173. Memorandum From the President’s Deputy Assistant for National Security Affairs (Scowcroft) to Secretary of the Treasury Shultz1
SUBJECT
- International Impact of Restraints on U.S. Food Exports and PL 480 Program
It is our understanding that there are moves under consideration in the economic area which could involve agricultural commodity export controls and termination of exports under PL 480. Such moves should not be undertaken without full recognition of the severe foreign policy implications. This memorandum outlines these implications and suggests measures to mitigate their impact upon our foreign relations. In view of the fact that I became aware only this afternoon of contemplated moves with respect to PL 480,2 this preliminary analysis is necessarily sketchy.
Export Restraints
It is a truism to state that export limitations imposed for security or economic reasons have far-reaching international implications. They are, in effect, the mirror image of stockpile disposals.
To our trading partners, U.S. restrictions on food exports may well appear as a kind of protectionism, since by holding down food prices at home at the expense of our balance of payments we will be protecting ourselves against the consequences of an interrelated world trading system. We may appear to be abandoning the rules of the game of international cooperation, both political and economic, which we have said we want to improve. Our food prices will be lower—but our balance of payments position will be worse, and their food prices will be higher and availabilities reduced. They are likely to feel we are trying to transfer our problems to them on both the price and payments side.
The reaction of other countries could be very serious if our actions lead them to think they cannot rely on U.S. agricultural exports and consequently need to protect and expand their own agricultural production (Europe and Japan), if it appears that we are going back on an important economic component of political understanding (USSR, China), and [Page 650] if it appears as if we are indifferent to the hardship we will be causing to countries far poorer than we (India and LDC’s generally). The international economic ramifications could also be serious: a more vigorous European effort to compel U.S. policy changes to improve our balance of payments, heightened speculation against the dollar, increased stocking (hoarding) of foodstuffs for both precautionary and speculative reasons, and, in general, a retreat from cooperative interdependence.
The impact will be tempered somewhat if other countries are made aware of the dimensions of the problem, and if assurances are provided concerning the temporary nature of the departure from our normal practices. We would need to emphasize our continuing commitment to long established principles of international commerce, to reducing our balance of payments deficit, and to increases in the long-run of agricultural exports. There are many ways in which other countries can help both to distribute and to alleviate what is a worldwide problem. The inventory and pricing policies of other countries will be particularly pertinent, as well as the measures they take to check commodity speculation. Simple agreements on spacing purchases can help turn what might otherwise be a short-run emergency into a more protracted, but less painful, adjustment. It may even be that if fuller information is made available that our current concerns will be shown to be exaggerated to some important degree. Certainly international consultations can help to moderate the balance of payments effects of any measures taken to restrain U.S. food exports.
If intensive international consultations on U.S. food shipments are entered into, therefore consultations should be carried out with key consumers (Japan, China, the USSR, and the EEC as a group or key European countries separately, and possibly India), with other producers (Canada, Australia, Argentina) and with minor importers. Therefore consultations with key consumers and major producers should be carried out by senior Washington officials with NSC coordination; those of particular importance could be handled through diplomatic channels. The purpose of these consultations should be to exchange information, explain our position and the reasons for it, and to explore possible cooperative measures in other countries. A second round of consultations might be needed at a later date when our own crop situation is clearer and our findings from previous consultations have been received.
If we are compelled to take steps to curtail U.S. food exports, our trading partners will be harmed. How vigorously they react will depend on how carefully we manage our actions.
Suspension of PL 480 Program
The PL 480 program represents a substantial portion of U.S. assistance to other countries. In 1971, for example, U.S. food aid represented [Page 651] 25 percent of total U.S. development assistance and 72 percent of world food aid. As the Chart at Tab A3 indicates, termination of the PL 480 Title I program would strike hard at a number of countries where such assistance is sorely needed: Vietnam, Cambodia, Korea, Indonesia, Pakistan, the Philippines and Bangladesh.
Elimination of the PL 480 Title II program would result in very substantial human, as well as foreign policy, costs. Designed for humanitarian and emergency purposes, termination of Title II would impact directly on those peoples of the world who are already suffering most acutely.
A detailed country analysis of the impact of a PL 480 cutoff is under preparation. However, a preliminary review of the situation indicates that there are ways in which cuts in planned PL 480 commodity allocations can be made, saving substantial exports without resorting to export controls and termination of the PL 480 program. Rather than terminating the PL 480 program immediately therefore, it is recommended that the President announce that the program is being intensively reviewed and that major cuts in some commodities may be necessary at a later date. Following such a review, it should be possible to identify those commodity programs by country, issue the necessary procurement authorizations, and thereafter issue a finding that certain commodities are not in adequate supply. It is estimated that this process could be completed in approximately three weeks.
- Source: National Archives, RG 56, Records of Secretary of the Treasury George P. Shultz, 1971–1974, Entry 166, Box 6, GPS White House. Secret. A copy of this memorandum was included in Shultz’s June 9 briefing materials for the President; see Document 172.↩
- See Document 171.↩
- Attached but not printed.↩