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

SUBJECT

  • Export Controls

Export controls, particularly on wheat, are again a major issue. I will attend a meeting tomorrow (August 9) at 4 p.m. with Shultz, Butz, Dent, Stein, et al to discuss the problem.2 The new crop report will be out tomorrow morning. If the figures appear bad, there may be an immediate move to impose export controls on wheat.

The Problem

The wheat price has increased the permissible limit every day for the past eight days, rising 80 cents to a spot price of about $4.35. This is an all-time record price for wheat. Corn prices have also risen sharply to an all-time record. Although Congress has voted to repeal the 75-cent bread tax, millers and bakers are complaining loudly that prices to consumers will have to be raised. There are increasingly widespread calls for export controls. The situation is not helped by the EEC Commission action this week, in effect denying any additional export licenses for wheat from the EEC.3

The basic situation has now changed from what it was during the past two months when export controls were an issue. While we had price controls on many consumer products, an increase in wheat prices would have severely squeezed the millers, bakers and spaghetti manufacturers who would have paid the higher wheat price without increasing their prices. This situation is now changed and the processors will be able to pass the increased costs on to consumers. The price rises to the consumers will not be all that large because such a large part of the final price of most products is labor, transportation and other costs, i.e., flour will increase a couple of cents a pound and bread two or three cents a loaf.

However, in a psychological situation where there is great concern about price increases, particularly food prices, these increases could be the straw that breaks the camel’s back.

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The U.S. Government’s information is simply not good enough to make any reliable prediction for the future. We may be seeing a bubble in the market. With expectations of higher prices in the future, users—including those in other countries—are trying to buy early while farmers are waiting for higher prices. In this case prices will come down in the future. On the other hand, there may be a real worldwide shortage of food, even at current relatively high prices, and prices may continue rising.

If there is a temporary bubble, export controls are unnecessary. If there is a worldwide shortage, export controls on wheat are likely to shift demand to other products and cause a cascade effect in which we have to place export controls on one product after another.

In simple terms, export controls are a means of protecting the U.S. consumer at the expense of consumers in countries which import from us. They create foreign policy problems for the many reasons I have enumerated before. In particular, they lead other countries to relate exceptions to our controls to all sorts of other foreign policy issues from base rights to the monetary negotiations, and they reduce U.S. exports and thus keep down or force down the value of the dollar. Others will correctly argue that we are refusing to export what they want while making U.S. goods which we want to export too competitive.

There does not appear to be any technically good way of imposing export controls. If we go with historical market shares, we have real problems with new customers like the USSR and China. If we go by already written contracts, we penalize those that buy on a regular basis instead of buying ahead. If controls are arbitrary, we have maximum foreign policy problems as every country tries for a higher quota. The best system is to auction off the right to export, but that raises legal and even Constitutional questions because it could be interpreted as an export tax. We probably would have to go to Congress to get a fairly good export control system. That would take time, but it would force Congress to share some of the responsibility, which might not be a bad idea.

Current Action

The line I plan to take tomorrow, subject to your approval, is that we cannot afford to be a zig-zag government, denouncing export controls and favoring the free market one day, and putting on export controls the next. We cannot afford to let the figures of the moment generate crisis action, especially since figures have changed so frequently from week to week over the past two months. Just ten days ago Shultz mentioned to me how well the commodity market was doing. We should not rule out export controls if the situation requires them later, but we should not put them on hastily under the immediate pressures of prices in a fairly narrow futures’ market.

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During the next few weeks we should:

  • —Advance our work toward the best possible export control system.
  • —Continue our consultations with other countries to discourage stock-building, and to lay the basis of understanding for controls if they are needed.
  • —At the technical level we should do everything possible to improve our understanding of the situation.

Delaying export controls for a month or even more is no disaster. Our ports and transportation system limit actual exports so only modest amounts of wheat will be shipped. In fact, most of the shipments will be against contracts made before June 13, when we placed the trade on notice contracts might be broken.4 We would want to honor these contracts in any case.

Over the next month, we will be able to judge how many products, if any, require controls, and do the homework necessary on control systems. Among other things we can do a study to see just how much the increases in grain prices will really affect the consumer. We can then take a measured decision with all the elements before us.

Emergency Consultations

Depending on the way the discussion goes tomorrow, it may be desirable to call a special high-level international meeting this weekend or early next week with the EEC, the Japanese and the Canadians. This will certainly be the case if there appears to be a consensus on the likelihood of export controls in the very near future. Joe Greenwald will be in the country and could attend, in addition to the usual battery of Washington officials. Even if we are forced to controls, we can avoid the kind of foreign policy disaster we had with soybeans.5

Recommendation

That I proceed as outlined above.6

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 403, Subject Files, Trade, Vol. VI, April 8–December 1973. Secret. Sent for action.
  2. No record of this meeting has been found.
  3. On August 6, the EEC banned hard wheat exports.
  4. See Document 174.
  5. See footnote 4, Document 175.
  6. Kissinger initialed his approval and wrote "Excellent" below it.