Foreign Relations of the United States, 1964–1968, Volume XIII, Western Europe Region

319. Memorandum of Conversation¹

Washington, July 15, 1968.

SUBJECT

• EC Subsidies for Exports to Third Markets

PARTICIPANTS

• EC Commission
  • Mr. Pierre Malve, Deputy Chief of Cabinet to EC Commissioner Deniau
• United States
  • Mr. Anthony Solomon, Assistant Secretary for Economic Affairs
  • Mr. Stephen Rogers, Officer in Charge European Regional Affairs, Office of OECD, European Community, and Atlantic Political-Economic Affairs
  • Mr. Arthur P. Allen, Assistant Chief, General Commercial Policy Division, Office of International Trade
  • Mr. William E. Barreda, General Commercial Policy Division, Office of International Trade

Mr. Solomon began by saying the US and EC are headed for a collision on the Common Agricultural Policy. We recognize that the EC needs a CAP, but the protection level and subsidies are too high. EC subsidies for exports to third markets, such as those for lard and barley, are especially serious for us. Our farm community views them as an attack by the EC on our foreign markets. We will have to do something or our liberal trade policies now being threatened by protectionists will lose the support of agriculture—politically the most powerful group in favor of liberal trade. Mr. Solomon asked Malve if something cannot be done about the subsidy problem.

Malvé said the US had missed an opportunity in not negotiating with the Community on the latter’s MDS proposals in the KR since binding of the MDS would have set a limit to export subsidies and to internal EC prices. This proposal represented an enormous step for the Community. Today European farmers will not hear of any limitation on export subsidies. Mr. Solomon replied the EC had insisted on too large a differential between Community prices and world prices. Mr. Malve agreed the margin of support demanded by the EC had been too large but said it had been very difficult to make it smaller since the proportion of the Community population which gets its living from agriculture is still about 20% of the total, hence a major political force.

Mr. Malve said that for the present a new round of generalized negotiations is not feasible. A long-term solution will be provided only by the Community acting unilaterally. In the meantime bilateral talks might be helpful in avoiding a US/EC conflict over subsidies. Eventually the EC would have to find the courage to overhaul the CAP which, it is already widely realized, is not the best policy. Other countries obviously cannot accept a situation in which the EC restricts access to its own markets and at the same time expands exports by means of subsidies. In the absence of an authority which could arbitrate differences, the CAP was pieced together by simply adding the extreme demands of each of the Six. Price levels were thus set for the needs of marginal producers with the result that the costs of the CAP are too high and efficient producers (e.g. of wheat) are, in Malve’s view, getting rich. An overhaul of the CAP should start with a division of Community agriculture into three categories—production that is competitive, production that could be competitive if given some assistance, and production that should be abandoned (i.e., all production in a few regions, certain products in certain regions). But before such an overhaul of the CAP can be undertaken, the Community must first have a higher degree of integration—specifically, common policies are necessary in the fields of education, social welfare, industry, and regional development.

Mr. Solomon noted this is a long run solution. What can be done in the short run? It is loss of our established markets in third countries that causes us the greatest political problems. Can the EC reduce subsidy payments without reducing gate prices? Mr. Malve answered that it would be very difficult for the EC to reduce subsidies. Given the strong feelings of European farmers and the political power they wield, the most the Community could do would be to make adjustments for individual products when this will not attract too much attention. Mr. Solomon said this situation left us no choice but to subsidize our own exports. We cannot allow ourselves to be deprived of established markets in third countries by subsidized Community exports. Mr. Solomon reminded Malve that the US can doubtless afford to spend more on subsidies than the Community. The Administration has been reluctant to subsidize but Congress is in favor of doing so, and perhaps US subsidies would give Communities the “courage” to improve the CAP.

Malvé agreed the situation was unfortunate. Speaking personally, he wondered whether the Community should not now move toward country quotas for suppliers, something formerly thought incompatible with the CAP.

Malvé said our Mission in Brussels was active, and by its constant pressure on the Commission had prevented the Community from adopting some measures we would have found even more objectionable.

Mr. Solomon mentioned his visit to Brussels the following week to discuss preferences with Commission Chairman Rey, and wished Malve an interesting and profitable visit in the US.

1. Source: Department of State, Central Files, ECIN 3 EEC. Limited Official Use. Drafted by Allen and Barreda on August 2.