166. Paper Prepared in the Department of State1
Department of State Comments on the USDA Paper, “Agriculture in the Multilateral Trade Negotiations”2
The negotiating plan proposed by the Department of Agriculture consists of the following elements:
- —Convert all non-tariff border measures (such as variable levies and quotas) to ad valorem duties;
- —Harmonize tariff protection at no more than 25%, in the context of a line-by-line tariff reduction exercise covering both industrial and agricultural products;
- —Eliminate export subsidies;
- —Eliminate mixing regulations, monopolies, and restrictive licensing and prior deposit practices;
- —Negotiate multilateral safeguards covering both agriculture and industry.
The paper recognizes that border protection is rooted in domestic policies but it does not consider it either necessary or practicable to enter into negotiations on these policies. It assumes that elimination of border protection, by increasing the budgetary cost of protection, would automatically force producing countries to reduce production incentives.
We question both the effectiveness and the realism of this approach:
- By focusing narrowly on border measures, the plan would probably fail to accomplish our basic objective of a significant improvement of our agricultural export opportunities, as least so far as the European Community is concerned. (The plan might work in relation to Japan.) The Community has always insisted, with considerable justification, that border protection is only part of the story and that deficiency payments can be just as effective in stimulating production (the UK is a case in point). Thus, even if the Community should agree to convert its levies to tariffs (which is highly unlikely) and to make some concessions on these tariffs, and trade benefits to the US could be substantially impaired [Page 631] or nullified if the Community were left free to substitute deficiency payments which are not production-neutral. We do not believe we can rely on the deterrent effect of increased budgetary outlays. Public expenditures for agricultural support have been increasing rapidly in the Community and by now over half of the total estimated cost of agricultural support by the Six is already being financed, directly or indirectly, by the FEOGA3 or the national budgets. Second, the Community still has considerable leeway for shifting from wheat to feed grain production and for diverting wheat to livestock feeding, with adverse effects on our feed grain exports. On the positive side of the ledger, we recognize of course that a lower level of grain prices would have a beneficial influence on food consumption in the Community.
- By directing the thrust of the attack to the techniques of protection, the negotiating plan takes the most difficult route toward our objective. We agree, of course, that it would be desirable to convert variable levies as well as quotas to tariffs. We should recognize, however, that techniques of protection, because they are deeply entrenched in legislation and institutions, are harder to change than levels of protection. What matters most, after all, is the protective effect of the totality of external and internal measures. This has been recognized by a succession of advisory groups, such as the Williams Commission and the Johnson Group.4
- We agree that agriculture must get equal consideration with industrial interests in the trade negotiations. We question, however, whether this result is more likely to be achieved through a line-by-line negotiation which intermingles agriculture with industrial products. The line-by-line approach is an unwieldy and, in fact, a virtually impossible negotiating technique, either for industry or for agriculture. It was recognition that item-by-item negotiation had outlived its usefulness that led to the use of the linear technique in the Kennedy Round. Furthermore, this approach would make it practically impossible to come to grips with domestic measures which can be just as effective in keeping out agricultural imports as border measures. It is because of the close relationship of external and internal measures that both the Williams Commission and the Johnson Group recommended a sector approach for agricultural trade negotiations—stressing at the same time that this approach does not require a self-balancing package.
- The definition of reciprocity adopted in the paper, i.e., that it should be measured in terms of how closely a country is in conformity with GATT principles, is not one which can be either clearly defined or which is likely to be accepted by other countries since they would stand to lose more than ourselves by agreeing to this concept. Its introduction could only serve to start a protracted methodological dispute which might well prevent the negotiations from ever getting underway.
- Finally, while we agree that we should oppose commodity agreements that narrowly focus on price management, we should not reject out of hand arrangements aimed at trade liberalization which seek to deal with commodities or groups of commodities as suggested in the Johnson Report. Furthermore, we would not want to rule out the possibility of US participation in international agreements dealing with tropical products.
In short, we do not think the approach proposed in the Agriculture paper is negotiable, or that it would be effective in accomplishing our goals. We recommend instead that we return to the Johnson Report to CIEP as a departure point for formulating this Administration’s policy on agricultural trade negotiations.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 219, Agency Files, Council on International Economic Policy (CIEP) 1973 (Vol II). Limited Official Use. Sent under cover of a March 20 memorandum from Eliot to Flanigan that reads: “On March 5 you forwarded to the Department a copy of Assistant Secretary Brunthaver’s paper entitled ‘Agriculture and Multilateral Trade Negotiations’, and requested our comments. This Department’s comments are attached, and a copy of these comments has been forwarded to Assistant Secretary Brunthaver, as you requested.”↩
- Document 162.↩
- The FEOGA, Fonds européene d’orientation et de garantie agricole (European Agricultural Guidance and Guarantee Fund), was an EC fund established in 1962 to finance the CAP.↩
- The International Trade and Investment Policy Commission, known as the Williams Commission after its chairman, former IBM President Albert Williams, was established in 1969 to review U.S. trade relationships among countries. The Commission submitted its report to the President in July 1971. See Foreign Relations, 1969–1976, volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 256. Regarding the Johnson Group, see footnote 2, Document 181.↩