Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

22. Memorandum From the Representative to the European Communities (Hinton) to the Special Representative for Trade Negotiations (Strauss)¹

Washington, April 20, 1977

SUBJECT

• Negotiating Agriculture in the MTN

The US agricultural community has feared that agriculture would be left to the last in the negotiations—as in the Kennedy Round²—and that the United States would fail to get major concessions. Our answer has been to insist on negotiating industry and agriculture together. Now, however, we have a chance to improve the situation: we should make agriculture our first priority. Agriculture is central in and by itself and it also poses the key export subsidy problems.³ Here we have leverage since our countervailing waiver authority expires in early 1979.⁴ We should use this leverage to get well ahead in 1977 on agriculture generally and to break the subsidy/countervailing duty code problem by this time next year at the latest.⁵

In our view, the basic US goals in agriculture should be:

—a grains agreement which provides some price stability, relieves us of the burden of carrying almost all the world’s reserves and guarantees steady US export growth, combined with restraints on EC use of subsidies on exports into third country markets;

—a modus vivendi on subsidies on EC exports into the United States (cheese, hams) and other subsidy practices (which could be incorporated into a subsidies/CVD code);

—tariff reductions on products of special interest to the United States (citrus, tobacco), preferably as part of an application of the tar-iff formula to agriculture or, if that fails, in a product-by-product negotiation.

Grains

Our best chance of results in the grains area lies not in a frontal attack on access but in an agreement cast in the framework of the world food problem and world trade in grains, but negotiated as part of the MTN package. We would aim for a reserve agreement with a wide price fork. This cover can serve US goals by restraining the Community’s use of export subsidies on grains, requiring it to share the burden in adjusting to both surplus and shortage situations, and by dampening excessive price swings. It will meet the Community’s goals by being in the form of a commodity agreement with price provisions and by contributing to world grain market stability.

Subsidies

The general problem of export subsidies on industrial goods is not insurmountable. The real problem is how to include agricultural products, where the Community considers export subsidies as an integral part of the Common Agricultural Policy. Arrangements limiting subsidies may have to have three parts: (1) limits on grain subsidies included in a grains arrangement; (2) limits on certain other commodity export subsidies contained in ad hoc or commodity specific arrangements; (3) a general arrangement on subsidies to include all other products and at least by reference other ad hoc arrangements.

The US problems with US-Community subsidies are essentially of two kinds: (a) their subsidies on sales to the United States and (b) their competition with us in third countries.

A) Community Subsidies on Agricultural Sales to the US

The crucial commodities are dairy products and hams, which are both presently covered under countervailing duty waivers which expire in 1979. While the preferred resolution would be an overall code on subsidies/countervailing which would cover agricultural products, the EC, for domestic political reasons, will not be able to subject its agricultural exports, particularly in dairy, to a general code. Another approach would be to negotiate an ad hoc set of arrangements on cheese and hams, and possibly beef and processed foods, by which they would limit their subsidies in our market. This could be based on EC observance of minimum export prices as negotiated on cheese and then dropped in the spring of 1975. The EC has such arrangements with Switzerland and Spain. Their demands will undoubtedly include a trade-off on US dairy quotas and some requirement of injury in US countervailing duties.

B) Community Agricultural Subsidies to Third Countries

Apart from grains and flour—which would be dealt with in a grains arrangement—this is not a major problem, but it does have to be handled. The key may be an approach based on avoiding predatory marketing. The challenge is to devise an agreed consultative mechanism which would dry up excessive subsidies in time to avoid market disruption. One approach would be to accept EC subsidized sales to an agreed list of LDC’s as aid devices along with a tight EC agreement to respect world prices (as defined during the negotiation) by avoiding market expansion—or taking away existing commercial markets—for all other sales. These rules could be elaborated in the more general subsidies code.

Procedure

We must promptly get to the substantive agriculture issues. My proposal to break the procedural impasse at Geneva would be to seek, in return for our accepting the grains agreement approach and commodity discussions for other variable levy items, EC agreement to inclusion of non-variable levy agricultural products under the agreed tariff-cutting formula. Total US exports to the EC in these items amount to over $1 billion, with citrus and tobacco being particularly important. While there are, of course, other ways to get to substance, this proposal is a politically acceptable compromise between the US view that industry and agriculture move in lock step and the Community view that agriculture is different. But I repeat that the main assurance we get is that in making agriculture top priority for this year we will know better where we are before we strike the industrial tariff and MTN deals.⁶

1. Source: National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 1, Agriculture 1977. Limited Official Use. At the top of the page, Strauss wrote: “Wolff + Starke—Let’s discuss.” According to another copy of this memorandum, “Starke” was in fact STR staff member James Starkey. (National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 3, European Community 1977)
2. The Kennedy Round of GATT multilateral trade negotiations took place in Geneva from 1964 until 1967.
3. Strauss underlined “Agriculture is central in and by itself” and “poses the key export subsidy problems.”
4. Congress had granted the President temporary authority to waive the imposition of countervailing duties on subsidized imports.
5. Strauss wrote “explain?” in the margin adjacent to the final two sentences of this paragraph.
6. In a May 5 letter to Hinton, Strauss noted that he had read Hinton’s memorandum “three times—not because it is poorly drafted but because I think it is exceedingly well thought through. I look forward to our pursuing the subject as well as our many other common problems.” (National Archives, RG 364, 364–80–4, Special Trade Representative Subject Files, 1977–1979, Box 3, European Community 1977)