DEPARTMENT OF STATE Memorandum of Conversation
Date: February 15, 1950
Subject: Accession of Germany and Japan to Wheat Agreement; Potatoes; Eggs; Butter
Participants: The Secretary Secretary Brannan E - Mr. O'Gara Mr. Trigg - CCC ITP - Mr. Brown Mr. Andrews - OFAR ER - Mr. Armstrong
Copies to: S/S \(2\); E - Mr. O'Gara; E - Miss Brewster ______ - Mr. Labouisse; ER - Mr. Linville; G - Mr. Rusk; ITP - Mr. Brown
The Secretary opened the discussion by indicating to Secretary Brannan his understanding that representatives of the two Departments had agreed upon a formula for a new offer to Canada, concerning the division of the increment to the Wheat Agreement quotas which would result from the accession of Germany and Japan. The Secretary observed that the formula was acceptable to the State Department, except for the clause which called for consultation with the Joint Congressional Committee on the Wheat Agreement. The Secretary said that he would like to know if it would be possible for Agriculture to agree with the formula without the provision which would involve Congressional consultation. Secretary Brannan said that he could not agree to it, inasmuch as there is currently a great deal of Congressional interest in the market for U.S. wheat. The Secretary asked him if the Committee would reject the formula if it were asked for its opinion, and Secretary Brannan said that he thought the Committee would. Discussion then turned to a possible alternative formula which might be agreed between the two Departments and which would not require Congressional review.
The Secretary explained the importance of wheat exports to the Canadian economy, and indicated, by reference to charts, the relative position of the U.S. and Canada in the export market for wheat. These charts showed that Canadian exports have remained relatively steady for two or three decades, whereas U.S. exports have increased very markedly during the past ten years. The Secretary also pointed out that Canada felt a total quota of 230 million bushels to be its proper share, and that an addition of 27 million bushels per year constituted the maximum Canadian request in connection with the division of the German and Japanese quota. Secretary Brannan responded that there was considerable doubt whether the Canadians had the wheat to supply the quota, and Mr. Brown and Mr. Armstrong indicated that Canadian production and export data for the past several years appear to show that Canada is capable of meeting this quota. Mr. Andrews remarked that the Canadians had the wheat but had committed substantial portions of it to non-agreement markets, and that presumably some rearrangements could be made.
Secretary Brannan also pointed out the Congressional reaction to granting additional quotas to the Canadians in view of the fact that Canada would probably have to increase wheat acreage to meet them, at a time when the United States is decreasing its wheat acreage. The Secretary agreed that this was a difficult problem but that there might be some question as to the extent to which it is really the Canadians' intention to increase wheat acreage.
Discussion turned to the process of admitting countries to the Wheat Agreement, and it was pointed out by Mr. Andrews that a number of smaller countries had recently adhered, without a previous agreement on the side between the Canadians and the United States concerning the division of the quotas. The process as described is one of admission by the Council, with a decision by the Executive Committee concerning the division of the quota. The question was raised as to whether this might not be possible in the case of Germany and Japan, and Mr. Andrews indicated that Canada would vote for the admission of these countries if the Executive Committee were to decide the division of the quota, but that the United States could not agree on this basis, because the Executive Committee would decide to give the Canadians approximately the quota they want. The United States, which pays for German and Japanese wheat, could not approve such an arrangement. There was also a mention of the British objection to the adherence of Germany and Japan without some sort of condition concerning the availability of sterling wheat from Australia for the United Kingdom. The Department officers indicated that the British objection was not insuperable.
Further discussion resulted in agreement by the Secretary and Secretary Brannan that it is highly important to the United States, for political, economic and psychological reasons, for Germany and Japan to be brought into the Wheat Agreement, and that every effort should be made to bring about this result. Secretary Brannan suggested that a new attempt be made to negotiate the matter with the Canadians, and there was some discussion of the basis upon which a new offer might be made. Mr. Brown suggested that the new offer might take the form of a Canadian share which would increase during the four years so that it approximated the Canadian objective at the end of the four-year period. Mr. Brown said further that it would be desirable to link this offer with a discussion with the Canadians of their plans with respect to the possible expansion of acreage, and at the same time inform the Canadians that the United States would undertake not to subsidize wheat sales made outside of the Agreement. There was some discussion of this last point and the secretary, Secretary Brannan and Mr. Trigg agreed that a price war with Canada on wheat would be very unfortunate for both countries, and that a possible application of a subsidy for non-agreement sales by the United States might induce Canada to take retaliatory action. The Secretary indicated the undesirability of an American subsidy which would have the result of further expanding the U.S. wheat market at the expense of the Canadians, particularly if no suitable arrangement on German and Japanese quotas was in sight.
There was a brief discussion of Spain, and the Agriculture officials indicated they were under considerable pressure to subsidize wheat sales to that country, where unsubsidized U.S. wheat sells at a higher price than Canadian wheat. Secretary Brannan asked the Secretary if the State Department had any objection to the possible accession of Spain to the Wheat Agreement, and the Secretary responded that there was no objection at all. There was some discussion of a possible inquiry by the United States concerning Spanish interest, and a recognition that the addition of Spain would help solve quota problems with the Canadians.
There was a brief discussion of potatoes, in which Secretary Brannan pointed out the embarrassment of the present situation in which Canadian potatoes are coming into the U.S. market as a result of our high support price and, in which it appears necessary that some action be taken to limit these shipments. The Secretary said that the Department agreed that some action is necessary, and that the Department is prepared to assist Agriculture in negotiating with the Canadians with the objective of obtaining their agreement to put into effect a control system similar to that which they established last year. Mr. Trigg said that Agriculture had been informed by Mr. Steelman's office that the White House did not want to invoke Section 22 and establish import controls, and it was agreed that persuading the Canadians to adopt their own controls was the best way to handle the problem.
The Secretary said he understood that Secretary Brannan was interested in selling dried eggs to the United Kingdom, and Secretary Brannan said that Agriculture now has a very large quantity of dried eggs which it would like to dispose of promptly at a low price. He said there had been a British offer of approximately 10 cents a pound, and that Agriculture had proposed sale of the entire quantity of eggs, partially through ECA financing, and partially for free British dollars, at a rate which would amount to about 12 cents a pound, on an average. Mr. Brown pointed out that the British apparently are willing to commit only about 4 million dollars to such a purchase, and asked Mr. Trigg how much money would be involved in the sale of the entire quantity on the terms suggested. Mr. Trigg said that this would amount to about 14 million dollars. It was agreed by the two Secretaries that Agriculture would continue to offer the eggs at low prices to the British, with the idea of making a sale, and that the State Department would suggest to the British, when appropriate, the advisability of arranging some transaction of this kind.
The Secretary then said that he would like to discuss butter, and outlined the situation which has arisen as a result of the butter embargo maintained by the Department of Agriculture, under a system of controls devised for the purpose of international allocations \(in a time when fats and oils were in short supply\) and for disposing of wartime stocks. It was suggested by the Secretary that it is now rather difficult to justify a butter embargo on the basis of this law, and Secretary Brannan agreed that it would present some difficulties. The Secretary went on to say that we made tariff concessions of interest primarily to Denmark, New Zealand and Australia, during negotiations in 1947 and 1949, and that these countries are now calling upon us to give effect to such concessions by admitting butter to the United States under the new tariff rates. The Secretary stated further that it is our understanding that the Australians and Danes have some quantities of butter available for shipment, and that they are about to raise the question in the forthcoming meeting of the Contracting Parties to the General Agreement on Tariffs and Trade. He asked Secretary Brannan whether it would be better from the standpoint of our international obligations to admit that we are violating the General Agreement and to continue our embargo, or whether it would be preferable to license for import some quantities of butter which have been offered for shipment, and thus to satisfy the most urgent complaints of the Danes and Australians, at the same time undertaking to re-examine our control system with the idea of bringing it into line with our international commitments.
Secretary Brannan said that Agriculture has very large quantities of butter in storage, that it must buy to support the price, and that it would be very difficult under these circumstances to admit any foreign butter. He added that a production control system on butter is an impossibility. Mr. Andrews raised the question as to whether the current action of Agriculture in denying import licenses is contrary to our obligations under the General Agreement, and Mr. Brown said that it is a violation. Further discussion resulted in agreement between the two Secretaries that the only solution at present is to admit to the Danes and Australians, and to the Contracting Parties to the General Agreement on Tariffs and Trade, that we are violating the Agreement, and to take such penalties as the Contracting Parties may wish to impose.
ITP:ER:WCArmstrong:mb 2/23/50