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

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

London, December 10, 1965, 1715Z.

2666. Pass STR and Agriculture. Annual review UK grains agreement concluded December 9. Highlights as follows.

1. Exporter dels met December 8, reached general accord UK would be told (a) agreement not working and UK actions under agreement insufficient; (b) failure implement agreement has serious implications for cereals negotiations Kennedy Round; (c) UK economic plan raises questions re UK intentions implement agreement. Hedges outlined UK position that action required to implement agreement by end annual price review or we would have seriously to consider terminating agreement. Canada del (Schwartzman) took somewhat softer line. Argentines (Marco) favored above general line without taking position re ultimatum. Australia (Carmody) joined other exporters in expressing disappointment over operation of agreement, but disassociated Australia from UK position. Meeting with UK del proceeded along these lines.

2. UK del (Engholm, Sparks, Askew) stated essentially UKG has acted fully in accordance agreement, that actions taken by UK greater than they would have been in absence agreement. Engholm noted that world wheat demand-supply situation had created firm market in which UK target indicator price mechanism not able come into play, therefore price machinery set up to implement agreement frustrated. He noted also that shifts in world supply situation had favored major exporters in UK market, essentially that big four exporters had gained somewhat at expense lesser exporters. Engholm concluded it up to major exporters to show that UK actions under the agreement had not been sufficient and attempted to distinguish between appropriateness actions taken—maximum possible cut in guaranteed price and minimum possible increase in standard quantities—and their effectiveness in altering imbalance between imports and domestic output in consumption.

3. US del commented world market situation influenced by many factors including US output restrictive policy, level US stocks and grain demands LDC’s; that US exports UK down about 12 percent, roughly same percentage as overall shortfall and in any event performance under agreement ran to total volume imports not position particular suppliers. Canada del stated that, even assuming UK view world market situation correct, UK still expected take action to restore balance between imports and domestic output. Australian and Argentine dels generally agreed.

4. Engholm responded UKG was looking forward in spirit agreement not in letter and had taken every maximum action possible in light (a) UK agriculture political situation; (b) balance payments problem; (c) difficulties in Parliament. Added that actions taken last annual price review could not affect immediate situation and it too early judge their effect. Nevertheless he anticipated actions taken would not halt growth in output, but might level off curve. US reiterated UK had been warned by exporters last year that price changes would not have significant effect; that so long as target indicator prices set at or below minimum import prices mechanism could have no additive effect.

5. Engholm vacillated in presentation between position that UK had taken adequate corrective action, and position had taken all possible action in light of domestic political and balance of payments considerations. Specifically disavowed under questioning, however, UK was pleading inability take further corrective action for balance of payments reasons.

6. Re UK economic plan, Engholm took position earlier reported, but noted re cereals that balance of payments situation dictated meeting great portion new requirement from domestic output.

7. In discussion Kennedy Round implications, Sparks said he criticized in Geneva for vagueness offers but such criticism colored by disappointment exporters with results UK grains agreement. He indicated UK had gone about as far as could be expected and unless others were more forthcoming, more modest arrangements might be necessary. US del replied we had hoped UK agreement would have value as precedent stimulate movement toward and set guidelines for broader cereals arrangement and that agreement subsequently would be subsumed in the broader agreement. US del stated he had not expected that UK agreement would be buried in GATT arrangement and that if UK did not take action to implement agreement it would have negative value for KR. Concluded with plea that each participant be forthcoming in KR, that basing offers entirely on expectations of what others did was formula for assuring no negotiations would take place. Concluded with statement in position paper that UK would have seriously consider terminating agreement unless further corrective measures restore volume imports taken by end of annual review, and that importance agreement for KR would weigh heavily in decision.

8. Canada del took line that working of UK agreement had serious implications for conclusion of an effective cereals arrangement in Kennedy Round, and that concluding KR cereals arrangement was prerequisite to successful KR agreements on industrial and other goods in which UK has direct commercial stake. Australian del urged compliance with terms UK agreement but specifically disavowed any intent to denounce the agreement.

9. In summarizing, Engholm retreated somewhat from his earlier position that he was not convinced that exporters had shown a need for further action or that the actions taken would not in themselves be effective. He said exporter disappointment with performance would be taken into account in the annual price review, but that it was important not to underestimate the significance of UK actions so far and particularly important for exporters to distinguish between appropriateness of actions taken and their results.

10. US del emphasized this meeting was start of review and that we would wish consult further at any time re contemplated UK actions to implement the agreement. Engholm refused to commit UKG to detailed consultations.

11. On balance we believe UK somewhat taken aback by vehement insistence exporters on compliance with agreement and by unwillingness exporters accept actions taken by UK as adequate. Believe US position fully understood. Engholm obviously affected by strong US line, even though line not wholly supported by other exporters. Weak position Australians re future of agreement reflects inter alia bilateral UK-Australian deal to implement fully 750,000 ton arrangement in trade agreement. Carmody told US del member that Australia has made offer to hold that quantity for UK out of new crop and Australians fully expect it to be bought.

12. We believe that Engholm and other civil servants genuinely wish maintain agreement but realize that they have particularly difficult task this year to convince Ministers take further action. If this assessment correct, Engholm now has strong reaction to present his Ministers. We should plan on supplementing this during course of price review.

Bruce

1. Source: Department of State, Central Files, INCO–GRAINS 4 UK. Limited Official Use. Repeated to Buenos Aires, Canberra, Geneva, and Ottawa and passed to the White House.