WHEAT FLOUR EXPORT SUBSIDY PROGRAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84T00109R000100010001-9
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: May 4, 2009
• Sequence Number: 1
• Publication Date: October 5, 1982
• Content Type: MEMO

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< ~ ~ THE WHITE HOUSE ~~ )~~"'~"~?? ~~~?~ ~~7
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DAZI'E: 10 - 5- s 2 NUMBER: o ~ ~ 5 2 2 ~A DUE BY:
SUB!1ECT: CCFA with the President - 10/6/82
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RE11'ZARKS: The President will chair a meeting of-the Cabinet Council on
Food and Agriculture tomorrow at 10:20 (40 minutes) in the
Cabinet Room. The agenda will be the Wheat Flour Export
Subsidy Program. Background papers are attached.
RETi~ URN TAD: ^ Craig L. Fuller ~ecky Norton Dunlop
Assistant to the President Director, Office of
for Cabinet Affairs Cabinet Affairs
dG~~S27'2 yet Bonn
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October 5, 1982
MEMORANDUM FOR THE CABINET COUNCIL ON FOOD AND AGRICULTURE
FROM: DANNY J. BOGGS, EXECUTIVE SECRETARY
SUBJECT: Wheat Flour Export Subsidy Program
Should the U.S. government institute an export subsidy
program to promote sales of wheat flour abroad?
The European Community (EC) subsidizes agricultural exports
at an annual outlay of $7-8 billion in order to dispose of
surplus agricultural production resulting from high domestic
support prices. This year EC support prices were increased
by an average of 11 percent, further encouraging production
at a time when the world is faced with a large agricultural
surplus. In the face of these subsidies, the U.S. has not
gained a fair share of the expanding global market for
agricultural products. In fact, U.S. shares of some markets
are being eroded by Community subsidies.
In the early 196Qs, the U.S. regularly supplied over 45
percent of the world's wheat flour import needs, with the EC
share around 25 percent. Today, in a market which has grown
very little in 20 years, the EC share is 65 percent. U.S.
wheat flour exports account for only 25 percent.
In December 1975, the U.S. wheat flour industry filed a
complaint with the U.S. government under section 3Q1 of the
Trade Act of 1974. This petition stated that EC export
subsidies had unfairly enlarged the EC's share of the world
market. Since then, the U.S. has worked bilaterally with
the Community to resolve the complaint. Finally, the case
was submitted to a GATT dispute settlement panel in January
1982 to be resolved according to GATT rules. Under those
rules, a panel decision was due no later than March 22,
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1982. Even with procedural delays, a panel decision could
have been expected by the end of June 1982. It now appears
that a decision cannot be expected before February 1983.
The wheat flour case is the oldest of the five 301 cases
currently before the GATT.
The Omnibus Budget Reconciliation Act of 1982 contains a
provs-ron which requires a ecreta'ry of Agriculture to
spend $175-190 million per year for the next three fiscal
years for export activities authorized by current law. The
conference report accompanying the Act expresses the intent
of the conferees that the Secretary, to the greatest extent
practicable and where appropriate, use these funds for
interest buy-downs, export credit sales, or direct export
subsidies in order that American farmers and exporters may
compete in international trade on an equal basis with
foreign competitors. The Administration will have to decide
how to implement this export promotion program.
USDA proposes instituting a limited export subsidy program
for wheat flour for one year, targeted specifically at
Egypt, to counter the EC's export subsidies on wheat flour.
Under USDA's proposal, the subsidy program would establish a
fixed landed price for U.S. wheat flour sufficiently
competitive to displace the 1.1 million tons of EC flour
sold to Egypt on a commercial basis. The U.S. cost would be
approximately $100 million, which would be counted against
the $175-190 million stipulated in the Reconciliation Act.
Discussions with the Egyptians would make it clear that the
U.S. would consider Egyptian commercial purtchases of U.S.
wheat flour in allocating PL 480 funds. U.S. exporters
would bid competitively against regular tenders, with the
lowest subsidy request being awarded the contract. Payment
of the subsidy would be made directly to the shipper by
USDA.
Should the decision be made to implement the subsidy
program, the U.S. should negotiate an agreement with Egypt
as quickly and quietly as possible. Advance notice of our
intention to seek such an agreement could: 1) build
expectations that perhaps could not be met; and 2) alert the
EC to the U.S. strategy and perhaps allow them to take
actions that might make reaching an agreement with Egypt
more difficult. Only after successful conclusion of
discussions should any notice be given of the action, and
such notice should be handled so as to convey the sense that
the action was taken reluctantly. In addition, all public
comment should be couched in a manner that is non-
confrontational in order to give support to our friends in
the EC who oppose subsidies and fear a subsidy war.
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It also should be made apparent that the U.S. will not
continue the program in future years if the GATT panel rules
that subsidies of this type are illegal.
IV. DISCUSSION
Egypt is the world's largest wheat flour market representing
a third of global wheat flour imports. For the EC, Egypt
represents a third of total EC flour exports. The Egyptian
flour market has nearly doubled in the past three years.
a~ The EC, with export subsidies ranging from $80-100 per ton,
~ captured all of that growth, the U.S. none. The U.S.,
Q however, does ship substantial quantities of PL 480 commod-
~~ ities to Egypt, primarily wheat and wheat flour, accounting
~~SN rJ1i~~ for approximately 40 percent of the total global PL 480
~ s' ~.,~ program.
~~~~,~~~
~ ~~ Implementation of an export subsidy program for wheat flour
~ would constitute a clean break with past U.S. practice of
~'~ nit rroviding direct export subsidies.
Advantages
The U.S. wheat flour export subsidy to Egypt:
o Would send a signal that the U.S. is serious about
resisting further market erosion at the hands of the EC
and wants a speedy resolution of the long-standing
subsidies issue;
o Would result in immediate, direct and significant
budgetary losses to the EC, in addition to the large
program outlays already involved; t
o Would limit U.S. budgetary exposure troachh a single-
commodity-single-country target app
o Would exhibit the Administration's commitment to defend
domestic agricultural constituencies from the unfair
trade practices of our trading partners.
Disadvantages
Initiation of an export subsidy program for wheat flour
shipped to Egypt:
o Could invite EC retaliation against other U.S.
agricultural products such as soybeans and-corn gluten;
and could further exacerbate U.S.-EC tensions over such
matters as the Soviet gas pipeline and steel;
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o Could prompt other commodity groups to request like
treatment from the federal government, thus increasing
the prospect of large budget outlays;
o Could annoy U.S. consumers who would be paying more for
wheat flour than their foreign counterparts;
o Could result in the displacement of U.S. and other
countries' sales of wheat flour in other markets.
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Cabinet Council of Food & Agriculture - June 28 Meeting
Subject: U.S. - Soviet Long-Term Grain agreement
Filed: USSR: drain
[This document was being held for me to file on my return from
vacation. I do not know its origin or who has received copies.]
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