319. Letter From Secretary of State Shultz to Secretary of the Treasury Regan1
In our preparation for the upcoming meeting of the International Coffee Organization,2 I have been struck by the fact that coffee prices have risen sharply above the middle of the agreed price range over the past year. This rise occurred despite four quota increases, ample crops and large inventories of unsold coffee. These circumstances are a clear indication that the International Coffee Agreement (ICA) is not serving its purpose of encouraging orderly adjustments to market trends, but instead is becoming de facto a price support device. As a further indication, non-member countries can buy coffee at 60 cents a pound less than the price member countries pay. Unless these tendencies are reversed, the ICA, like many price support arrangements, will face eventual collapse. These developments are contrary to our international economic policy.
The current draft delegation instructions proposed to the Trade Policy Staff Committee for this meeting do not, in my view, direct the delegation to take a position that would effectively bring prices back toward the midpoint of an agreed price range. The current quota level is 60.2 million bags and prices remain above the upper end of the price range. The draft TPSC instruction authorizes the delegation to accept a quota as small as 58.2 million bags. A quota at this level would not deal with the above problems, and in fact might worsen them. I am asking your support for an instruction directing our delegation to insist that [Page 784] the new quota exceed 60.2 million bags. This means that the delegation will need to begin at a figure well above 60 million bags.
I believe that this position is in accordance with the price stabilization objectives of the ICA, will serve the interests of our consumers and promote increased stability in the coffee market by increasing exports and reducing the accumulation of stocks. A badly managed ICA would eventually collapse. Although many producers will resist a sizable quota increase, I believe we can credibly argue that they share with us a common interest in long-run stability of the market price of coffee.
Sincerely,
- Source: Reagan Library, Douglas McMinn Files, Subject Files, Coffee Agreement. No classification marking.↩
- See footnote 2, Document 317.↩
- Shultz signed “George” above his typed signature.↩