Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

359. Memorandum From Jacqueline Tillman, Raymond Burghardt, and Philip Hughes of the National Security Council Staff to the President’s Assistant for National Security Affairs (Poindexter)¹

Washington, March 25, 1986

SUBJECT

• Coffee and the International Coffee Agreement

The participation of the United States in the 20-year old International Coffee Agreement (ICA) is currently under review—both the economic and political consequences of renewal or withdrawal are being assessed. Participation in the agreement is confirmed by the Congress and we will have to determine our position by September.

Our understanding of the debate is that Allen Wallis at State objects in principle to commodities agreements; USTR believes this one has worked reasonably well, albeit with some problems. We and other colleagues are concerned about the foreign policy implications of withdrawal at this time to countries of significant importance to us—Central America, Colombia, etc.

This is a major issue in Latin America. Our withdrawal would be viewed as almost as radical a move as pulling out of the OAS. Colombian President Betancur, the new Guatemalan President and President Duarte have personally appealed to President Reagan for the US to remain in the ICA. Other demarches have been made at the ministerial and ambassadorial levels.

Doug McMinn’s bureau was tasked with preparing an objective economic assessment of US participation in the ICA for Wallis. Of particular relevance is the question regarding whether or not US consumers have been hurt by our participation in the agreement. Friends in ARA bootlegged to us a copy of Doug’s memo to Wallis (At Tab II).² It argues the following points:

— The agreement has by and large provided stability to coffee prices giving the producing countries substantial “income stability,” a particularly valuable outcome for debt-ridden economies.

— The agreement would operate better if country quotas were adjusted to reduce the Brazilian share of total world production.

— US withdrawal would eventually result in the demise of the Agreement.

The foreign policy dimension, which is our particular concern, is compelling:

— The price and income stability that the ICA produces is essential to the fragile, new democracies in Central America.

— Colombia would interpret US withdrawal as US indifference to its interests and could respond by lowering its commitment on narcotics. (This was emphasized to me in my recent trip to Colombia.)

— Overall, coffee is of exceptional importance to more than 50 developing countries for their export earnings, and consequently for the continuation of their development programs, foreign debt repayments and social and political stability.

Since the Economic Bureau has assessed that US withdrawal now would have little economic impact in the short run and that the cost to the US of staying in the agreement for the present time is also low, we believe that we ought to encourage that the U.S. renew its participation in the Agreement for the (normal) three year period. We recommend that you suggest to Secretaries Shultz and Baker and Ambassador Yeutter (in the memo at Tab I)³ that we agree to remain in the ICA for three years and couple this decision with demarches to the LDCs for which coffee is an important commodity and the European consumers that our decision to stay in the Agreement subsequent to this renewal will be based on concrete work to address the problems currently affecting the ICA. This would be a good time to address these problems because the Brazilian drought has produced somewhat of a windfall for countries like Colombia and the Central Americans, and they would be able to be more objective and less emotional than if this were a more problematical period.

RECOMMENDATION

That you sign and forward your memorandum to Secretaries Shultz and Baker and Clayton Yeutter at Tab I.⁴

Steve Danzansky concurs.⁵

1. Source: Reagan Library, Stephen Danzansky Files, International Trade Subject Outline, II (L) Commodity—Coffee 11/19/1985–03/30/1986; NLR–733–1–45–3–4. Confidential. Sent for action.
2. The March 20 information memorandum from McMinn to Wallis is attached but not printed.
3. Attached but not printed.
4. Poindexter initialed the “Approve” option and wrote: “Use memo as our position in TPRG & EPC.” He also drew a line from his initials to the bottom margin and wrote: “I talked to Shultz about it and I think he will suggest our position.”
5. Danzansky concurred and added: “with the principle but disagrees that letter should be sent to Baker et al. Recommend Admiral raise with Shultz at breakfast to get Secretary’s views. Thereafter if JMP agrees with principle, we will deal with it at TPRG and EPC—.” Below Danzansky’s comments, Burghardt wrote: “We believe strong NSC signal required before TPRG to assure correct decision on very important issue. Ray.”