Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

284. Memorandum From the Acting Deputy Assistant Secretary of the Treasury for International Affairs (Lange) to the Assistant Secretary of the Treasury for International Affairs (Leland)¹

Washington, November 24, 1982

SUBJECT

• Decision on U.S. Membership in the Coffee Agreement

Negotiations for a new International Coffee Agreement ended September 24. They resulted in an accord on a new agreement to enter into force October 1, 1983.

Should the United States join the new 1983 agreement? The timetable for decision may be speeded up because of the President’s trip to Latin America, November 30–December 4.²

The Negotiations

Based on a TPC mandate the United States entered negotiations for a new coffee agreement in January, 1982. The United States sought to make the agreement more responsive to market signals and to increase consuming country influence in the management of the agreement’s economic provisions. The agreement relies on annual and quarterly quotas as the mechanisms to regulate the flow of coffee which in turn promotes price stability. Over the longer term the price range can be adjusted downward or upward as supply and demand trends dictate.

Principal U.S. goals in the negotiation were 1) to improve the annual allocation of export quotas among exporting countries; 2) to introduce a system by which export quotas of those coffees in greatest demand could be increased during the year; 3) to penalize countries which failed to ship quota amounts; and 4) to outlaw collusion among producer countries.

The new agreement only partially fulfills the U.S. goals, but the Delegation did achieve at least some improvement in those areas we targeted and there is no question but that the new agreement is better than the expiring one. Importing country influence was enhanced and export allocations among producing countries were improved. However, the United States did not achieve automatic adjustment to market signals—though the door was left open to changes in that direction—nor did the United States achieve a meaningful anti-collusion provision. Consequently, export shares—questionable in any event—tend to be rigid and access to certain types of coffee may be less than optimal.

Agency Positions

In light of the negotiating results, State, USTR, and Commerce will espouse membership. Treasury staff has been more skeptical of the agreement’s merits than other agencies because of deficiencies which will make the agreement’s ability to respond to market forces less than we desired. On the positive side, the past agreement has provided some price stability which has benefited both consumers and producers (a recent State Department study shows that U.S. consumers are net gainers from coffee agreements).³

Foreign Policy

Foreign policy considerations play a large role in U.S. coffee policy. The first coffee agreement was largely a U.S.-Brazilian creation to help Latin America cope with a then huge coffee surplus. The United States has been a member of all agreements since. Latin America places great store in the agreement and U.S. refusal to join will be seen as a slackening in U.S. commitment and interest in Latin America.

Congress and Industry

In an unprecedented step, the U.S. coffee industry association has circulated a letter endorsing U.S. membership in the 1983 agreement. Nevertheless, even with Administration support, the coffee agreement will not have smooth sailing on the Hill. Congressman Gibbons, who will consider needed implementing legislation, is highly skeptical that the United States benefits from any coffee agreement. One flaw on which some Congressmen may focus is the ability of non-member importing countries to buy coffee at lower prices than members.

Options

1. That Treasury actively oppose U.S. membership in the agreement because it is flawed in its economic provisions and at variance with this Administration’s economic philosophy of unfettered markets.

2. That Treasury not oppose membership because the agreement probably does marginally more good than harm, and leaves the door open for further improvements. Also, political considerations weigh heavily in favor of membership.

RECOMMENDATION

That Treasury not oppose membership.⁴

1. Source: Records of the Office of the Under Secretary for Monetary Affairs, Subject Files relating to Meetings, Working Groups, Trips, Summits, and Currency Talks, 1/1/1981–12/31/1985, UD–13W105, 56–89–45, Box 1, December 1982 Chron. No classification marking. Sent for action. An undated background paper is attached but not printed.
2. See footnote 2, Document 282.
3. Not found.
4. Sprinkel checked and initialed the “Disagree” option on December 2.