[Page 991]

332. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • U.S. Policy toward New U.K. Agricultural Measures

Issue

A British delegation will be here on Friday2 to discuss the U.K.’s proposed new agricultural policies with State and Agriculture, at the Assistant Secretary level. The meeting is a follow-up to a lower level session held in London three weeks ago, at which the British explained their new approaches and sought U.S. approval for them. Depending upon the outcome this week, Heath may raise the issue with you next month, and seek your support for his proposals.3

State and Agriculture, via the memo from Acting Secretary Irwin at Tab A,4 have recommended that you approve a position for use at the meeting on Friday (and thereafter) via which:

—We would first try to convince the British that postponement of their proposed action would have beneficial effects on the world trading system, admittedly with some disadvantages for themselves.

—Failing that, as seems probable, we would indicate that we could not assent to their changes and must reserve our rights under the GATT to defend our trade interests, not committing ourselves to any specific subsequent course of action.

Background

The British have decided to change their basic approach to agricultural policy, as part of Heath’s basic economic approach. At present the income of U.K. farmers is supported through direct subsidies from the British budget. Instead, Heath now wishes to support the income of U.K. farmers by setting higher prices for their products and forcing the consumer to pay directly. The British have two objectives: to reduce the budgetary cost of agriculture, and to bring their own agricultural [Page 992]system closer to the system of the Common Market, which they will have to adopt anyway if they succeed in entering it.

The U.S. and other third parties are concerned about the shift because of its impact on our farm exports to Britain. We have no firm estimate of the trade effect, though no one expects it to be very great in the short run. There could be a more serious long run effect as higher prices lead to reduced U.K. consumption, and hence fewer imports.

The main immediate effect of the British step relates to trade policy, rather than actual levels of trade. The U.S. agricultural community regards the step as further evidence of European protectionism, and the “coalition” of twelve leading farm groups has written you to urge strong U.S. opposition to the British move. Failure of the U.S. to react strongly will add to Congressional support for the Mills bill5 and future protectionist steps.

In addition, we have clear rights under the GATT and other treaties under which the U.K. is bound not to raise its tariffs on the agricultural commodities in question. Prior to July 1, we have a clear legal right to veto the step under the so-called Pentapartite Agreement. Beyond that date, we have a clear GATT right to demand trade compensation for it. Failure to use these rights, or at least reserve them for future use, would be regarded as an extremely soft position.

The issue is enormously complicated by its relationship to the pending British entry into the Common Market. The U.K., as noted above, would adopt this type of agricultural policy anyway when it entered the Community. At that point, U.S. farm exports will clearly suffer because EC farmers, mainly French, will get preferential treatment in the British market. However, the increased high tariffs on agricultural products will presumably be offset by the reduced British tariffs on industrial imports, with no net impact on U.S. legal rights and hence no legal basis for us to seek compensation.

For the British to take the step in the context of Common Market entry would of course cause no less pain to our agricultural exporters, and it is precisely because they fear this result that they have leaped at the opportunity afforded by the unilateral U.K. agricultural move where we do have clear legal rights.

In essence—assuming that the U.K. will enter the Common Market—the step represents merely an acceleration of the U.K. move to the Continental system of agricultural policy, which we would probably have to accept later anyway both because of the foreign policy im[Page 993]plications and because we would have no legal rights in such a situation. However, the present unilateral step represents a clear violation of our rights and provides us with an opportunity to seek commercial redress while isolating the issue from Common Market entry.

Proposed Course of Action

In view of the legal and economic complexities of this issue, there are a wide variety of courses open to us. At one extreme, we could use the opportunity to try to get leverage on Common Market agricultural prices—the major bete noire of our agricultural community—through the U.K. negotiations with the Community. At the other extreme, we could fully accept the British step in recognition of its importance for Heath’s economic policy and his effort to enter the Community. State and Agriculture, the two agencies directly involved, recommend a two-step middle course.

They would first try to convince the British to postpone their action until EC entry had been negotiated, to defuse the issue now and thereby provide a modest counter-weight against the general trend of European protectionism which is in turn feeding the supporters of the Mills bill. If the British agreed to postpone, we would not have to take any action ourselves and would fully preserve our GATT rights for later.

Second, if the British—as seems likely—indicate that they were determined to proceed, we would indicate that we could not agree. This means that we would exercise our veto over the step until July 1, when our veto right expires, and subsequently reserve all our compensation rights under the GATT. In doing so, we would make clear that we support Heath’s basic economic policy and effort to join the Common Market, but indicate that we intend to pursue our clear legal rights in defense of U.S. trade interests.

In view of the tremendous—and justified—pressure from our agricultural community for a strong U.S. position against agricultural protectionism in Europe, and the risk that it will join labor in defecting from the much-thinned ranks of free trade supporters if rebuffed, I do not see how we could take a softer position. A stronger position, on the other hand, could create significant difficulties with Heath and raise doubts about our support for British entry. I believe that State and Agriculture have found the right balance, which will avoid significant political difficulties but meet the legitimate commercial concern of our agricultural community and display the kind of toughness on trade policy which will be necessary to fend off protectionist moves in the Congress.

A politically softer alternative is to adopt only the second of the two proposed steps: make no effort to talk the British out of their move, [Page 994]but indicate that we (a) cannot free the British of their obligation to maintain present prices until July 1 and (b) reserve our rights for compensation when they move after that date. This would run less risk of affecting our relations with Heath and of appearing to be a U.S. effort to inject itself into the UKEC negotiation, but would be less assuring to our domestic interests and would make no practical differences since we would expect to move to the second step anyway.

Recommendation

That you approve the proposed position on U.K. agricultural policy recommended by State and Agriculture.

Approve6

Disapprove, prefer only to block the British until July 1 and then reserve our rights without indicating that we oppose the British move at that time

Other

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 727, Country Files—Europe, United Kingdom, Vol. IV. Confidential. The memorandum is attached to a December 15 memorandum from Kissinger to the President that forwarded Heath’s November 23 message. See footnote 6, Document 331.
  2. November 27.
  3. Heath visited December 17–18. See Documents 334 and 335.
  4. Dated November 24, not printed.
  5. Reference to a trade bill introduced by Wilbur Mills (D–AR), Chairman of the House Ways and Means Committee, that included a provision for shoe and textile quotas.
  6. Kissinger initialed this option for Nixon on November 27. In a November 27 memorandum, Jeanne Davis informed the Department of State that the State-Agriculture Departments’ joint position on agriculture negotiations had been approved. (National Archives, RG 59, Executive Secretariat, General Files on National Security Council Matters, 1969–1972, Lot 73D288)