401. Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1
SUBJECT
- WHEAT—Briefing and Talking Points for Your Meeting with Prime Minister [President] Pompidou
Issue:
Pompidou recently told Ambassador Shriver that wheat was the only outstanding issue between the U.S. and France.2 He was referring to the breaching of the price minimums for wheat contained in the International Grains Arrangement (IGA), which we think was started by the EC but which they claim was begun by U.S. Some newspapers have labeled the problem a US-EC (meaning French) “price war” and Pompidou’s comment was undoubtedly based on his experts’ testimony that the U.S. was to blame.
Talking Points: (If you wish to respond substantively)3
- 1.
- It is my understanding that all of the exporting countries wish to preserve the IGA and have been making repeated efforts to try to find a way to do so. However, it is obviously difficult to do so in view of present world surpluses of wheat.
- 2.
- I hope that the Technical Group decided upon in London on Saturday will help in that process.
- 3.
- (If Pompidou were to mention the recent U.S. price cuts) The U.S. stated clearly at the Ministerial meeting in Washington on July 10-11 that we would have to cut prices to regain our competitive position unless others raised their prices. No one raised. We were thus genuinely surprised at the EC reaction when we made our adjustments.
Background:
[Page 1003]The IGA developed from the Kennedy Round. Its core is a set of minimum prices which each exporter is supposed to maintain. The Agreement biases the wheat trade against the U.S. (and Canada), however, for several highly technical reasons. And it lacks any mechanism for sharing markets when prices are at the minimum.
These problems became critical with the massive overproduction of the last two years. There were only two alternatives: price cuts below the minimum in response to market pressures or exporter cooperation to sustain prices by effectively sharing markets. A series of meetings has sought the latter but failed, in large part due to the inability of the EC to really control its wheat traders as well as its reluctance to give up its favored position under the IGA, and hence its retreat to the strict legalisms of the (biased) Agreement.
The August 1-2 meeting in London agreed to set up a technical group which might be able to get at some of the technical inequities in the Agreement. More ambitious U.S. proposals to save the IGA again foundered on EC reluctance/inability.
Australia—which is also favored by the IGA—was a problem earlier, but considers the Agreement so important politically that it is now playing ball. The result is an apparent confrontation between the Anglo-Saxons (U.S., Canada, Australia) and the EC which some of the press has tried to sensationalize as a US-EC “price war”.
Further price cuts are quite possible in view of the lack of exporter cooperation. They need not carry “price war” connotations if handled properly, but they may very well remain a serious irritant in US-EC (especially US-French) relations until the market situation changes significantly or the Agreement can be re-negotiated.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Country Files-Europe, Box 675, France, Volume III Jan 69-10/31/69. No classification marking. Presumably this memorandum was transmitted telegraphically to Kissinger, who was with the President in Bucharest on August 2. Kissinger left the President’s party in the United Kingdom the next day to travel to Paris to brief President Pompidou. (Ibid., White House Central Files, President’s Daily Diary)↩
- Ambassador Shriver reported on this aspect of his July 23 meeting with President Pompidou in telegram 11266 from Paris, July 24. (Ibid., NSC Files, Country Files-Europe, Box 675, France, Volume III Jan 69-10/31/69)↩
- According to the memoranda of Kissinger’s conversations in Paris, the wheat situation was not discussed. (Ibid.)↩