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

318. Action Memorandum From the Assistant Secretary of State for Inter-American Affairs (Motley), the Acting Assistant Secretary of State for African Affairs (Wisner), and the Assistant Secretary of State for East Asian and Pacific Affairs (Wolfowitz) to Secretary of State Shultz¹

Washington, September 7, 1984

SUBJECT

• Coffee

ISSUE FOR DECISION:

What is the U.S. position to be at the upcoming meeting of the International Coffee Organization?

BACKGROUND:

You have received separately a memorandum from Under Secretary Wallis² proposing a stronger position for the upcoming meetings of the International Coffee Organization than the present staff-level interagency consensus. The key recommendation is that the U.S. “get a quota increase of at least two million bags above present levels”. (E’s memo is unclear, however, as to the base from which the two million bag quota increase is calculated.)

We agree that the US delegation should seek a major increase in the global quota. The present interagency consensus is that the initial U.S. negotiating position is to seek a global quota of 60.2 million bags, which is four million above the initial quota in 1983, and is the current level of allocation after four price-triggered quota increases this year. We agree with this position.

It is our judgement that E’s position is not achievable, and that U.S. inflexibility would result in a deadlocked meeting. This would lead in three months time to a suspension of quotas, which would in effect kill the ICA. E apparently believes (see the last paragraph in attachment A to E’s memo)³ that suspension of quotas is a worthy objective; we strongly disagree.

ESSENTIAL FACTORS:

Although there are a number of analytical and technical points in E’s memo with which we disagree, we concur with the major elements of the analysis—1) that we have an interest in improving the functioning of the agreement so that it is more genuinely a stabilization agreement, and 2) that it is in the long-run interest of the producer countries to have a coffee agreement which reflects the market rather than tries to raise prices to artificial and unsustainable levels.

Our major differences with the Wallis analysis are 1) that we strongly believe we can best pursue these goals by remaining within the agreement, even if that requires some short-term compromises and 2) that a dissolution of the agreement at this time would have unacceptable costs both politically and economically—that would be particularly the case if the U.S. were perceived as the cause of the break-up of the agreement.

In making your decision we urge you to keep the following factors in mind:

— Commodity exports, including coffee, are an essential component of several fragile economic adjustment programs and debt servicing schemes. If the changes we seek in the operation of the ICO result in significantly lower revenues, there would be an enormous economic impact on coffee-exporting countries. Brazil, the major exporter, would be hurt the most in absolute terms, although other countries in Latin America and Africa are even more dependent on coffee exports.

— ARA is particularly concerned about the impact on Central America, where our support for decreases in coffee prices will be seen as contradictory to our political and economic commitments to the region, especially if that support extends to a willingness to bring down that agreement if we do not get our way. President Reagan’s commitment to President Suazo of Honduras to work within the agreement for expanded Honduran shipments is a case in point. With more than half its countries members of the ICA, AF is similarly concerned about the impact on Africa at the time of its worst economic crisis.

— The demise of the ICO would not necessarily bring in a free market, but some sort of producers cartel would likely emerge. Seventy-three countries presently belong to the ICA, and the U.S. has been a member of the ICO for more than twenty years. The U.S. coffee industry actively supports U.S. participation in the ICO and believes that it serves its interests by helping to stabilize the often-chaotic market.

RECOMMENDATION:

That the U.S. Delegation seek improvements in the functioning of the International Coffee Agreement, including a significant quota increase as proposed by Under Secretary Wallis; however, that the Delegation be given sufficient flexibility to join in a compromise for a quota not less than 58.2 million bags (the present staff-level interagency consensus) if this is necessary to continue the operation of the Agreement; and, that there is no implicit threat that we shall leave the agreement if we do not obtain our maximum position.⁴

1. Source: Reagan Library, George Shultz Papers, Official Memoranda (09/10/1984); NLR–775–49–70–4–7. Confidential. Sent through Armacost. Drafted by Janina Slattery (ARA/ECP); cleared in AF/EPS, EAP/EP, EAP and ARA. Slattery initialed for Wisner and Wolfowitz and initialed for all the clearing officials. A stamped notation reading “GPS” appears on the memorandum, indicating Shultz saw it. Covey initialed the memorandum and wrote “9/7” and “9/10.”
2. See Document 317.
3. See footnote 5, Document 317.
4. Dam disapproved the recommendation on September 11.