432. Draft Memorandum From the President’s Assistant for Domestic Affairs (Ehrlichman) to President Nixon 1

SUBJECT

  • Meat Import Quota Increase

Background

Meat import quotas for 1969 were set at the level of 1,035 million pounds. Because of normal slippage in the program actual imports were 1,070 million pounds.

State and Agriculture negotiated voluntary quotas this year at a level of 1,062 million pounds, which is intermediate between the statutory level (998 million pounds) and the 1,099 million pounds at which the Secretary of Agriculture must impose mandatory quotas (the “trigger quantity”).

Imports during the first five months of this year have been at a significantly increased rate—both over last year and over what was anticipated for this year. Agriculture estimates that imports for the first six months will be 620 million pounds. This is approximately 90 million pounds above the 531 million that would be half of 1970’s negotiated quota. There is no way to know, however, whether the increased amount has been consumed in the domestic market, or whether importers have deliberately accelerated shipments and put the excess in storage. It is known that total meats in storage are at a higher level than a year ago. However, cold storage holdings are currently at the same level as at the beginning of 1970.

It is clear that if imports continue at present rates, imports will reach the quota level of 1,062 million pounds sometime early in the fourth quarter.

Under the statute (as pointed out above) if imports exceed 1,099 million pounds, there is an automatic “trigger” of mandatory quotas reverting to the original statutory level of 998 million pounds. This would create an untenable situation. You have authority under the [Page 1061]statute (on grounds of overriding economic or national security interests or inadequate supply at reasonable prices), either before or after the “trigger” point is reached, to trigger and then do one of three things: (1) suspend quotas altogether, (2) set mandatory quotas at a higher level or (3) suspend the quota level and order the State Department to increase the level of voluntary quotas.

Anticipating that some upward adjustment will be necessary to maintain a stable price and supply situation, Secretary Hardin and Chuck Colson have been conducting quiet but extensive negotiations with the cattlemen and with the cattle state Senators.2 They have the agreement of the cattle interests to the recommendation contained below and have the assurance that your decision, if you approve this recommendation, will be supported in the cattle states notwithstanding the fact that it would normally be considered politically very damaging.

Choice cattle prices have declined in recent months somewhere between 7% and 10% and are well below last year’s peak levels. By comparison with the average of choice cattle prices over the last five years, however, 1970 prices are up 12%. Imported meat corresponds more closely to utility cow beef. Prices of utility cows reached new highs in 1970 and are almost 30% above average prices received in the last five years. Retail choice grade beef prices are about 7% higher than last year. Hamburger prices have already reached new all time highs. The spread between retail and wholesale has widened in the past year. The Department of Agriculture projects that choice cattle prices will strengthen through the summer and then decline slightly in the fourth quarter but remain above last year. Agriculture also projects that hog prices will decline significantly in the fourth quarter, which may have some effect on the price of beef and cattle.

Options

Option 1. Do nothing for the present. (This requires a third quarterly estimate by Agriculture that total imports for the year will not exceed the trigger level.)

Pros:

a.
This would be good politics in the cattle producing states, particularly those in which a number of key Senate elections will be held this fall.
b.
It would leave your options open, probably at least until September.

[Page 1062]

Cons:

a.
The Secretary of Agriculture’s third quarterly estimates would then have to project an overrun of imports for the year or face a credibility gap.
b.
Failing to act now would, therefore, probably make it necessary for you to act in September when it will be more difficult to minimize the adverse political impact.
c.
Failure to act now could bring a serious price rise in retail beef during the second half of 1970 if imports had to be halted abruptly to avoid overruns.

Option 2. Trigger and immediately suspend the quotas and then increase voluntary quota agreements to 1,140 million pounds, an increase of 80 million pounds over the present voluntary agreement.

Pros:

a.
In view of the Hardin-Colson agreement with cattlemen and cattle state Senators, this has a minimum political risk.
b.
It would help to alleviate the short supply for the next few months.
c.
It would diminish upward price pressures which would undoubtedly follow from taking no action now.
d.
It would have some limited consumer appeal.
e.
It would avoid trade problems associated with mandatory imports restrictions.

Cons:

a.
Notwithstanding the agreement, there is risk of an adverse reaction politically in the cattle states.
b.
This would require a lower rate of imports in the second half of 1970 than during the first half of the year. To be specific it would permit 520 million pounds of imports for the second half, compared with 620 million in the first half (1,140 million for the full year). (After November further upward adjustments could be made if the demand situation required.)

Option 3. Allow the statute to trigger and set mandatory quotas at 1,140 million pounds.

Pros:

a. It avoids certain problems of enforcement associated with voluntary quotas.

Cons:

a. Mandatory quotas are undesirable from the standpoint of trade policy and could cause retaliation even though set at higher levels than the present voluntary program.

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Option 4. Use your direction to increase imports of voluntary agreements or with mandatory quotas at a level higher than 1,140 million pounds.

Pros:

a.
It would have a more favorable effect on retail prices of lower quality meats. Imports could continue at first-half levels, or even be raised further.
b.
It would thus be “pro-consumer.”
c.
It would be a visible step toward helping nations of the Western Hemisphere, as recommended by Governor Rockefeller.3

Cons:

a.
It would cause an exceedingly adverse reaction among cattlemen and would be damaging politically in the Rocky Mountain states and in the South.
b.
It would be embarrassing to Secretary Hardin inasmuch as the January agreement was negotiated for the entire year.
c.
It might cause Congress to impose mandatory quotas on a permanent basis at a much lower level than we desire.
d.
It could make it difficult to reduce imports when prices come down.
e.
If the quotas were set at much higher levels or entirely suspended, the action could cause deterioration of choice cattle prices.

Recommendations

1. It is recommended that you choose Option 2, an increase in the voluntary restraint level 1,140 million pounds. (Tab A contains a draft proclamation increasing voluntary quotas.)4

Approve (Recommended by Ehrlichman, Harlow, Flanigan, Hardin, Whitaker, Kissinger, Timmons; the CEA approves of the action to increase voluntary quota levels but feels a higher level, say 1,200 billion pounds, is warranted.)

Disapprove

See me

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2. In order to avoid Presidential involvement in decisions necessary to enforce voluntary quotas, it is also recommended that you delegate to Secretary Hardin your authority under Section 204 of the Agricultural Act of 1946. (A proposed Executive Order is attached as Tab B.)5 This delegation will permit Secretary Hardin to stop transshipments through Canada. Stopping transshipments will have virtually no effect on the level of imports or prices particularly in view of the increase in quota levels recommended above. Transshipments are, however, a circumvention of the law. They penalize those countries which respect the voluntary agreements and benefit those which do not. When voluntary quotas were negotiated in January, a number of participating countries asked us for assurance that we would not permit transshipments. On February 21 and March 10 you decided not to sign an Executive Order precluding transshipments on the grounds that meat prices had not declined.6 Cattle prices since declined somewhat but are now strengthening. However, transshipments at these levels do not appreciably affect prices but are highly discriminatory and are being strongly objected to by a number of exporting countries. This delegation will also permit the Secretary of Agriculture to take necessary enforcement measures with respect to the higher levels of imports if circumstances later require him to do so. This proposed delegation was a part of the package Colson and Hardin negotiated with the cattle interests—consideration, in effect, for the increased level of imports.

Approve (Recommended by Ehrlichman, Harlow, Flanigan, Hardin, Whitaker, Kissinger, Timmons, and State Department.)

Disapprove

See me

  1. Source: National Archives, Nixon Presidential Materials, White House Central Files, Houthakker, Box 17, Meat: CEA Memos. Administratively Confidential. The final text of the memorandum sent to the President was not found, but it is presumably the memorandum from Ehrlichman to the President to which Johnston referred in his July 2 memorandum to the NSC Files; see Document 430.
  2. See footnote 7, Document 426.
  3. Presumably a reference to Rockefeller’s recommendations in late 1969 following his mission to Latin America; see Document 122.
  4. For text of the June 30 Department of Agriculture Press Release and Presidential Proclamation 3993 that provided for 1,140 million pounds of meat imports during 1970 under the voluntary restraint program, see Department of State Bulletin, August 3, 1970, pp. 157-158.
  5. For text of Executive Order 11539, June 30, delegating authority to the Secretary of Agriculture, see ibid., pp. 158-159.
  6. See Documents 425 and 426.