176. Memorandum From Charles Cooper of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • The Temporary Reprieve on Export Controls

As long as the dollar remains undervalued and inflationary pressures remain strong, there is a danger that ad hoc export controls will be imposed at some point. The July 13 decision,2 in my judgement, [Page 656]should be considered as a reprieve, not a full pardon. It is essential that appropriate contingency plans and international consultations be carried on in order to guard against a future crisis when "emergency" controls might be un-avoidable.

The Need for Contingency Plans. The present system of registering export orders for a number of agricultural products will continue. Such a registration system will provide better information both to the government and the market than has existed heretofore. But, registration alone offers no guarantee that agricultural exports will remain at the levels projected by the USDA. Should registration information begin to show greater export demand than projected, the issue of export controls will re emerge. Moreover, since the registration data and its implications will be known to the trade, we may see a protective or speculative trade reaction which will accelerate any portending crisis and make it all the harder to resist emergency controls.

If foreign demand for U.S. wheat and feed grains turns out to be significantly higher than USDA pro-jections, I doubt that we can resist controls. Moreover, even if true demand is correctly estimated, there could be a short-run market surge this summer or this fall in which prices get driven up sharply, and during which emergency controls will become irresistible. In summary, unless we have high confidence in USDA’s quantitative estimates, there is a real chance that we will be forced to export controls later this summer or this fall in spite of the July 13 decision.

A Stand-by Control System. Even if my personal estimate of the likelihood of export controls is too pessimistic, we need a stand-by system. Such a system should be designed to limit food exports to amounts close to USDA estimates—not to cut them back to what the price-controllers think would be consistent with target price estimates. Although the problems of designing such a system have so far proved intractable, I think that either of two systems would work:

1.
License for shipment without charge all amounts contracted for as of June 13; auction additional licenses up to a minimum set at USDA export projection levels.
2.
Establish minimum country quotas which aggregate to around two-thirds of the total projected export demand. Issue licenses freely for shipments under these quotas (all shipments would have to specify destination). Auction to anybody licenses for the last one-third.

System 1 is simpler and cleaner. System 2 would permit some rough and ready leveling out of country availabilities for equity purposes. Variants of either are possible: a technical working group is trying now to come up with a short list of feasible control system options.

International Consultations. Whether or not we are forced to impose controls, we need to start explaining our problem and consulting about its implications. Lardinois’ (EEC Agricultural Commissioner) visit on [Page 657]July 19 will offer a good opportunity to begin such discussions with the Europeans.3 But, more is needed. A special meeting of the OECD Economic Committee is one possibility; there are others. I will work with State to come up with a good proposal.

The Longer Run. Until this year, U.S. stocks have provided a buffer cushioning the ups and downs of world market supply and demand. This is no longer the case. Pompidou’s proposal for some kind of worldwide buffer stock deserves serious consideration.4 There are many problems, some probably incapable of resolution, involved in any such scheme. Nevertheless, we should take an active role in international consultations on this subject in any event since we have to demonstrate our concern about the problem if we are to get the Europeans and Japanese to agree to any world trade system for agricultural products which meets our needs. Our basis line might be: "We’ll guarantee supply, if you’ll guarantee market access." And, then go on from there to joint arrangements on stocks, and consultations on production and consumption, etc. One aspect of this whole area that needs more international attention is how to provide for food to poor countries now that our PL–480 availabilities are less likely to be adequate to bear as much of this burden as in the past.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 403, Subject Files, Trade, Vol. VI, April 8–December 1973. Secret. Sent for information.
  2. This is apparently the decision against the extension of export controls in Phase IV of President Nixon’s Economic Stabilization Program. On July 18, the particulars of Phase IV were announced. In addition to various price and wage control measures, the President promised that controls on agricultural exports would be rescinded once the new harvest was ready for sale. The President suggested that further export controls would be unnecessary, provided there were no major crop failures or sharp increases in foreign demand. For the text of the President’s announcement, see Public Papers: Nixon, 1973, pp. 647–653.
  3. A briefing memorandum for the July 20 meetings between Pierre Lardinois and U.S. economic officials is in the National Archives, Nixon Presidential Materials, NSC Files, Box 322, Subject Files, European Common Market, Vol. III, October 1972–July 1973. A report on the highlights of the meetings was transmitted in telegram 143944 to USEC Brussels and to the EC capitals, July 21. (Ibid., RG 59, Central Foreign Policy Files)
  4. Apparently a reference to French President Pompidou’s proposal in his June 25 letter to President Nixon; see Document 43. Kissinger wrote at the top of this memorandum: "Chuck—I agree with last point re Pompidou ideas. How do we now proceed?"