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

346. Circular Telegram From the Department of State to Certain Posts¹

Washington, July 7, 1967, 10:01 p.m.

3253. Ref: State Circular 215393.² Subject: Cocoa Agreement. Following is text of understandings reached at Ghana-US talks on operation of international cocoa agreement:³

1. Buffer Stock Mechanism

a. All cocoa—both that arising from quota cuts and surplus emerging at the end of year—must be sold to Buffer Stock. In the case of cocoa made surplus by quota cuts during the year, producers have option of cancelling contract if quota cuts are restored during year.

b. Buffer Stock buys surplus cocoa (up to each country’s share) at minimum price with appropriate differentials, subject to the following conditions: (1) 50% payment on delivery of cocoa and (2) remaining 50% when and if cocoa is sold and all costs and carrying charges have been met.

c. Each exporting country is allocated a share of the Buffer Stock capacity, proportionate to its basic quota. Any additional surplus cocoa is purchased at the margarine price, but can be held by the Buffer Stock for possible subsequent resale if conditions warrant. Cocoa purchased at the margarine price would be paid for in full on delivery. If such cocoa is subsequently resold for normal market uses, the difference between the margarine price and the minimum price would be paid after all costs and carrying charges have been met.

d. Buffer Stock buys surplus cocoa directly from producing countries; it does not operate in spot or futures markets. Buffer Stock buys cocoa beans only—no products. It sells cocoa to the market under conditions set by Council and through established channels of trade.

e. At end of agreement, Buffer Stock funds and assets shall be transferred to successor agreement in amounts decided by Council. If cocoa agreement is not renewed, any cocoa in Buffer Stock would be sold on an agreed basis, designed to minimize market disruption. Funds then shall be used for purpose of economic development in producing countries, through regional development banks or such other means as may be agreed. Such funds would be earmarked for use in producing countries in proportion to sales levies paid.

2. Trade Barriers—Tariff Preferences

It is desirable that a solution to the problem of tariff preferences should be sought during the course of negotiations of a cocoa agreement.

3. Allocation of Votes

It was recognized that as a general principle votes should be distributed in proportion to each country’s share in world trade. It was recognized that allocation of votes among producers and among consumers need not necessarily be done in the same manner, as producers may wish to allocate a minimum number of votes to each small producer. No maximum limit should be placed on the number of votes held by any member.

4. Prefinancing

It was agreed that prefinancing is not a major issue to be resolved. In view of the current and short-term prospects for the cocoa market, there would appear to be adequate time for funds to be accumulated from the sales levy. If these accumulated funds did not prove to be entirely adequate, resort could be had to financing from commercial and other sources. The subject of contingency financing should be explored by a Working Party after negotiations are concluded.

5. Indicator Price—Minimum Price—Price Range

It was noted that the indicator price reflects the current market price of the lowest grade of cocoa deliverable on the Exchanges, and that other cocoa normally commands a higher price. The price range should be 8–10 cents, with the minimum and maximum prices serving as guidelines for appropriate action under the agreement. There will be one intervention point above the minimum price requiring a quota cut and an additional quota cut would be required at the minimum price. A trigger point near the top of the range requiring Buffer Stock sales might be introduced, but in any event all cocoa in the Buffer Stock would be offered for sale at the maximum price. The minimum price will be 20 cents and the intervention price 21 cents.

6. Standby Operation of the Agreement

It is anticipated that under conditions such as the present, the sales quota and other stabilization features of the Agreement would not be operative. In all circumstances, however, sales would be registered and the levy collected so that surplus cocoa could be effectively removed when world over-supply occurs.

Rusk

1. Source: Department of State, Central Files, INCO–COCOA 4. Limited Official Use. Drafted by Morton Abramowitz (E/ORF/TRP) on July 7; cleared by William Kling (AF/AFI), Liane Atlas (IO/OES), and Bashkin (Commerce); and approved by Fried. Sent to Accra, Abidjan, Lagos, Lome, Rio de Janeiro, Yaounde, USUN, Geneva, Bern, Bonn, London, Paris, and The Hague.
2. Circular telegram 215393, June 23, quoted the text of a message to be delivered to Prebisch on June 26, informing him of the progress made in the U.S.-Ghanaian talks on cocoa but requesting postponement of the New York meeting of the cocoa consultative group on July 10 to allow for more time for these bilateral discussions as well as consultation with the U.S. consumer colleagues. (Ibid.)
3. During a conversation with Ghanaian Ambassador Abraham B. B. Kofi on January 12, Assistant Secretary Solomon suggested among other things that it “might be useful for Ghana as largest producer and US as largest consumer to have quiet bilateral talks to seek areas of agreement and make progress toward successful negotiation. Ambassador Kofi reacted with enthusiasm and said he was about to make same proposal.” (Circular telegram 119626, January 16; ibid.) These bilateral talks began in earnest in Washington on June 20.