396. Memorandum From the Chairman of the Council of Economic Advisers (McCracken) to President Nixon 1

SUBJECT

  • International Wheat Negotiations

The five major wheat exporters (the United States, Canada, Australia, Argentina and the European Community) met in Washington on July 10-11 to find a solution for the problems besetting the International Grains Arrangement (IGA). The meeting appears to have been successful, though this cannot be said for certain until the European authorities in Brussels give their approval (probably on July 16).

The discussion centered on an Australian proposal to manage international wheat prices in such a way that each exporter will obtain a fair share of the market. This would be done through a newly established committee located in London. For the immediate future, Australia, whose wheat sales have done well under the IGA, offered to raise its export prices so that we and the Canadians (the principal losers) can recapture some of the traditional outlets for our wheat.

This proposal was finally accepted by the U.S., Canada and Argentina subject to concurrence by the EEC, whose delegates had to refer to Brussels. The EEC will also have to raise its export prices. Otherwise, it is understood that we will cut our prices unilaterally, which would be tantamount to destroying the IGA. The burden of preserving the IGA has consequently been shifted to Brussels, in accord-ance [Page 996]with our previously determined strategy. (See my memo of July 3, also signed by State, Agriculture and STR.)2

The Australian proposal is not ideal from our point of view (it combines elements of options 2, 4 and 5 in the July 3 memo). It provides a means of keeping the IGA alive, however, and perhaps even of strengthening it. More important, it promised to get us out of the position where we alone seemed to be bent on destroying the IGA, at the expense of our friends in Australia, Canada and Argentina. The Australian Deputy Prime Minister McEwen,3 who impressed everybody by his statesmanlike conduct, said privately that on political grounds he was very anxious not to let the U.S. appear to be the culprit. The Australians also believe that if the IGA can be made to work the Russians (now the principal outsiders) may want to join on a formal or informal basis.

From a domestic point of view the new agreement is valuable because it should safeguard our wheat exports and thereby make our wheat program less restrictive. Our delegation, led capably by Secretary Hardin and Assistant Secretary Palmby, can therefore be satisfied with its work. Our hope is that the EEC will come through with its part in the agreement, but even if we have to go it alone we will at least have the understanding of the other exporters.

In the longer run, however, the outlook for the IGA remains clouded. The agreement still has two years to run, but whether or not it survives we should start thinking about more viable alternatives.

Paul W. McCracken
  1. Source: National Archives, Nixon Presidential Materials, White House Central Files, Houthakker, Box 18, Wheat-International Grains Agreement. No classification marking.
  2. Document 393.
  3. McEwen was head of the Australian delegation. On the delegation list he is identified as Deputy Prime Minister and Minister for Trade and Industry (see footnote 3, Document 395).