Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

262. Telegram From the Embassy in the United Kingdom to the Department of State¹

London, April 6, 1965, 1131Z.

4855. Dept pass Agriculture and STR for Hedges. Deptel 6290.² US–UK cereals agreement. Embassy has studied suggested note to UK Government on operation cereals arrangements and believes that certain changes should be made to make more effective presentation.

Principal changes suggested in draft, which follows below, deal with making more specific our analysis of price review decisions, making more positive our view that UK has made step toward meeting “spirit” of agreement but at same time stressing fact that further action necessary and procedures for consultation inadequate. Main Embassy suggestion is that, rather than present flat position, we immediately call for meeting with UK of principal exporters to discuss both adequacy of decisions taken at this year’s annual review and methods to improve effectiveness consultations provided for in agreement. Following is our suggested re-draft:

Begin text

(Para 1—no change.)

(Para 2)

The United States Government believes the reductions in the guaranteed prices for wheat and barley were a positive step forward by the United Kingdom in meeting the spirit of the agreement.

(Para 3)

The United States Government does however regret that the stand-ard quantity increase of 250,000 long tons for barley and 100,000 long tons for wheat were instituted. This increase in the standard quantity will have the effect of increasing wheat prices by 0.5 percent and barley prices by 0.85 percent. The net decline in wheat and barley prices will then be approximately 3.6 percent and 4.2 percent respectively. Estimates of the response in production made by British experts indicate that these price reductions will reduce wheat production by about 50,000 long tons and barley by 155,000 long tons, assuming yields did not increase. This possible decline in domestic production will only maintain import requirements at a level of 800,000 long tons below the minimum level of imports provided for by the agreement and by as much as 1.3 million tons if the balance between imports and domestic production were maintained. Consequently, it does not appear to the United States Government that the changes in guaranteed prices and other arrangements made for cereals will be sufficient to restore cereal imports to the levels foreseen in the agreement. The problem will be further aggravated by the fact that yields have been increasing in the past and will continue to do so in the future. This point was made by a Minister in the recent House of Commons debate when it was indicated that the decline in price for barley could easily be offset by increased yields through the use of more fertilizer and better seeds.

(New paras 4 and 5 replace rest of text)

Para 4. It is the view of the United States Government that additional corrective measures are required in accordance with paragraph 11 of the agreement. In order to present our views and in the spirit of full consultation provided for in the agreement, the Government of the United States wishes to request a meeting with the representatives of the Government of the United Kingdom and representatives of the other major supplying countries. We would hope that such a meeting would discuss not only possible additional corrective action but also the future procedure for conducting consultations. The Government of the United States believes that a procedure must be found which provides for effective consultations on the probable effects of planned changes in programs and not merely an opportunity to make representations.

Para 5. Our two governments are agreed that the agreement constitutes an important precedent for operation among cereal exporting and importing countries, particularly at this critical stage in the development of a broader GATT cereals arrangement. Therefore we believe that the issues raised thus far in the operation of this agreement must be frankly and fully discussed.

End text.

Please comment and instruct.³

Bruce

1. Source: Department of State, Central Files, INCO–GRAINS 17 UK-US. Limited Official Use. Repeated to Buenos Aires, Canberra, Brussels for USEC, and Geneva and passed to the White House.
2. Document 261.

3. Telegram 6709 to London, April 22, accepted this Embassy revised text, subject to the following changes: “Para. 3, replace the fifth sentence, beginning ‘;This possible decline’ with original sentence para. 3 ref. A) beginning ‘This should be compared with short fall imports of at least 0.8 million tons, etc.’ Believe this necessary for accuracy.

   “Paras. 4 and 5, substitute following: ‘It is the view of the U.S. Government that additional corrective measures are required in accordance with para. 11 of the Agreement. Our two Governments are agreed that the Agreement constitutes an important precedent for operation among cereals exporting and importing countries, particularly in this critical stage in the development of a broader GATT Cereals Agreement. We believe that the issues raised thus far in the operation of this Agreement must be frankly and fully discussed and ways found which ensure effective consultations on the probable effects of planned changes in programs and not merely an opportunity to make representations. To this end we would look forward to further meetings between representatives of our two Governments.’” (Department of State, Central Files, INCO–GRAINS 17 UK-US)