Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

278. Letter From the Special Representative for Trade Negotiations’ Executive Assistant (Auchincloss) to the Special Representative for Trade Negotiations (Herter)¹

Washington, March 8, 1965.

Dear Governor:

Naturally we are all hoping that you are feeling much better and will be back soon. Are there lady doctors to look after you in New York as there were in Geneva?²

Here is another short run-down on what has been going on:

1. Agriculture: At the EEC Council meeting last week, the 3-step schedule for the agriculture negotiations was approved in very short order. It calls for:

a) negotiations on grains to begin April 1.

b) a confrontation between all participating countries, starting April 1, on their policies on all other agricultural products with the objective of identifying the elements of support and protection which should enter into the negotiations.

c) presentation of concrete offers on other products on September 16. The Community offers, according to the Article 111 Committee report to the Council,³ will be decided at the last Council session in July “in conformity with the mandate of December 1963. In deciding on Community offers, the Council will take account of the results of negotiations on cereals and of the confrontation of agricultural policies and of the status of work within the Community regarding the elaboration of the CAP.”

Wyndham White has called a TNC meeting for next week, principally to settle the agricultural timetable. He plans to submit a short paper on these procedures for advance agreement this week by the UK, EEC, Japan, and U.S.

We have cabled Blumenthal asking for clarification of whether September 16 date clearly unconditional in view of the last sentence (above) in the 111 Committee report.⁴ We also ask for clarification of the EEC’s view of the April–September discussions on agricultural policies. In our opinion, these should amount to exchange of factual information and of views as to type of offers expected on specific products. We authorize him to approve, ad referendum, a paper which clearly makes the September 16 date unconditional, clearly requires specific offers on grains, and is as unambiguous as possible on April–September discussions, avoiding implication that purpose of the exercise is to agree on or identify elements to be encompassed by subsequent offers.

2. Other Kennedy Round Issues: Wyndham White also hopes at next week’s TNC meeting to gain agreement on a rule for the participation of LDCs and others with which negotiations are not yet engaged. The progress of bilateral talks on the industrial exceptions lists and the future negotiating plans will also be taken up.

3. Canada and LDC Country Teams: Mike Blumenthal has asked that the Canadian and LDC teams now proceed to Geneva, and we are arranging to get them there during the next 4–5 weeks.

4. Escape Clause Case on Watches: The Tariff Commission’s report was released Friday.⁵ The Swiss reaction was that it contained both favorable and unfavorable elements, but they spoke of “entirely new atmosphere” in trade relations between our two countries if President does not decide to remove the escape clause action entirely. The TSC is beginning its review of the report.

5. U.K. Grains Agreement: Minister Peart has replied to the letter we sent in your name.⁶ He expresses understanding of our position and recognition of the UK’s obligations, but explains that it would be contrary to the terms of the Annual Farmers’ Review to inform us of the steps they plan to take before the Review is over. We have replied with an Aide-Memoire indicating that we appreciate that the British cannot give us definitive indications of these steps in advance, but we had hoped that they could meet with us to discuss their preliminary thinking on the 1965/66 standard quantities and guaranteed prices for cereals.

6. Canadian Auto Parts Arrangement: The only interagency issue left in drafting the Bill concerns subpoena power. John Rehm hopes that it can now be put in shape in quite short order.

7. Public Advisory Committee Meeting: At the meeting last Thursday, the Vice President gave an excellent and charming talk and Mr. Clayton made a strong statement on the agricultural negotiations (copy enclosed).

8. Space: We are grimly hanging on to our offices but have thrown the White House a sop by vacating 4 rooms down the hall.

Very best regards and warm hopes from us all that we will see you shortly.

Sincerely,

Ken

Enclosure⁷

STATEMENT PRESENTED AT THE MEETING OF THE PUBLIC ADVISORY COMMITTEE FOR TRADE NEGOTIATIONS

By Mr. W.L. Clayton

March 4, 1965

Agriculture is the main problem in our negotiations at Geneva.

Our agricultural exports to the European Economic Community have recently amounted to a little under $1,200,000,000 annually, or approximately an average of one third of our total exports to the EEC.

The representatives of all nations taking part in the Kennedy Round unanimously adopted at the GATT Ministerial Meeting in May, 1963, a resolution which—among other things—set forth the following principle:

“That a significant liberalization of world trade is desirable, and that, for this purpose, comprehensive trade negotiations … shall cover all classes of products … including agricultural … products … that the trade negotiations shall provide for acceptable conditions of access to world markets for agricultural products.”

In the same resolution, the Ministers further directed the Trade Negotiations Committee to elaborate “the rules to govern, and the methods to be employed in, the creation of acceptable conditions of access to world markets for agricultural products in furtherance of significant development and expansion of world trade in such products.”

In the view of the United States, these resolutions, adopted by the Ministers, adequately define the agricultural objective of the Kennedy Round.

Following the meeting of the GATT Ministers in May, 1963, an intensive effort was made to develop the rules and procedures for the agricultural phase of the negotiations. Two proposals were considered, one made by the USA, and the other made by the EEC. The U.S. proposal provided that agricultural products should be given treatment comparable to that of industrial products. The EEC proposal was a highly technical and involved plan relating to the freezing of the margin between domestic support prices and certain world reference prices. Among other objections, this would, if agreed to by the United States, have probably deprived the U.S. Congress of the power to legislate on farm prices.

In the Chase Manhattan Bank Circular No. 30, issued in June–July 1964, this paragraph appears:

“The United States has a one billion dollar stake in the Common Market’s new agricultural policies. During recent years American farmers have been supplying the Common Market countries with such agricultural products as wheat and flour, feed grains, cotton, and tobacco. American farmers had expected a gradual expansion of this market along with Europe’s growth in population and income. Instead, the Common Market now promotes a policy that stimulates Europe’s high-cost agriculture and tends to reduce the import demand for low-cost, efficiently produced North American farm products.”

On December 15, 1964, the Community’s Council of Ministers agreed on the levels of grains prices within the Community, to go into effect July, 1967. The target wholesale prices have been set as follows:

• Wheat—$2.89 per bushel
• Corn—2.30 per bushel, and
• Barley—1.99 per bushel.

These prices may be considered to be at the same point in the Community market system as wholesale grain prices in the United States in major markets, such as Kansas City and Chicago.

These prices will result in prices to domestic producers in the Community of $.80–.90 a bushel higher for wheat than the U.S. farmer receives and almost double the U.S. farm prices for corn.

Under the Community’s grain regulation, a levy is to be paid on imports of grain to assure that the price of imported grain is at least as high as these target prices. If the U.S. or any other exporter is more efficient in grain production and offers grain at lower prices, it simply attracts a higher levy. Under these circumstances, the U.S. competitive position cannot be improved in the Community market.

This season, the U.S. export subsidy on wheat will average about $.25 a bushel. The Community at the same time has been paying an export subsidy of about $1.25 a bushel.

After the common agricultural grain policy is fully operative, these export subsidies will be financed from levies collected on our grain exports to the community.

The Community’s price levels for grains, as stated above, are almost certain to stimulate production, at least in France, and thus reduce the exports of more efficient grain-producing countries.

Tariff concessions obtained by the U.S. in the Dillon Round would be jeopardized by the introduction of reference prices and the possibility of levies if offering prices fell below reference prices. This could impair existing bindings and would not meet the objective of trade liberalization, which can only be achieved by reducing trade barriers.

In view of the above I have told Mr. Herter if I were in his position I would say to the EEC at the proper time that if agriculture were not included in the negotiations in Geneva that there would be no negotiations.

I feel sure the American people would completely support this position.

Naturally this would have to be done with the approval of the President of the United States.

1. Source: Kennedy Library, Herter Papers, Kenneth Auchincloss, Box 5. No classification marking. Herter’s initials appear on the source text.
2. Herter was in the Presbyterian Hospital in New York.
3. The report has not been further identified.
4. Reference is to telegram 2615 to Geneva, March 5. (Department of State, Central Files, AGR 3 GATT)
5. The Tariff Commission reported the probable economic effect on the domestic watchmaking industry of restoring trade-agreement concession rates of duty on watch movements as follows: (1) lower cost for imported watch movements; (2) lower watch prices; (3) assembly of watch movements in the Virgin Islands less attractive; (4) increased imports of watches with imported movements; (5) increased U.S. market share of watches with imported movements; and (6) increased imports by U.S. watchmakers. (Announcement of March 5 by Donn H. Bent, Secretary of the U.S. Tariff Commission; 30 Federal Register 3341)
6. Not further identified.
7. No classification marking.