Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

253. Memorandum From Charles Cooper of the National Security Council Staff to Secretary of State Kissinger¹

Washington, December 22, 1973.

SUBJECT

• PL–480 in FY–75 Budget

OMB was cooperative in working out a satisfactory PL–480 budget for FY–75, including adding $70 million for Chile at our request. Given the expected tight wheat situation, use of this commodity was minimized wherever possible; for example, no wheat was included in the $105 million program for Indonesia. Until last week there was no disagreement concerning the FY–75 PL–480 budget either between us and OMB or between OMB and the agencies, and we expected to see a $934 million FY–75 PL–480 program of which about $250 million would be for wheat.

Flanigan Reopens Issue

However, at the senior White House review Peter Flanigan reopened the PL–480 budget to suggest that we show no funding request for PL–480 because the shortage of commodities may make it impossible for us to implement a PL–480 program.² This proposal from the international side of the house to save a large amount in the budget and reduce pressures on scarce food has been embraced by the domestic side despite our explanations that such a signal now on PL–480 would be a foreign policy disaster, and that actually eliminating wheat in next year’s PL–480 program would cause severe financial problems in Indo-China and major political problems both here and abroad.

Options

In the subsequent staffing of the Flanigan proposal, it was agreed that the only commodities likely to be seriously tight in FY–75 are wheat and cotton. In an effort to reach a compromise, we suggested an option between no wheat and no cut under which wheat would be cut down from the original tight OMB mark but not eliminated. The two realistic choices now are:

• —An $825 million PL–480 program stating that planned PL–480 levels for wheat have been reduced sharply to 1.9 million tons—the amount expected to be committed under the Food Aid Convention—in order to relieve pressures on the domestic market and that even this amount is subject to the conclusion of the international agreement. (This would be less than half the wheat provided when supplies were adequate.)
• —A $618 million request stating that no wheat is being programmed at this time because of uncertainty of supply.

Flanigan, Shultz, Dunlop, CEA (Stein) and OMB (Bridgewater) favor the second option. Of the White House agencies involved, only NSC objected. State prefers no cut at all in the PL–480 program. USDA’s position is less clear cut: they do not feel they need the PL–480 program for domestic reasons, but they agree with us that eliminating wheat from the FY–75 program will cause them considerable difficulty in their international discussions and cooperative efforts. At the senior staff level, where there is more understanding of PL–480 as a foreign policy tool, there is virtually no support in any agency for eliminating wheat from the FY–75 PL–480 program. Although this issue was stirred up by Flanigan, Shultz is probably the key man. OMB is submitting the issue to the President. A copy of the OMB memo to the President is attached at Tab A.³ It is a very inadequate paper.

Basic Issue

The essential difference is whether:

• —We announce that we expect to supply no wheat now and then supply it later when the domestic and foreign pressures to do so become severe;
• —Or we announce a reduced wheat program now—but still enough to cover our most vital concerns—and cut back wheat and/or cotton later should supplies really be below USDA projections, which now show adequate but not “surplus” supplies.

Arguments for No Wheat Option

From the domestic aspect alone there are minor advantages to the first course. It signals the domestic consumer that the government will not let the price of bread increase even a tenth of a cent in order to give wheat away abroad. It also satisfies those such as Herb Stein who believe aid should be provided by Congress explicitly not through the back door of PL–480; a counsel of perfection as irrelevant as it is unobjectionable.

The Department of Agriculture is still predicting a good 1974 wheat crop with substantial increases in stocks which will be very low going into the new crop. Wheat prices have been stable but high at $5.00 to $5.50 for the past few months; the initial planting estimate for winter wheat is higher than Agriculture’s target. There are many unknowns, not only on what the USSR and other producers will do next year but also on many production factors such as shortages of fuel and fertilizer. No one really has any data or analysis of these factors. Estimates have been wrong before and weather is always a major uncertainty. The wheat situation until the next harvest in June continues to look very tight; to date neither the Canadians nor Europeans have put as much of their wheat into the market as expected though USDA is engaged on this issue and expects progress. Shultz, Flanigan and John Dunlop are very concerned with the short-run wheat situation and this concern is carried over into the situation next year.

However, PL–480 at the 1.9 million ton level would take less than two percent of our wheat production. Moreover, most PL–480 recipients will buy the wheat anyway. What they will forego is investment goods to help with their development. Thus, no PL–480 wheat would at most save about half of one percent of our production, a virtually insignificant proportion of our wheat and an amount far within the margin of error of production estimates. OMB’s paper argues that halting PL–480 is a way to avoid export controls—which no one wants. But the PL–480 volume is not significant in terms of our production or commercial exports. It will not be the difference between controls and no controls. Unfortunately tampering with PL–480 is one of the few things the government can do to show action on a serious domestic food problem. The numbers are instructive: see table.⁴

Flanigan’s staff has told us that his principal concern is that, without a clear statement in the budget there may not be any PL–480 wheat next year, the State Department will make a lot of commitments for PL–480 around the world and U.S. interests will then be harmed when we cannot fulfill our commitments. Flanigan has of course overlooked the fact that we already have numerous commitments both explicit (Korea, Indonesia) and implied (Indo-China, Pakistan, Bangladesh) and that such a damn-the-foreigner approach when the going gets tough at home would do immense damage to our foreign policy.

Arguments Against No Wheat Option

Title II. We have thus far been unable to get Shultz and Flanigan to focus on the domestic problems involved in the PL–480 Title II program—the humanitarian feeding of children and the destitute around the world by U.S. voluntary agencies such as CARE and CARITAS. Wheat is half the program of these agencies and they will promptly mount a probably effective campaign in the press, churches and Congress to force restitution of the Title II program. This program has the least foreign policy or economic importance but the strongest domestic support. The no-wheat option might result in Humphrey and McGovern pressing export controls in order to permit some humanitarian PL–480.

Indo-China Aid. Elimination of wheat would mean we would have to find a substitute source for about $70 million of economic support for Indo-China. Congress has just cut our appropriations for FY–74 Indo-China aid below the minimal level (cut from a minimum request of $634 million to $450 million.) Congressional cut in the DOD MASF budget threatens the economic support received indirectly. Congress is also trying to force PL–480 on to a loan instead of a grant basis in Indo-China; this would reduce the possibilities of loans from the Japanese and the World Bank (where the Scandinavians are working hard to block assistance for South Vietnam). In short, we cannot afford Flanigan initiatives that cost us dearly in Indo-China assistance.

If the decision were made to eliminate PL–480 wheat in the FY–75 budget, there should be an offset in the budget to provide increased money for other commodities—i.e. more rice instead of wheat for Korea and Chile—or increases in the AID budget which was put together on the assumption that a substantial PL–480 program for wheat would be available. OMB has not been willing to consider these implications, partly because the OMB staff firmly believes we will implement a PL–480 wheat program no matter what we say in the budget once the foreign and domestic pressures become sufficient to educate Shultz and Flanigan on the real nature of PL–480.

Food Aid and Foreign Policy. The most serious aspect of the signal Flanigan and Shultz want to give is its disastrous implications on our overall posture in the world and particularly on food aid in the year of the World Food Conference you have encouraged. We have always been willing to provide substantial food aid for humanitarian and foreign policy purposes. We have continued the PL–480 programs this year despite the pressure on supplies. Moreover, we have tried to get others to contribute food aid.

One of the concessions made by the Europeans in the Kennedy Round of multilateral trade negotiations was to agree to a Food Aid Convention under which substantial food aid was guaranteed to developing countries. The U.S. basically matches what other developed countries do. Renewal of this convention is now pending. We have told the other donors and the LDCs we are prepared to renew at least at the current level of 1.9 million tons of wheat. Only the EEC has been reluctant to renew. The Flanigan budget proposal would completely undermine our position, destroy the convention, and take the Europeans completely off the hook. In one irreversible action we will have moved from being the good guys of world food aid to being the villain.

We have already pledged wheat for the World Food Program run by the FAO. The FAO would have to stop projects in as many as thirty countries if our contributions are halted in mid-stream.

The announcement would create major bilateral problems with many countries. The Koreans would see that we intend to renege on our commitments in connection with the textile restraint agreement. Pakistan would add unavailability of wheat to unavailability of arms as a major thorn in our relationships. Bangladesh would see that its only hope of feeding itself is a closer tie with the USSR.

At Tab B is a talking paper we provided informally for use by senior staff people with their principals preparing for the “poll” by OMB on this issue.⁵

Bureaucratic Considerations. Beyond the substance of this issue which is very serious there are also major bureaucratic overtones. If Flanigan and Shultz are successful in marching minor domestic considerations over major foreign policy consideration on this issue, they will continue their pressures on many other issues. Flanigan is already well advanced in his work on AID and he is striking right for the foreign policy jugular by questioning how we divide aid among countries. He has such criteria as concentrating on countries that will be economic winners or dividing aid on a per capita basis or according to where the poorest people are. Only at our strong insistence is an option of using aid primarily for foreign policy purposes being inserted. Flanigan hopes to get a decision on this issue in his review group in January.

Recommendation

That you intervene in the strongest possible way with the President and/or with Secretary Shultz to assure that the FY–75 budget contains at least 19 million tons of wheat. You should also pass on your concerns to Roy Ash if you discuss the budget with him.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 324, Subject Files, Foreign Aid, Vol. II, 1972 [1 of 3]. Confidential. Sent for action.
2. Nixon administration officials had been discussing the implications of scarce food supplies for P.L. 480 allocations for several weeks. An October 1 Department of State paper, “PL–480 Cutbacks: Implications, Alternatives, Negotiating Tactics,” attached to an October 19 memorandum from Cooper to Kissinger, summarized the issue. In his October 19 memorandum to Kissinger, Cooper reported on the inter-agency P.L. 480 negotiations, noting that “good progress is now being made in resolving many of the issues, and delay of another week will enable you to focus on the two or three key issues and avoid unnecessary involvement in minor bureaucratic skirmishes.” (Ibid., Box 368, Subject Files, PL–480) On October 31, Cooper advised Kissinger to urge Shultz to permit the granting of CCC credits as a means of offsetting the effects of P.L. 480 cuts. (Ibid., Box 290, Agency Files, U.S. Treasury, Vol. IV, Sept. 19, 1973–Dec. 1973)
3. Attached but not printed at Tab A is an undated and unsigned memorandum from Ash to Nixon requesting a decision on the level of P.L. 480 assistance to be included in the FY 1975 budget.
4. Attached but not printed.
5. Attached but not printed at Tab B is a paper entitled “Why Our Foreign Policy Concerns Do Not Permit a PL–480 FY–75 Presentation with Less than 1.9 Million Tons of Wheat.”