However, we also seek to maintain the International Grains Agreement for the longer term. If sufficient cooperation cannot be achieved to preserve it, we should seek to pin the blame for its breakdown on the other major exporters, particularly the European Community.

Background

The present IGA was negotiated in 1967 as part of the Kennedy Round. It has two parts: one sets minimum and maximum prices for wheat trade among participating countries and the other is the Food [Page 993]Aid Convention (FAC) which multilateralizes food aid to the developing countries.

The price minima are under great pressure because world wheat supplies are much greater now than when the agreement was negotiated and because of the aggressive selling of some exporters. This pressure affects the U.S. more than the other exporters, because we were out-negotiated in the development of the pricing schedules which are the heart of the Agreement. All major exporters, including the United States, have now violated the minima to some extent.

The Prices Review Committee met in London two weeks ago to attempt to deal with the problem. The U.S. tried to get the other countries to suspend the minima so that we could compete without the confines of the Agreement. We were unsuccessful, but then announced that we would cut prices unilaterally anyway, producing a de facto suspension.

Canada and Australia (via Prime Minister Gorton’s direct letter to you)5 expressed deep concern over our announcement and called for a Ministerial meeting to try to preserve the Agreement. The European Community and Argentina supported their proposals. We have agreed to the Ministerial but made it clear that we must have immediate relief for our competitive position.

The United States has three major interests in the problem: maintaining our income from wheat exports, preserving the Food Aid Convention, and minimizing acrimony with the other exporters. The last objective is difficult, however, because the European Community (essentially France) and Australia can take advantage of technical provisions of the agreement to undersell us.

An important and urgent consideration is our domestic political situation. Secretary Hardin needs to announce very shortly the National Wheat Allotment for the next crop year. This will call for at least a ten percent reduction in acreage on top of the fifteen percent reduction of each of the last two years, and he feels that a strong move to make U.S. wheat exports more competitive on world markets is necessary to minimize the political and economic costs of the cutback.

Options

In the short run, we could:

1.
Freeze the current situation, continuing to accept the disadvantages to us of the present pricing schedules.
2.
Unilaterally cut prices ourselves. This could restore our competitive position but at lower prices for all exporters.
3.

Get the other exporters to raise their landed prices back to the levels called for by the Agreement. This would restore our competitive position at higher levels, maximizing our farm income, while also fully preserving the Agreement.

For the longer run, the options are:

4.
Market sharing among the major producers. This means that the major exporters would buttress the Agreement by dividing up most of the world sales among themselves by agreement. It would maximize our income but be very difficult to police.
5.
Negotiated changes in the present price schedules to remove the disadvantages from which we now suffer. This would preserve the Agreement without its present obstacles to our sales.
6.
Changes in the basic price-setting mechanism of the Agreement in such a way as to improve our competitive position. This would accomplish much the same as Option 5, and might be a necessary complement to it.
7.
Build-ups of stocks by other exporters to bolster prices and give us an opportunity to increase our sales. Others would voluntarily withdraw from some competition; the large world wheat supply militates against its likelihood.

Recommendations:

The agencies recommend that we:

1.
Attempt to get agreement on Option 3, price increases by the other exporters. It would meet our wheat needs, preserve the Agreement, and provide us with justification for going it alone later if the promised cooperation were not sustained.
2.
Be prepared to move to Option 2, unilateral price cuts, as a second-best way to restore our competitive position while preserving the legal framework of the Agreement.
3.
Withdraw from the Agreement if neither Options 2 nor 3 are accepted. This would restore our competitiveness, but cause foreign policy problems because of the Agreement’s importance to the others, especially Canada and Australia. By trying sincerely for the other options first, however, we could pin the blame squarely on the other countries for blocking a cooperative solution.
4.
Express a willingness to consider all of the long-term options to put the Agreement on a viable basis, with preferences for Option 5 and then Option 6.

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I recommend that you authorize Secretary Hardin to pursue the course of action which the agencies have recommended.

Approve6

Prefer other options, see me

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 333, International Grains Agreement. Confidential. Sent to Kissinger under cover of a July 7 memorandum from Bergsten.
  2. See Document 392.
  3. U.S., Canadian, Australian, Argentine, and EEC delegation lists are in the National Archives, Nixon Presidential Materials, White House Central Files, Houthakker, Box 18, Wheat-IGA.
  4. Document 393. In his transmittal memorandum (see footnote 1 above) Bergsten indicated that the options paper followed up “on the President’s decision that the United States should avoid unilaterally breaking up the International Grains Agreement, as proposed earlier by Agriculture and supported by State, without meeting fervent Australian and Canadian desires to meet at the Ministerial level.”
  5. See footnote 2, Document 398.
  6. President Nixon initialed this option.