135. Memorandum From C. Fred Bergsten and Arnold Nachmanoff of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1 2

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  • Solution to Coffee Problem with Brazil

The State Department believes that there is now a good possibility of settling the long-running dispute between the United States and Brazil on our imports of soluble coffee from Brazil. Settlement of this issue is necessary before Congress will enact legislation prolonging U.S. participation in the International Coffee Agreement. Collapse of the Agreement, which would result if we disavowed it, would harm our relations with about forty coffee producing countries.

You will recall that, at the end of the last session of Congress, we almost failed to get extension of the legislation permitting continuation of U.S. participation in the International Coffee Agreement into this year. The Congress, however, finally passed a bill extending the enabling legislation until July 1971 but stipulating (in the Committee report, not in the law) that, unless the soluble coffee issue were resolved by April 1st, the Congress would not extend the legislation further.

This situation had arisen because of Congressional irritation—especially by Chairman Mills—over Brazilian shipments of subsidized soluble coffee to the United States. The subsidy arose because Brazil taxed its exports of green coffee, which are used by U.S. soluble manufacturers, but charged no such tax to its domestic soluble producers; the Brazilian soluble producers thus got a cheaper raw material than their U.S. competitors.

State is now working out an arrangement with the Brazilians. It would permit us to import some Brazilian green coffee exported without paying the Brazilian export tax, thereby eliminating the subsidy aspects of the Brazilian soluble shipments. This is a radically different solution from those which had heretofore been discussed, i.e. Brazilian taxes or U.S. customs levies on the Brazilian soluble coffee shipments. It is a much better alternative because it would equalize the Brazilian green and soluble exports by reducing a trade barrier rather than creating a new one. One reason for Brazil’s greater flexibility on the issue now than last December is that they have awakened to the fact that they would be major losers if the Coffee Agreement collapsed.

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State has informed Chairman Mills of this outline, and ascertained that it is a solution which the U.S. coffee industry would find satisfactory. Mills is pleased. State has sent negotiators to Brazil to work the matter out. There will undoubtedly be some troublesome details, but State understands the importance of settling the matter to Mills’ satisfaction, if possible.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 771, Country Files, Latin America, Brazil, Vol. 2, September 1970–July 31, 1971. No classification marking. Sent for information. Kissinger initialed the memorandum. Brazil and the United States reached an agreement on soluble coffee on April 2. See U.S. Treaties and Other International Agreements, Vol. 22, Part 1 (1971), pp. 654–659.
  2. Bergsten and Nachmanoff reported the Department of State’s belief that there was an opportunity for Brazil and the United States to settle a dispute over Brazilian coffee exports. Resolving the dispute had larger ramifications for other coffee producing nations.