133. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1 2
- Soluble Coffee and Brazil
Legislative authority, for US participation in the International Coffee Agreement (ICA), which acts to stabilize world coffee prices, expired on September 30. The House Ways and Means Committee voted on October 6 to report out the bill extending US participation in the Coffee Agreement but on the condition that the Administration make a commitment to impose a fee on imports of soluble coffee from Brazil. This legislative problem stems from our long dispute with Brazil over its discriminatory tax policy with regard to soluble coffee. Until 1969 Brazil exported soluble coffee tax-free, but imposed a heavy tax on green coffee exports which resulted in a higher raw material cost for US soluble processors. Last year, the Brazilians imposed a 13% tax on soluble exports, but the US has maintained that a 30 cent tax is necessary to equalize the discrimination.
In October, Acting Secretary John Irwin recommended that although this action would seriously strain our relations with Brazil, where the issue is a highly emotional one, we agree to impose the fee on imports of Brazilian soluble as the necessary price for Congressional approval for extension of the Coffee Agreement. Because of your strong interest in maintaining close relations with Brazil, particularly in view of the situation in Chile, I asked Bill Timmons to try to work out a compromise solution with Chairman Mills, which would defer decision on imposing the 17 cent tax. That tactic worked and the Ways and Means Committee has reported out favorably a bill extending our authority to participate in the ICA through June, 1971 without an Administration commitment to impose the tax on Brazilian soluble. However, the Committee has indicated that if the problem with Brazil is not solved by March 30, it will not consider further extension of the Coffee Agreement.[Page 2]
This gives us four months in which to seek a cooperative arrangement with Brazil to solve the problem. Our new Ambassador to Brazil believes there is a chance of negotiating an arrangement and has made some suggestions regarding a possible solution. The Brazilians have been informed that the Administration’s decision to defer imposition of the tax was taken in the interest of maintaining good relations with Brazil and in the hope that a mutually satisfactory solution can now be negotiated. It is now important that we take active steps to seek such a settlement before March 30 and, to prepare the Congress and the industry to accept it.
That you authorize me to inform State that you wish to continue to defer a decision to apply the 17 cent tax on Brazilian soluble coffee, and that you want them to make vigorous efforts to achieve a negotiated settlement with Brazil, and to work concurrently with the industry and the Congress so that the Congress will find the settlement satisfactory.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 771, Country Files, Latin America, Brazil, Volume 2, September 1970–July 31, 1971. Confidential. Sent for action. A stamped notation on the memorandum indicates the President saw it. Nixon approved the recommendation. Davis informed Eliot in a December 29 memorandum transmitting the President’s decision to the Department of State: “If a settlement cannot be negotiated by March 15, 1971, the President is prepared to reconsider the question of imposing a fee on imports of Brazilian soluble coffee at that time.”↩
- Kissinger recommended that the Department of State step up its efforts to negotiate a settlement with Brazil on coffee imports.↩