286. Memorandum of Conversation1

SUBJECT

  • Commodity Initiative

PARTICIPANTS

  • The Secretary
  • Deputy Secretary Ingersoll
  • Thomas O. Enders, Assistant Secretary for EB
  • Julius L. Katz, EB/ORF
  • Robert Morris, E
  • Charles Frank, S/P
  • Paul H. Boeker, EB/IFD
  • Jeffrey Garten, EB/IFD

The Secretary: Would you please outline the basic proposal?

Mr. Enders: We have a proposal for a new commodity framework.

The Secretary: You can’t clear it, but you can design it.

Mr. Enders: The proposal entails an umbrella code for trade in commodities, a new international institution which involves major commodity exporters and importers. Among the principles of the umbrella code, are access to supply and access to markets. The proposal grapples with the North-South issue. It also addresses the UNCTAD problem and pertains to the producer-consumer conference on oil as well as to the upcoming Special Session of the United Nations.2 The basic concept is for you to take preemptive action politically, but the proposal also has substantive economic interest. For the United States, for example, there is a substantial economic penalty to the wide swings in the prices of commodities. We are very concerned that in the future, when the United States will be importing a greater percentage of its consumption that because of the cyclical price swings, investment in raw materials will not be sufficient.

The Secretary: How would this plan operate?

Mr. Enders: We would have an umbrella organization—call it a world commodity organization. The organization would have a code which would specify contractual arrangements.

[Page 986]

The Secretary: Wouldn’t this be like the Charter of Economic Rights and Duties?3 That is something we cannot accept.

Mr. Katz: Yes, it would.

Mr. Ingersoll: But there would be different actors.

The Secretary: Who would they be?

Mr. Enders: It would be a special group composed of major importers and exporters.

The Secretary: But how do you know you would not end up with another Charter of Economic Rights and Duties?

Mr. Enders: There is no way to tell, but we could always abort the effort.

The Secretary: Why would this exercise turn out better than the producer-consumer energy conference, which we all agree will be a disaster? What exactly would we negotiate?

Mr. Enders: We would negotiate an overall set of obligations. They would pertain to such things as access to supply. We would also try to negotiate some type of anti-cartel provision. Of course, these things must be balanced by provisions relating to access to markets and access to financing.

The Secretary: But, when these raw materials producers turn into cartels and become like OPEC, they don’t need access to financing.

Mr. Enders: But, in effect, very few producers would be in that position.

The Secretary: Let me understand this. Isn’t this a big commodity agreement?

Mr. Enders: No Sir.

The Secretary: Who would be interested unless we set a price?

Mr. Enders: The real purpose here is setting up a procedural mechanism. Part of this is preemptive. With the British swing towards market organization and with UNCTAD, the Algerians and others able to exploit this as a North-South issue, it is important that we respond.

The Secretary: What does it offer the producers?

Mr. Enders: Tariff concessions on processing industries and better access to financing. There would be an effort on the part of producers to get some price stabilization. No doubt we would have to go into some arrangement of this type.

Mr. Morris: We would emphasize internationally coordinated rules regarding national stockpiles.

[Page 987]

The Secretary: Who would have stockpiles?

Mr. Katz: They would have to be financed.

Mr. Enders: Another part of the overall proposal is domestic stockpiles to give us negotiating leverage and bargaining power.

Mr. Boeker: Where we could negotiate suitable arrangements we would be willing to subordinate our domestic stocks to international arrangements.

Mr. Ingersoll: There would be massive domestic objections. This is especially true concerning moving processing to other countries.

The Secretary: I still don’t understand what we get out of it.

Mr. Enders: Access to supplies, moderation of price fluctuations. We may be facing a trend of decreasing supplies globally, and we need investment growth.

The Secretary: How does this help?

Mr. Enders: Through separate agreements.

The Secretary: (looking at Mr. Katz) You don’t agree?

Mr. Katz: You are very perceptive. I don’t agree with the umbrella approach. It is not very relevant to LDC goals. I do agree with Tom’s underlying concern. Fluctuation in commodity prices is a problem. Access to supply is, however, not well secured by pledges. Commitments would have to be highly hedged. The same goes for market access. The end result would be highly qualified rules. We need a change in our attitude, however, toward market interference. In the past, we have played a fairly agnostic if not negative role. To get increases in our production capability I am not particularly concerned with our increasing dependence. We have a general interest in increasing production capacity anywhere we can. We should increase investment incentives. Our approach should be more to the economics of the situation not in the direction of codes, and we should remember that LDCs do not want increased production. Actually it is in their interests to retain a situation of fewer rather than more supplies.

The Secretary: Why have codes?

Mr. Enders: We need the right type of environment.

The Secretary: But can’t you ignore codes?

Mr. Katz: Yes. That is what has happened with respect to coffee and tin. Our experience is that when you get into specific agreements and specific problems, you get professional, serious negotiations.

Mr. Boeker: The advantage of a code is basically political. It would give more drama to a U.S. policy reversal.

Mr. Katz: We could do this unilaterally. It would have equal political impact.

The Secretary: What do you think, Bob?

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Mr. Ingersoll: I am worried about a code. I am not antagonistic to commodity agreements, but I can’t understand how the United States won’t get its brains beaten out in a multilateral drafting of a code. The result might be that we won’t get what we wanted and, if we do, we would lose more than we gained.

Mr. Enders: The real purpose here is political. The content of the code is not as important. If it failed we would have an umbrella organization.

The Secretary: What would we be up against domestically? Treasury would go amok, wouldn’t it?

Mr. Katz: Treasury would be sympathetic to rules if commodity agreements were not involved.

The Secretary: Then, we would have nothing.

Mr. Ingersoll: I must say, I am tempted to swing in the direction of commodity agreements.

Mr. Enders: The British are going in this direction.

Mr. Katz: The British are not really changing.

Mr. Ingersoll: What about the Europeans?

The Secretary: I think the Europeans are moving towards cartelization.

Mr. Katz: I am not opposed to commodity agreements; they just won’t work. People have misread what OPEC is. It is not a real cartel. It has never been put to the test of allocating production.

Mr. Enders: The main point is political; breaking up the bloc of 77.

The Secretary: I am not against commodity agreements. I am just trying to understand this proposal.

Mr. Katz: We could break up the bloc of 77 with four agreements: coffee, cocoa, tin, and copper.

The Secretary: How would that break up the bloc of 77?

Mr. Katz: It would involve all the major countries. We would show we are prepared to take on commodity problems and to deal with the facts at hand. The other thing that bothers me about an institution is that it increases the political problem.

The Secretary: Could we get consumers together?

Mr. Ingersoll: Could you do the separate commodity agreements without the umbrella?

Mr. Enders: Yes, but with less political impact.

The Secretary: How do you get from the umbrella to separate agreements?

Mr. Ingersoll: We may get further with a few agreements.

Mr. Frank: The idea is not to do it all at the same time.

Mr. Morris: Robinson is agnostic regarding separate agreements.

The Secretary: How about getting the consumers together first? I [Page 989]am for commodity agreements. I am assuming that the Europeans will double-cross us any chance they get.

Mr. Enders: The White House people understand the need for a new position.

Mr. Boeker: However it is done, two elements are essential: financing and domestic measures.

Mr. Katz: Financing is very important. Part of it could be collected from trade itself.

Mr. Morris: Maybe we could propose a financing organization alone and begin with that.

Mr. Enders: This is where it’s different from the Charter of Economic Rights. Now we are putting money on the table. We are talking about access to markets and financing and about tariffs. People will be more serious. There is no question that we need national stockpiles.

The Secretary: Aren’t we liquidating stocks?

Mr. Enders: I am talking about stockpiles for economic purposes.

The Secretary: I want to get into commodities, but I am afraid to get into negotiations without knowing the principles we want.

Mr. Enders: We do know. Contracting parties will exchange commitments. They will do this only in the framework of specific agreements.

Mr. Katz: This is not meaningful.

Mr. Enders: What you actually get depends on the specific agreements.

The Secretary: Would you please do a paper examining the advantages of this two-step approach and what the alternative routes would be? I would be reluctant to get into a consumer-producer dialogue without having our position lined up with consumers.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P820123–0999. Limited Official Use; Nodis. Drafted by Garten and approved in S on May 11.
  2. The Seventh Special Session of the United Nations General Assembly took place from September 1 to 16.
  3. UN General Assembly Resolution A/RES/29/3281, December 12, 1974, adopted the Charter of Economic Rights and Duties of States. The United States voted against the resolution.