170. Memorandum From Council of Economic Advisers Member Gary Seevers to Secretary of the Treasury Shultz and the Chairman of the Council of Economic Advisers (Stein)1

SUBJECT

  • Export Controls on Agricultural Products

This morning John Dunlop and I met with Secretary Butz and Secretary Dent to develop a plan if the President decides to take measures to control agricultural exports.2

We agreed, subject to further staff and legal analysis, on the recommendation which is outlined below. Our assumption at the morning meeting was that the "short supply" criteria of the Export Administration Act could be met under present and expected conditions. However, further analysis has raised serious question about this assumption. The criteria specified in the Act are:

1.
The Secretary of Agriculture, who must approve "short supply" controls, may not approve the controls for any period during which the supply of the commodity involved is in excess of the requirements of the domestic economy. This was added for agricultural commodities after the ill-fated export controls on cattle hides.
2.
The Secretary of Commerce must make the following finding: Export controls are "… necessary to protect the domestic economy [Page 644]from the excessive drain of scarce materials and to reduce the serious inflationary impact of abnormal foreign demand."

Agriculture does not believe criterion 1 could be met, and Commerce is uncertain about criterion 2. COLC does not have authority to place quantitative restrictions on exports.

There are other statutory bases for export controls under the Export Administration Act. These rest upon either significantly furthering the foreign policy of the United States and fulfilling its international responsibilities or protecting national security.

Another alternative ground for controls is the Trading with the Enemy Act, using the 1950 declaration of emergency, as was done in August 1971.

In short, while we do have statutory authority to control exports, it is not purely on the short supply/rapid inflation basis we had assumed.

Recommendation

If we decide to proceed, the recommendation at this morning’s meeting would entail establishing a monitoring system (for which Commerce has the authority) and the threat of export controls (for which we have shaky authority).

The President would announce the following—

1.
He would explain the problem, emphasizing the importance of carefully monitoring exports until we find out whether American production and world conditions will alleviate unacceptable pressures on domestic supplies and prices.
2.
The Commerce Department would institute a mandatory reporting requirement for all outstanding orders for export of the relevant agricultural commodities. Such reporting requirements would cover aggregate quantities for each specified commodity by country of ultimate destination and by month of scheduled or anticipated export.
3.
In addition, Commerce will require weekly reporting of all new orders for exports accepted subsequent to the date of the initial reporting requirement, as well as all shipments for export.
4.
He would state that if conditions do not improve, he would use all available authority3 to institute a program to restrain exports to assure adequate food supplies at reasonable prices for American consumers. He would emphasize that export contracts signed after the announcement date would be subject to any restraints imposed (this is to avoid a surge of anticipatory export buying and selling).
5.
The system would cover wheat, feed grains, soybeans, cottonseed, and products of the foregoing. It was felt the immediate need was less for meats and the political resistance would be greater. They could, however, be added if rising exports became a problem.

This option has several advantages. It keeps us from becoming committed to a system of export controls that may turn out to be unnecessary. It allows for prompt announcement without the necessity to work out beforehand all the technical details that will be required if and when actual controls are put in place. At the same time it represents a deterrent against foreign buying in anticipation of controls and a safeguard against a few huge "one-shot" purchases.

Secretary Butz prepared draft speech material for the President in line with this recommendation (Tab A).4 Commerce is on standby to put the reporting requirements into effect on 48-hour notice.

Alternative Options

A milder option would be to implement only the mandatory reporting on new sales and/or the inventory of unfilled contracts without the presumption that controls will be implemented unless conditions improve. The major argument against this approach is that it might cause anticipatory buying to get orders in ahead of controls if there was no announced threat that new contracts would be subject to controls. The strongest option would be to announce that export controls are being implemented immediately (it would take a minimum of two weeks to get them in place). In addition to being questionable legally, there was a feeling that this option goes too far at this time and that there is insufficient information to conclude that controls are actually needed. Also, a "crash" program would reduce the time required to follow acceptable consultative procedures with the Congress and groups directly affected.

The Impact of Export Controls

It is too early to know how much exports would have to be restricted to achieve any given price objective. I think our goal would be to get feed costs below the present inflationary levels so as to be consistent with our goals and forecasts for retail food prices expressed in the White Paper5 (i.e., a "flattening out" in the second half of 1973 and the prospect of substantially greater food supplies—and presumably lower retail prices—in 1974).

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A strong case can, of course, be made against any kind of controls on agricultural exports. It runs counter to several foreign policy objectives, to our posture in trade negotiations and to the long-run development of existing commercial markets. An NSC memorandum coming to you separately makes several valid arguments against controls and proposes an alternative program to deal with the problem.

The risk in the NSC approach is, of course, that we will find ourselves in the position of having sold more agricultural commodities than we would be able to deliver without keeping prices at their present inflated levels or sending them higher. This is the problem we face today with old-crop soybeans, which have been "oversold."

Gary Seevers
  1. Source: National Archives, RG 56, Records of Secretary of the Treasury George P. Shultz, 1971–1974, Entry 166, Box 4, Export Controls 1973 GPS. No classification marking. A copy was sent to Dunlop.
  2. The Nixon administration was considering implementing agricultural export controls as part of a package to address the problem of persistent and high rates of domestic inflation, particularly in the realm of foodstuffs.
  3. Note: This might require new legislation, but we should not say that in the public statement. [Footnote is in the original.]
  4. Attached but not printed.
  5. Apparently a reference to a white paper on food prices issued by the Cost of Living Council on March 20.