CABINET MEETING ON GRAIN EMBARGO

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89G00720R000100030016-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: March 24, 2011
• Sequence Number: 16
• Publication Date: February 4, 1981
• Content Type: MEMO

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THE DIP 'TOR OF
CENTRAL It-4, ELLIGENCE
NFAC #534-81
National Intelligence Officers 4 February 1981
NOTE TO: Director of Central Intelligence
VIA Bruce C. Clarke, Jr.
Deputy Director, National Foreign Assessr
FROM . Robert M. Gates
National Intelligence Officer for USSR-El
SUBJECT: Cabinet Meeting on Grain Embargo
Attached for your use at this morning's
Cabinet meeting is a distillation of the
points discussed in your office last night,
as requested. A copy of the Interagency
paper is also attached.
Attachments: two
As Stated
DERIVATIVE CL BY SIGH
REVIEW ON FEB87
Derived from MultiplE
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NFAC #534-81
4 February 1981
SUBJECT: Cabinet Meeting on Grain Embargo
DISTRIBUTION
0 - DCI (handcarried)
1 - ER
1 - DD/NFA
1 - Acting Chairman, NIC
1 - NIO/USSR-EE
1 - NFAC Reg.
NIO/USSR-EE/RMGates
(4Feb81)
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JGI.RG I
Lifting the Embargo
1. Political Considerations
-- Should consider in context of larger arena of US-USSR relations.
-- Is this conciliatory gesture the 1st signal the Administration
wants to send Soviets?
-- Gesture would seem inconsistent with recent statements by
Pres/Secy of State. Could mislead Soviets as to Administrationls
longer range intentions vis-a-vis relations with USSR.
-- Lifting would dismay Arabs, Pakistanis about US willingness
to stick to policy course, and lead them to question US staying
power for any measures against USSR (especially in response to
aggression in third world.)
-- Europeans would welcome lifting. Would not necessarily make it
harder for US to get their agreement to sanctions if Poland invaded
(State disagrees).
If lifted, tougher to get sanctions if Soviets -ggressive elsewhere
in third world.
-- If decided to lift:
- timing. Wait until after Administration has taken actions
setting tone and theme of more assertive US posture in
US-USSR relations?
price . Give lifting to them for free? They clearly want the
embargo lifted. Ought to make them pay price. Possibly use
lifting to obtain much more favorable new 5 year grain agreement.
2. Economic Considerations
-- By October 81 embargo will have cost Soviets nearly an additional
$1 billion (extra shipping costs, premium prices, flour substitutes).
-- Has hurt Soviet consumer even though amount of grain denied not large.
(Equivalent loss in meat production of nearly 650,000 tons - almost
4% of supply).
3. Point of Disagreement
-- Disagree that keeping the embargo will force Soviets to reexamine
their livestock production goals and move toward greater self-sufficiency
(State background paper, p. 2 at clip). We believe that whether or not
embargo is lifted, Soviets will not lessen their long term effort to
raise livestock produ lion. Also, will. nct alter effort to reduce
dependence on free world food who Lher or embargo lifted.
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..0 - . ? STAT
t)tPAFrTMENT OF STATE ? /_ ^ft
BRIEFING PAPER L
GRAINS EMPAfGr) AG; INST THE USSR
Overview f?.~per
ISSUE FOR DECISION
!_ Y
44 Fe., L,4 0
The Adminisirat.ion is to decide upon the future of the
embargo on grains and other agricultural exports to the USSR.
The context in which the embargo decision is to be taken
includes the followincq constellations of factors:
-- the President's criticism of the embargo
decision and his commitment to an early
reexamination of the policy with a .view
to its reversal;
the impact on and attitude of the US farm
sector;
the attitude of the 'IS industrial community;
the us, Soviet and global grain situations
-- the overall US/Soviet relationship including
the response to the occupation of Afghanistan;
-- the US relationship with Pakistan and other
countries in Southwest Asia;
the continuing threat of Soviet intervention
in Poland;
-- the status and prospects of cooperation by
our European Allies, Australia and Canada.
KEY JUDGMENTS
-- Lifting the embarclo would have little immediate
economic impact. Soviet grain imports might rise from 34 to
36 million tons this year. US soybean and meat exports to
the USSR would increase significantly; global US grain exports
would rise only about 2 million tons.
-- In the longer term continuation of the embargo could
have a greater economic effect. The Soviets could revise
their policy to limit grain dependence on the US.
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(GUS: 2 72787)
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-- The decision has great political importance, both
to US domestic int orest s and to the USSR. The US farm
community would greatly welcome lifting the emb
argo as an
affirmation of 1 freer trade policy; the Soviets would draw
negative conclusions about. our ri-sclvee re(larcling Afghanistan,
Poland and the overall superpower relationship.
-- The decision is intcqrally xelated to the future of
the US-Soviet grain relationship, now covered by the U5-1)SSR
Long-Term Grains Agreement (LTA), which expires September 33,
1981 unless extended or renegotiated.
- The grains embargo was imposed as part of a sanctions
package which also affected non-agricultural products. In
addition to the decision on grains, a decision will be
necessary on other parts of the package, particularly phosphates.
Whatever the decision, we should consult with,the
other major exporting countries before either informing the
Soviets or making any public announcement. We should also
consult with Congressional leaders, particularly if we
decide not to lift the embargo.
OPTIONS
The options outlined arc not intended to be all-inclu-
sive. There are a number of possible variants.- However,
the three options below define the basic framework for
decision.
1. The Presidr.nt would revoke the executive order
?-nposing restrictions ~_~r~ ;z:;ri u_tural ex orts to the USSR.
Non-grain agricultural exports would be ontroi e .
Additional grain exports in the current year above 8 MMT
would be permitted in bilateral consultations under the LTA.
We would promptly work out a package to get the most we
could from the Soviets in return for lifting the embargo.
(The decision would need to be held closely to enable us to
obtain concessions.)
-- It would satisfy expectations created by the
President's criticism of the embargo.
-- It would help US farmers and traders without
benefiting the USSR greatly in the short-term.
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-- It would permit the US to wind down Allied embargo
cooperation before it collapses.
-- It Would sicJnnl to rho A? lies. Soviets and Islamic
world the end of the US reaction to the Afghanistan invasion.
-- It would sharply increase the difficulty of mounting a
vigorous Allied response to Soviet intervention in Poland.
-- It would i oducc US leveracze in subsequent renego-
-- tiation of the LTA.
-- It would raise pre3sures to relax other restrictions
on US-Soviet trade.
2. We would decide to terminate the embargo subject to
satisfactuIy arrainq~emcnts governinct US-Soviet grain trade
cyond the Septerrber 30~iration date of the LTA. The
question of additional Soviet access to US grain in the
current agreement year would be addressed in the negotiations.
Pro
-- It would move a lon,; way toward satisfying eXpecta-
tions created by the President's criticism of the embargo
and providing benefits to.the farm sector.
-- At little or no cost in foregone additional grain
---exports, we retain 1 everacge in nee;otiating the franewor3: for
future trade.,
-- It would sicinal to the Allies, Soviets and Islamic
world the end of the US reaction on Afghanistan.
-- Although it gives us a little ti-me for clarification
of the Polish situation, there would be heavy domestic
pressure, to cQnc)ud-.~ in jutiations quickly. Once the negotia-
tions were concluded, our 1-ability to deter Soviet action In
Poland would be reduced. it would be difficult and disrup-
tive to reimpose restraints suddenly.
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3. We wojylcl clel~ the ciccisijrt ?intit later in the
spring for futhc?r review i n 1i jh of the ;35 agricultural
situation, the threat to Poland, the assessmen o
.t
Ion4-
term US obi Ct- cs tOwaicl" the -US R snd p ossrbie a e to
non-agricultural issues.
It would avoid an early retreat from our position on
Afghanistan.
-- It would provide time to develop our long-term
strategy toward the USSR.
Delay would result in little difference in total US
grain exports during the remainder of the 1980/81 crop year,
-- It would disappoint the farm sector.
-- It would put the USSR on notice that normalization
of economic relations is linked to Soviet restraint an
Poland.
-- It would continue a policy of trade restraints
having only marginal economic impact on the USSR.
It would risk further erosion of Allied adherence to
the principle of restraint on trade with the USSR.
-- If no decision is taken, the embargo becomes a
Reagan administration policy.
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I i\( 1;(;IU,M11) VA1'1:1( crJ THE CP.')N l': Br1RGf)
The partial grain emb,-n can was imposod in January 1980 as the
centerpiece of a sanctions p.ick,lgc c! signed to impose significant
costs on the USER in retalintion for its invasion of Afghanistan.
Other elements in the packnqe included an embryo on the sale of
other agricultural products which contribute to the feed and
livestock sector, tightened restrictions on high-technology trade,
an effort to limit Allied extension of official export credits, and
the Olympic boycott.
IMPACT ON USER
The partial grain embargo worked fairly well in its first
year, denying the Soviets 8-9 million metric tons M'T) of the
36 MMT they had planned to import in the October 1979-September
1980 period. In response to the disastrous 3979 harvest (179 MT)
and the embargo they drew down grain stocks heavily in 1979/80.
At the same time meat, butter and milk production fell. Meat
imports rose to record levels but the increase offset only a
quarter of the loss of prodluct i.on . The grain erbargo's effective-
ness passed its peak in the fall, with Soviet imports rising
significantly in the last quarter of 1950 as a result of large
Argentine shipments, faltcrin:; r nadinn cooperation, loopholes
in the EC agricultural trade syn.tcrn and higher-than-anticipated
exports by minor suppliers.
_
The partial grain enrbargc impose , three costs on the USSR.
First, Soviet port capacity is re?(.uccd by about 2 it MT because
grain imports now arrive on nu?;: -- tic -,m:!) l shins, thus increasing
port congestion and turn-around rime. In addition, the embargo
forces the USSR to pay premium prices for grain imports and to
make do with a lower-than-optimuri proportion of corn. If the
embargo is maintained, we estimate that the Soviets, who at.-ready
have firm commitments for about 30 f11T of grain, will be able to
import a total of 34 M MT in the 1980/81 marketing year. If the
embargo is lifted, imports could rise to 36 MAT, reflecting
higher purchases from the US nnc1 improved import efficiencies.
Whether the emirs--io is l i f tc:l or maintained the Soviet Union
will continue to face serious grain short: qcs, because of the
short 1980 grain crop and port constrai?ts. The 1980 crop of
389 MMT, while somewhat better +-han the disastrous 1979 crop, falls
roughly 45 MMT short. of the t lannud t rctet. Since port capacity
is limited to about 36-30 MT even under ideal conditions, the
Soviets will still be unable both to meet the demands of the
livestock sector for feed and to replenish their depleted grain
stocks. The livestock sector will continue to feel the pinch of
poor harvests and stock drawdowns through 1981/82 and beyond.
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IMPACT ON US AGRJCULT(JRT'.
Lifting the partial grains embargo is not likely to have a
major near-term impart on US :griculture as a whole for the
remainder of the 1980/81 ye:1c, but the USSR would likely purchase
oilseeds and meat from the US and additional corn if permitted
under the grains agreement. The Soviets are unlikely, however,
to purchase greater quantities of wheat unless persuaded to do
so. For next year lifting the embargo might have more overall
impact, depending on the size of the US and Soviet crops and the
level of Soviet imports from the US. The impact on US agricul-
ture is not measurable simply as the increase in exports to the
Soviet market, because this increase would be partially offset by
decreases in exports to other markets.
Under the assumption that the Soviet Union would once more
purchase large quantities (15-20 MMT) of US grain in the absence
of the embargo, our carryover stock levels would be slightly
lower than now anticipate(], and prices would be slightly higher.
Farm income and agricultural export earnings would increase.
The probable increase in feedgrain costs resulting from
lifting the embargo would not be large enough to cause a reduction
in total US livestock output. Exports of pork and poultry to the
USSR could occur in the absence- of the embargo, which would
generate slight upward pressure on meat prices and demand.
In the long term continued trade sanctions could force the
Soviets to re-examine their livestock production
toward a policy of greater self sufficiency. The impact of such
a decision on the world market and the United States would be
considerable. It would lead to substantially lower world market
prices and either a build-up of stocks in the major exporting
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countries or some reversion to farm protductior, control programs..
If the Soviets continue to imrrrt 1
< arqe volumes of grain, the
United States would benefit rrom higher foreign exchange earnings.
US farmers would benefit from higher prices and farm income.
STATUS AND PROSPECTS OF COOPf:RATI04
The cooperation of the other grain-exporting countries was
never as fully effective as we' would have liked. Argentina
publicly rejected cooperation, exceeded its confidential
assurances to the Us about a limit on grain sales and concluded
in July a five-year agreement with the USSR to supply a minimum
4.5 MMT of coarse grains And soybeans annually. Canada, Australia
and the EC promised in Januiry not to replace the grain denied by
the US but later committed themselves only to unspecific normal
or current levels. Even this degree of cooperation from the
other exporters has been difficult to retain because of heavy
pressure from their domestic producers. The EC did institute
meaningful controls on exports of subsidized agricultuzari products
to the USSR but has no control over unsubsidized products such as
wheat flour or soybean meal, processed from imported grain and
beans, which have been flowing to the USSR in significant
quantities. Canada's November decision to sell record amounts of
grains to the USSR this year dealt the embargo a sharp blow, but
Australia and the EC decided not to change policy pending review
by the new Administration. The US was not successful in obtaining
the cooperation of the other major soybean exporters and the
major meat exporters.
Argentina and Canada will probably continue to sell as much
grain as possible to the USSR in the new marketing year beginning
July 1981. The future cooperation of. Australia and the EC an
post-Afghanistan sanction; will depend largely on the U5
position, although producer pressures on those governments will
intensify if the cmbar!1o is maintained.
If the Soviets intervene in t'oland, it might be possible to
persuade the other exporters, including perhaps Argentina, to
join in tightened sanctions aq inst the USSR. Because export
commitments for the reeinainder of the 1980/81 marketing year are
already firm, the only kind of post-Poland embargo which would
have an immediate effect would be a total halt of grain shipments,
not merely a moratorium on further sales.
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Irrespective of government actions we should bear in mind
that Soviet intervention could evoke strong reactioi from
Western labor unions iricludinrj a boycott of Soviet ships
and cargoes.
The other exportern clear iv c'-.cr^ct to be consulted
before the US announces its aeclsion on the future of the
embargo. The fact that the embargo was imposed unilaterally
by the US with minimal piior consultations (none with __
Argentina) created difiicultios with the other exporters
and may have contributed to Choir lack of enthusiasm for
the existing embargo. Lifting the embargo would reduce
the prospects for future cooperation on trade sanctions,
'e.g. in the event of a Polish invasion.
FUTURE OF THE US-USSR LONG TF:RM RGREEM.Fi1T Q,Til
The LTA, which expires September 30, was negotiated in
1975 to avert "yreat grain robbezies" like those?of the early
seventies. While ejuaranteoing minimum annual sales levels,
it allows the USG to forestall I arge unexpected Soviet
purchases without instituting export controls. The USSR
is committed to buy at least 6 r:MT of US wheat and corn
annually, while the US is committed to allow sales of 8 ?iMT
without consultations. Under- the embargo the export of 8 MT
was thus permitted in both t;e 1979/80 and 1980/81 agreement
years. The Soviets have purchased the! entire amount for this
year and shipments will be completed by April.
In view of massive Soviet import needs and capacity to
disrupt US domestic markets, it is undesirable to return to
the pre-agreement situation of unrestricted Soviet access to
US grain. The USSR values arc.ens to the US market and
understands that thc? US is likely to insist on a framework
to govern this trade. The question for us is whether to
control this trade bilaterally by agreement or through
unilateral US actions. If it is etecis. etl to allow the agree-
ment to lapse, the USC could only regulate grain trade with the
USSR by retaining current export controls and requirements
for export licenses and for rep ,r-ts on export transactions
from the grain companies. The USG would have to decide from year
to year whether the level of sales sliuuld b-: restrictive or
not. The imposition of controls was justified to Congress
on foreign policy y ro inds (:pub j c: t to override) and national
security grounds (cooc suhic.ct tti override)
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If the US decides to negotiate a renewal of the agreement,
the Soviets would probably press for language exempting them
from a future embargo and for a higher floor for purchases
without consultations wit:. V'S (at least S M.MT to match the
level in the US-China agreement). Particularly if lifting the
embargo is conditioned on renegotiating the LTA, the Soviets
would ultimately come to an agreement. The Soviets have been
discussing with US traders return to a more normal grain
trading relationship. A re,.:_-nt intelligence report hints at
Soviet willingness to negotiate a new LTA on more favorable
terms, e.g. higher minimum purchases, a larger share of wheat,
and inclusion of soybeans and meal.
An alternative to renegotiating would be to propose to
the Soviets the extension of the agreement for one year as
provided under Article IX. If accepted by the Soviets, this
action would leave in place a framework to regulate our
grain trade, while postponing a decision on the longer-term
future of this trade.
INTERRELATIONSHIPS OF SANCTIONS POLICY
In the current. international situation the act of
removing the partial grains embargo on the USSR could have
wide-ranging implications for our policies in Southwest Asia,
our ability to deter Soviet intervention in Poland, and our
leadership role within the western alliance.
Lifting the embargo would spell the end of the sanctions
imposed in response to the invasion of Afghanistan and could
be interpreted as tacit acceptance of the situation there.
A US decision to lift the embargo without a significant Soviet
concession on Afghanistan or without the introduction of
alternative measures to shore up resistance to Soviet
expansion in Southwest Asia, could also be interpreted as a
lessening of US interest in issues of importance to the
Islamic states, which have condemned the Soviet invasion and
called for the withdrawal of Soviet troops. A subsequent
vigorous response to a Soviet invasion of Poland would
exacerbate sentiment that the US is unconcerned about non-
aligned and Muslim people. A US policy of increased support
for Pakistan and other key states in the region would be
undermined by a decision to lift the grain embargo since this
could raise new doubts among already skeptical regional -
leaders concerning US willingness as make sacrifices to deter
Soviet moves in the region.
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The decision on the future of the embargo must take into
account the tense and uncertain situation in Poland. In the
event of Soviet intervention, the US would want to respond
vigorously. Terminating the' embargo could unravel the fragile
allied consensus on the need for sone kind of economic sanctions.
An embargo on grain sales would be the major contribution the US
could make to such a program. Unless we are prepared to bear
this burden, the allies, who are reluctant in any case to
sacrifice their trade with the USSR, would seize upon a US decision
to lift the embargo as a reason to avoid further contingency
planning on Poland. The end of such planning might well become
public, thus indicating to the Soviets that the price paid for
intervention would be greatly decreased. Poland aside, dropping
the grains embargo could hamper any efforts by the new Adreinistra-
tion to tighten Western technology transfer and industrial trade
with the USSR.
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