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Ronald Reagan Presidential Library
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Collection: President, Office of the: Presidential
Briefing Papers: Records, 1981-1989
Folder Title: 07/15/1982 (Case File: 089355)
(2)
Box: 19
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E
THE WHITE HOUSE
WASHINGTON
July 14, 1982
MEETING WITH REPUBLICAN MEMBERS OF THE
HOUSE COMMITTEE ON AGRICULTURE
DATE:
Thursday, July 15, 1982
LOCATION:
The Roosevelt Room
TIME:
1:30 p.m. (30 minutes)
FROM:
Kenneth M. Duberstein for D.
I.
PURPOSE
To express appreciation for the solid support of Committee
Republicans in stopping an agricultural "bail-out" proposal
at the Committee level, to indicate continued sensitivity and
concern about the domestic agricultural situation, and to
receive advice on positive efforts that can be undertaken
consistent with the economic recovery effort.
II.
BACKGROUND
On Thursday, June 17, 1982, H.R. 6274 (Farm Crisis Act) was
defeated in the House Agriculture Committee on a 21 to 21 tie
vote. Eighteen of the nineteen Committee Republicans were
joined by three Democrats in opposing this "bail-out" measure.
Many of these Republicans have been under continuing intense
pressure by constituents, political opponents and special
interest groups to support farm "bail-out" legislation; and
there are strong indications that a revised version of H.R.
6274 will be considered by the House Agriculture Committee
during the month of July. In light of the Congressional Budget
Office estimate that H.R. 6274 would save approximately $300
million and recent public statements made by a number of Agricul-
ture Committee Members, there is a significant possibility that
the Committee may attempt to include a revised version of this
bill in an omnibus Reconciliation measure. Under the First Con-
current Budget Resolution for Fiscal Year 1983, House Committees
are required to complete action on reconciliation items within
their jurisdiction prior to August 1, 1982.
The Ranking Republican Member of the House Agriculture Committee
(Bill Wampler of Virginia) has requested this meeting as a
means of discussing possible administrative remedies to the
current agricultural problem. In addition, Representative
Wampler and other Committee Republicans have requested repeatedly
that they be given an opportunity to discuss Soviet Grain Sales
with the President prior to a decision on this issue.
2
II.
BACKGROUND (continued)
These Congressmen met with the President on November 4, to
discuss the 1981 Farm Bill. A smaller bipartisan House-
Senate group (including Representative Paul Findley, R-Illinois)
met with the President on March 22, 1982 to discuss agricultural
trade and related matters.
III.
PARTICIPANTS
See attachment
IV.
PRESS PLAN
Photo opportunity prior to meeting. House Republican Leader
Bob Michel (R-Illinois) and Committee Ranking Republican
Bill Wampler (R-Virginia) to brief press afterwards.
V.
SEQUENCE OF EVENTS
A. Remarks by President (5 minutes)
B. Remarks by Secretary Block (5 minutes)
C. Discussion with Congressional participants moderated by
the President and Secretary Block.
Attachments: Participants
Talking Points
ATTACHMENT
PARTICIPANTS
The President
The Vice President
Secretary Block
Ambassador Brock
OMB Director Stockman
Congressional Participants
Michel, Robert H. (R-Illinois)
Lott, Trent (R-Mississippi)
Wampler, William C. (R-Virginia)
Findley, Paul (R-Illinois)
Jeffords, James M. (R-Vermont)
Hagedorn, Tom (R-Minnesota)
Coleman, E. Thomas (R-Missouri)
Marlenee, Ron (R-Montana)
Hopkins, Larry J. (R-Kentucky)
Thomas, William M. (R-California)
Hansen, George (R-Idaho)
Stangeland, Arlan (R-Minnesota)
Roberts, Pat (R-Kansas)
Emerson, Bill (R-Missouri)
Napier, John L. (R-South Carolina)
Skeen, Joe (R-New Mexico)
Morrison, Sid (R-Washington)
Roberts, Clint (R-South Dakota)
Gunderson, Steve (R-Wisconsin)
Chappie, Eugene (R-California)
Evans, Cooper (R-Iowa)
Staff
Ed Meese
Jim Baker
Michael Deaver
Bill Clark
Ken Duberstein
Ed Rollins
Ed Harper
Dick Darman
M. B. Oglesby, Jr.
Dave Wright
John Dressendorfer
John Scruggs
Nancy Risque
ATTACHMENT
SUGGESTED TALKING POINTS FOR MEETING WITH
REPUBLICAN MEMBERS OF THE HOUSE
COMMITTEE ON AGRICULTURE
Acknowledge that this is a difficult period for American
agricultural producers-- the third straight year of economic
recession in the farm sector due to a vicious cost/price
squeeze, high interest rates and uncertain markets.
State that, long-term, the Economic Recovery Program--to
reduce the government's claim on our national resources
and end its interference with the marketplace--will benefit
the agricultural sector as much as any other area of the
domestic economy. While there remains much to be done, very
important progress has been made to reduce inflation and
interest rates during the past year.
Emphasize your strong opposition to special "bail-out"
schemes, whether directed at agriculture or other sectors
of the economy, as being inconsistent with the economic
recovery effort. Thank these Congressmen for their help in
defeating an agricultural "bail-out" bill (H.R. 6274) at the
Committee level on Thursday, June 17, 1982. Note that you
are counting on their continued support in this regard.
Recognize that the Federal Government also has an important
role to play in partnership with the farm community in such
areas as research, market development and basic commodity
2
supports. Note that, as symbolized by the recent supplemental
spending requests for commodity supports this year and next,
this Administration will not turn its back on the nation's
farmers in their time of special need.
State that no decision has been made on the Soviet grain sales
issue. Indicate that in other respects you also are open to
suggestion on constructive actions that can be taken to improve
the agricultural situation, consistent with the economic recovery
effort.
Mention that Agriculture Secretary Block has some comments to
make, and then you both look forward to hearing what this group
of distinguished Congressional leaders has to say.
THE WHITE HOUSE
WASHINGTON
MEETING OF THE FULL CABINET
DATE:
July 15, 1982
TIME:
2:00 pm (60 min)
LOCATION:
Cabinet Room
FROM:
CRAIG L. FULLER
as
I.
PURPOSE: To discuss 1) U.S.-U.S.S.R. grain agreement
2) Product Liability;
II. BACKGROUND:
1) On April 7 the Cabinet Council on Commerce and Trade
considered the issue of the appropriate Federal role in
determining product liability guidelines. Two concerns were
raised: a) is product liability legislation consistent with
the Administration's "New Federalism"; and b) are there
economic policy arguments supporting a Federal approach. The
Council established a Working Group to address those concerns.
Subsequently, Senator Kasten (R-WI) introduced S. 2631, the
Product Liability Act, which would pre-empt state product
liability laws and bar certain claims after a specified time
period following the initial sale of the product. Kasten
plans to request full Senate Commerce Committee consideration
of S. 2631 prior to the August recess, although it is
unlikely that the legislation would be acted upon by Congress
until after they reconvene.
There are two levels of decisions to be made on this issue:
should the Administration opt for a Federal role in product
liability; and, if so, to what extent and in what form. The
focus of this meeting corresponds to the first. The Working
Group prepared the attached decision memorandum. A 150-page
briefing book is available upon request.
2) The current U.S.-Soviet Long-Term Gain Agreement will
expire on September 30, 1982. The Administration must
decide whether to continue with a formal arrangement like
that which has governed U.S.-U.S.S.R. grain trade since
1975; and within what framework? There are competing interests
at stake in this issue and options are outlined in the
attached paper.
III. PARTICIPANTS
Full Cabinet. A list of participants will be attached to
the agenda.
IV.
PRESS PLAN:
None
V.
SEQUENCE
Secretary Block will lead the discussion on the grain
agreement. Secretary Baldrige will lead the discussion on
product liability.
DEPARTMENT OF COMMERCE
THE SECRETARY OF COMMERCE
Washington, D.C. 20230
UNITED STATES OF AMERICA
July 12, 1982
MEMORANDUM FOR: MEMBERS OF THE CABINET COUNCIL ON COMMERCE
AND TRADE
FROM
:
Malcolm Baldrige, Chairman Pro Tempore
MB
Cabinet Council on Commerce and Trade
SUBJECT:
: PRODUCT LIABILITY
ACTION FORCING
EVENT:
Senate Committee Hearings and Possible
Mark-up of Legislation
The Cabinet Council last considered the product liability
issue on April 7, 1982. At that meeting, members expressed
two concerns about Federal involvement: (1) whether Federal
product liability legislation is consistent with the Adminis-
tration policy of "New Federalism"; and (2) whether there are
economic policy arguments supporting a Federal approach. A
Working Group was established by the Council to address these
two specific concerns (Tab B).
Since our April 7 meeting, Senator Kasten has introduced
S. 2631, the Product Liability Act, and has held two days of
hearings on the bill. More importantly, Senator Kasten is
planning to request full Senate Commerce Committee considera-
tion of S. 2631 prior to the August recess. These events
provide us an opportunity, if we can decide quickly the
course of action we wish to pursue, to influence the
legislation being considered.
In preparing to respond to the questions raised at the
April 7 Cabinet Council meeting, staff of the Working Group
reviewed:
Hearings before twelve Congressional committees over the
last six years, comprising more than 41 days of testimony
(Tab C);
- 2 -
The findings of the Interagency Task Force on Product
Liability, published in seven volumes by the Department
of Commerce in November, 1977; as well as the conclusions
of the Task force in its final draft of the Uniform
Product Liability Act, published by the Department in
November 1977;
More than 1500 pages of comments received by the Senate
Commerce Committee on its draft product liability
legislation;
A paper on the economic consequences of a Federal
product liability act prepared by a major business
coalition, the Product Liability Alliance (Tab E);
The product liability law of the fifty states and the
District of Columbia (Tab I).
Based upon this review, the staff of the Working Group
believes that confusing and diverse standards governing
product liability produced by statutory and case law in the
fifty states impose transaction and production costs on
American industry. The staff believes these costs could be
substantially reduced if a national standard were drafted.
Some members of the Working Group have suggested that
additional studies should be undertaken, more comments
solicited and prior data updated before we decide that
Federal intervention in this area is desirable. The staff of
the Working Group believes additional study and analysis
would not help the Cabinet Council decide whether or not to
participate in Congressional review of the product liability
issue. Further study would, in their view, deny the Administra-
tion an opportunity to actively participate in the Congressional
consideration of an issue which is already moving forward.
The conclusions of the staff of the Working Group as to the
consistency of Federal intervention in the product liability
area with the Administration's New Federalism, and the
economic policy considerations underlying Federal product
liability legislation follow:
A. FEDERALISM
Is Federal product liability legislation consistent with the
Reagan Administration policy of "New Federalism"?
In the past, the Administration has defined the "New
Federalism" in the context of returning health, safety,
welfare, and environmental standard-setting and enforcement
- 3 -
to the states. Food stamp administration, education policies
affecting local school boards, neutrality on key state
revenue issues, and broadcutting regulatory relief for state
and local governments are all areas in which this Administra-
tion has sought to return operation and management -- subject
in some cases to broad Federal oversight -- to the state
level. The underlying bases for the policy are the desire to
move decisions closer to those affected by them, and to
permit state and local governmental bodies to deal with those
issues which are best resolved in a local, rather than
Federal, forum.
The goods which are the subject of the various state product
liability standards (whether legislatively or judicially
imposed) are sold in regional or national markets. Product
liability standards adopted in any single jurisdiction which
is part of that regional or national market affect the cost
of goods produced for sale throughout that market. The
additional costs imposed by the decision of a single jurisdic-
tion in which the product is marketed to adopt a given
product liability standard, therefore, must be borne by all
the consumers in the regional or national market in which the
goods are sold.
The effect of a decision as to product liability standards
by the courts or legislature of a single jurisdiction, which
is part of a regional or national market, is not, and cannot
be, limited to the citizens of the jurisdiction whose courts
or legislature made the decision. Because the effects of
decisions involving them cross state lines, the formula-
tion of product liability standards is not a matter which can
effectively, or appropriately, be decided at state or local
governmental levels, and Federal product liability legisla-
tion does not represent a Federal intrusion into matters
which are more effectively or appropriately decided at state
or local levels.
Regulation of interstate commerce is a role traditionally
and appropriately reserved to the Federal government.
Since the publication of the Uniform Product Liability Act in
1977 by the Department of Commerce, only four states have
enacted any portion of that model statute -- and these only
- 4 -
in part (twenty-seven other states have enacted unrelated
product liability measures, none of them alike). Despite
efforts to achieve uniformity in standards governing product
liability, the various state standards are more disparate now
than they were a decade ago. Two state governors have vetoed
state product liability legislation, on the basis that it
would limit rights of consumers in that State but would not
help the state's manufacturers, whose products are sold in
other states and who, therefore, would remain subject to the
more onerous product liability laws of other states.
Federal legislation, establishing uniform standards to reduce
burdens on interstate commerce, is fully consistent with the
role historically played by the Federal government. Such
standards are uniformly upheld by the Supreme Court as an
appropriate exercise of Federal power under the Commerce
Clause. The states may not limit the length of trains
operating within the State; they may not regulate the design
and structure of ships; they may not require trucks to be
equipped with mudguards which are different from those
permitted in other states.
Federal product liability legislation is consistent
with this Administration's previous initiatives.
This Administration has previously employed a limited Federal
approach to problems having interstate implications. The
Administration strongly supported enactment of product
liability risk retention legislation as a solution to the
"insurance side" of the product liability problem. The
Product Liability Risk Retention Act of 1981 provides for
limited Federal preemption of state insurance laws to the
extent necessary to permit the formation by manufacturers of
risk retention groups.
The President's statement upon signing the Risk Retention Act
into law bears repeating:
"This Act is a marketplace solution designed to provide
manufacturers, distributors and sellers with affordable
product liability insurance. In keeping with this
Administration's policies, this goal is accomplished
without imposing any new Federal regulations or expend-
itures. The Act, respecting the rights of states to
regulate the insurance industries within their borders,
- 5 -
utilizes existing mechanisms of state insurance depart-
ments, streamlined to express the single need for
regulating this type of insurance
"In particular, the Act removes selected state
regulatory barriers so that product sellers can form
self-insurance cooperatives
"In short, the Act is a good example of how the
Federal Government can resolve a nationwide problem
without creating additional programs or agencies".
In addition, the Administration is supporting legislation
currently pending before Congress which would preempt state
usury laws. S. 1720, introduced by Senator Garn, would
remove state-imposed interest rate ceilings on all loans. A
principal concern of the Administration is that state usury
laws distort national credit markets.
B. ECONOMIC POLICY CONSIDERATIONS
There is evidence that product liability rules have a
significant impact on the price, quantity and quality of
goods and services. As state courts and legislatures
continually alter these rules, the uncertainties about
possible liability increase. These uncertainties are
translated into increased transaction (legal and investiga-
tive) and production costs, which in turn affect the quality,
price and variety of products available.
Transaction Costs
Transaction costs are legal and associated costs generated by
product liability lawsuits brought against manufacturers.
The American Insurance Association estimates that for every
sixty-six cents a victim receives, seventy-seven cents is
spent in legal costs. A significant percentage of legal
costs are generated by the need to determine "what the law
is" in the state where the action is brought. These costs to
the manufacturers are eventually passed on to the consumer.
It has been estimated that the cost to manufacturers for
initial outside counsel fees related to typical out-of-state
claims is approximately $2,000-to-$4,000 per claim. These
initial expenses are for basic analyses of the law in any
number of jurisdictions and this does not include litigation
decisions required to be made by in-house counsel, pre-trial
or court time or other costs. Since approximately 109,000
- 6 -
product liability suits were filed in state and Federal
courts in 1981 alone, annual initial defense expenses may be
as high as $200-400 million, beforé any case goes to trial
and exclusive of settlement costs.
Production Costs
Because products are marketed nationwide they are held to not
one but fifty-one possible standards. Manufacturers must
design, label, ship, sell and market products which meet
these varying standards. For example, New Jersey, Pennsylvania,
California and Wisconsin each have different standards for
design liability. As a result of these kinds of differences,
one manufacturer of machine tools has recorded increases in
product liability costs per machine from $200 in 1970 to
$11,000 in 1982.
The incentive for marketing new products or improving current
products is affected by some state laws which permit the
introduction of post-manufacture improvements to establish
that a product was defective. The losses involved in product
lines or design improvements not made or introduced, are, of
course, difficult if not impossible to quantify. Never-
theless, they must be taken into account.
It is estimated that the cost of product liability insurance
represents between 10-15% of the price of some products.
This cost includes either actual insurance premiums paid, or
internal reserves held in anticipation of adverse judgements.
Effect on competitive position in international trade.
Present product liability standards are a disadvantage to
American manufacturers when they must compete with foreign
made products.
Domestic product liability insurance rates are about
twenty times what they are in Europe and vary between
seven and forty times what they are in Britain.
For many product lines, foreign manufacturers entering
the American market for the first time have a price
advantage over similar U.S. made products. They do not
have to factor into the price of their product potential
liability costs for products still in use in the United
States after 20, 30 or 50 years. Also, they may
introduce products with new safety or design features
without worry about being held liable because their
older products do not have such features.
- 7 -
The Hidden Costs
The costs discussed above represent only part of the picture.
There is another significant area of costs which are not
recorded:
The costs incurred in the settlement of claims that are
ultimately disposed of out of court without a determina-
tion of liability. Approximately 95 percent of liability
claims are settled or dropped before they reach the
jury. The overwhelming majority of those that proceed
never reach a jury and are either settled privately or
abandoned. Private settlements rarely become part of
the public record, and parties frequently agree to keep
the terms of the settlement confidential.
Insurance costs. While it is known that U.S. businesses
spent between $1.3 billion and $1.6 billion to commercially
insure their product-liability exposure in 1981: (1) A
significant number of businesses are self-insured or
make no provision to cover their product liability
exposure; and (2) These businesses do not report details
of their product liability loss-and-expense experience.
Since this group accounts for a significant part of the
potential data base, their data represents a significant
unmeasured cost inherent in the current product liability
situation.
CONCLUSIONS
1. It it unlikely that the states will adopt uniform
product liability standards in the foreseeable
future.
2. The lack of uniformity among state standards has
created burdens on interstate commerce which result
in economic costs to the manufacturing and consuming
public.
3. Federal legislation creating uniform product
liability standards for the adjudication of product
liability disputes by the states is both
economically justified and consistent with
Administration policy.
- 8 -
OPTIONS FOR ADDRESSING THE ISSUE
Option One: Take no action
Pro: (1) The Administration is not required to adopt a
position at this time.
(2) This late in the current Session, it is unlikely
that any legislation would be acted upon by the
Congress prior to fall adjournment.
(3) This would allow more time for study of this issue.
Con: (1) U.S. Industry has been urging the Administration
to simply recognize the need for Federal legisla-
tion. Failure to do so would risk alienating
these groups.
(2) Failure to participate in the process early could
hinder future Administration influence over the
outcome of the issue.
(3) Three Administrations and four Congresses have
already studied this issue. Further delays will
limit the ability of the Administration to
participate in this issue.
Option two:
Recognize need for Federal approach and direct
Working Group to develop Administration
position on legislation and work with Congress
to develop acceptable bill.
Pro: (1) The Administration could be on record as supporting
the principle of a Federal approach, without favoring
specific legislation.
(2) The Administration could have the opportunity to
ensure the development of fair and balanced legislation.
(3) Demonstrates to business community Administration
support.
Con: (1) Could imply Administration support for the Kasten
bill (S. 2631).
- 9 -
(2) Consumer groups may criticize the Administration for
supporting legislation they see as affecting the
rights of injured persons.
(3) Could involve us in a process whereby the President
may have to veto a bill even though the
Administration had cooperated with the Congress.
ISSUE PAPER
U.S.-U.S.S.R. GRAIN AGREEMENT
Issue
The current U.S.-U.S.S.R. Grain Agreement will expire on
September 30, 1982. The Administration must decide whether it
wants a formal arrangement (and, if so, what kind) to govern
U.S.-U.S.S.R. grain trade after September 30.
I. Background
U.S.-U.S.S.R. Grain Trade Prior to 1975. An unfavorable
climate, poor soil, backward technology, and an extremely
inefficient agricultural system make periodic crop failures in
the Soviet Union a virtual certainty. As a result, the Soviets
have, during the last twenty years, imported increasing amounts
of grain to accommodate their domestic needs.
Soviet purchases from the U.S. were relatively modest until
1972, when the prospect of a major crop failure prompted them
to buy, over a two to three month period, 19 million metric
tons (mmt) of U.S. grain, including one-fourth of the total
U.S. wheat crop. The Soviets made their purchases quietly and
early, before prices adjusted to the sudden increase in demand.
The Soviets also were able to capitalize on USDA's wheat export
subsidy program and a recently negotiated credit arrangement.
These circumstances, as well as the domestic market disruption
caused by the massive grain purchases, led critics to label the
U.S. sales as the "great Soviet grain robbery."
The U.S.-U.S.S.R. Grain Agreement. The summer of 1975 brought
new reports of a looming Soviet crop failure. These reports,
coupled with the desire to avoid a repeat of the 1972 scenario,
prompted the Ford Administration to suspend grain sales to the
Soviet Union until an arrangement could be worked out that
would prevent Soviet disruption of U.S. domestic markets and
guarantee U.S. farmers a reasonable share of the Soviet market.
The ensuing negotiations with the Soviet Union produced an
agreement with the following provisions:
2
The Soviets agreed to purchase 6 mmt of U.S. wheat and
corn, in approximately equal proportions, during each of
the five years covered by the agreement;
The Soviets can purchase up to 2 mmt more of U.S. grain
during any year without consultations with the U.S.;
The U.S. agreed not to embargo exports of up to 8 mmt of
grain to the Soviet Union;
The Soviets are required to consult with the U.S. (to
determine a higher supply level) before buying more than
8 mmt of grain in any given year;
There is an escape clause for the U.S. in the event of a
major U.S. supply shortage;
Soviet purchases must be made at prevailing market prices
and in accordance with normal commercial terms.
The Soviets agreed to ship the grain under the terms of
the U.S.-U.S.S.R. Maritime Agreement;
The Soviets are required to space their grain purchases
and shipments as evenly as possible over each 12-month
period.
Since the agreement, there has been greater stability in world
grain trade and in Soviet purchasing patterns. Under the
agreement, the U.S. has expanded its share of the Soviet
market (see Appendix). Over this period, Soviet demands for
grain have increased more rapidly than their production,
resulting in a higher level of Soviet grain imports.
The Soviet Grain Embargo of 1980. On January 4, 1980, in
response to the Soviet military invasion of Afghanistan,
President Carter cancelled contracts for the sale of 13.5 mmt
of U.S. corn and wheat to the Soviet Union. The U.S. also
denied the Soviets access to an additional 3.5 mmt of grain
which had been offered to, but not yet purchased by, the
Soviets. Finally, shipments of soybeans, broilers, and some
other agricultural products were halted.
The Soviets were able to minimize the effects of the embargo by
drawing down their grain stocks and by increasing grain,
soybean, rice, flour, and meat imports from Argentina, Canada,
Australia, and the European Economic Community.
3
The Soviets have since entered into new long-term purchasing
agreements with Argentina, Brazil, Canada, Hungary, and
Thailand, in an attempt to diversify their sources of supply,
resulting in a declining share of the Soviet market for U.S.
farmers.
In April 1981, President Reagan lifted the Soviet grain
embargo. This was followed by an agreement in August to extend
the expiring U.S.-U.S.S.R. grain accord for an additional year,
through September 30, 1982. In October 1981, the U.S. offered
the Soviets an additional 15 mmt of grain, raising to 23 mmt
the amount of U.S. grain available to the Soviets during fiscal
year 1982. To date, the Soviets have purchased a total of
13.9 mmt of U.S. wheat and corn.
U.S. Sanctions Against the Soviets in the Aftermath of the
Polish Declaration of Martial Law. Discussions concerning
negotiation of a new U.S.-U.S.S.R. long-term grain agreement
were under way within the Administration when the Polish
government declared a state of martial law in December 1981.
When the Soviet Union failed to respond to U.S. urgings to help
restore basic human rights in Poland, the President announced a
number of sanctions against the Soviets, including postponement
of negotiations on a new grain agreement and suspension of
negotiations on a new maritime agreement.
II. Discussion
Soviet Import Demands. Soviet grain production has declined
sharply during the past three years, after more than a decade
of steady growth. Following a record crop of 237 mmt in 1978,
the Soviet harvest fell to 179 mmt in 1979, 189 mmt in 1980,
and reportedly to 158 mmt in 1981, nearly one-third below
target. To avoid massive shortages, the Soviets have imported
more than 100 mmt of grain since June 1979. During the
marketing year ending this June, Moscow is expected to import a
record 45 mmt of grain.
Soviet hard-currency outlays this year for all agricultural
commodities -- including grain, other feedstuffs, meat, sugar,
and vegetable oil -- will probably reach some $12 billion, up
about $1 billion from last year, and a sharp increase from the
roughly $8 billion spent in 1980. Altogether, food imports now
account for roughly 40 percent of total Soviet hard-currency
purchases.
Even with a strong recovery in domestic grain production,
MOSCOW will continue to import large amounts of grain, an
4
estimated 45 mmt of grain during the next marketing year
(July 1982-June 1983). The ultimate level of Soviet grain
imports during the next marketing year will depend on:
The size of the 1982 Soviet grain crop. USDA recently
reduced its projection for the 1982 Soviet grain crop
from 185 to 170 mmt;
The extent to which the Soviets decide to maintain or
expand livestock inventories;
Hard-currency constraints. Increasing Soviet hard-
currency constraints or a decision by Western bankers to
curtail short-term credits could hamper Moscow's import
intentions;
U.S.-U.S.S.R. trading relations;
The extent to which the Soviets will allow increased
dependence on imported grains; and
O
Soviet port capacity. Currently Soviet grain import
capacity is 45-50 mmt per year.
Soviet officials recently announced ambitious production goals
for grain and livestock for the remainder of the 1980s. They
also expressed their intention to reduce imports of foodstuffs
from capitalist countries. The history of Soviet agriculture,
however, suggests that achieving increased livestock production
goals will be extremely difficult if the Soviets reduce grain
imports.
U.S.-U.S.S.R. Grain Agreement in the Context of the World Grain
Market. It is doubtful that a long-term grain agreement
between the Soviet Union and the United States would have much
effect on the total U.S. share of world grain trade during the
next marketing year. However, the existence or absence of such
an agreement is likely to have a significant impact on world
grain trading patterns in future years. If, by failing to
negotiate a formal trading arrangement, the Soviets were
discouraged from satisfying their import demands in the U.S.
market, they would have to seek new sources of supply. The
prospect of servicing a consistently large buyer, such as the
Soviet Union, would prompt other exporting countries to further
increase their production. (Since the 1980 Soviet grain
embargo, Argentina and Canada have increased their grain
production by roughly 25 percent.) This increased production
would compete with U.S. grain in world markets, reducing the
U.S. share of the growth in global grain trade.
5
U.S. Foreign Policy Considerations. The U.S. is pursuing, and
encouraging its allies to pursue, a general policy of economic
restraint with the U.S.S.R., based upon fair burden sharing in
the West. A government-to-government agreement, especially one
perceived as newly-negotiated, that promotes grain exports,
would be regarded as an exception to that policy.
More specifically, negotiations with the Soviets would signal
an end to one of the President's measures against the U.S.S.R.
in response to the Poland crisis, undercutting the general
package of Poland-related sanctions, and implying that the
situation there has improved and that the U.S. is prepared to
adopt a "business as usual" stance. The Soviets could be
expected to promote this interpretation vigorously.
Resuming negotiations would conflict with the decision to
extend extraterritorially sanctions on oil and gas equipment
and technology. In the absence of real changes in Poland,
resuming negotiations would undermine U.S. credibility on
burden sharing and U.S. efforts to induce its allies to
exercise restraint in credit and trade arrangements with the
U.S.S.R.
U.S. Domestic Considerations. The U.S. farm sector is
experiencing serious economic hardships due to over-abundant
grain supplies, high interest rates, and a cost/price squeeze.
Pressure is being applied on the Administration to provide
various forms of assistance for farmers, including paid land
diversions, export subsidies, increased food assistance, and
higher price supports.
The negotiation of a new long-term U.S.-U.S.S.R. grain
agreement that guarantees U.S. farmers higher minimum sales
to the Soviet Union would be viewed by the agricultural
community as a positive step in U.S.-Soviet grain trade and
as a demonstration of the Administration's commitment to the
agricultural sector. It would be perceived by the farm
community as consistent with the central feature of the
Administration's farm policy -- increasing agricultural
exports. Farmers regard the U.S.-Soviet grain agreement
issue as the litmus test of the Administration's commitment
to the agricultural sector.
The U.S. maritime industry and labor share a common concern
over the arrangements for shipping grain from the U.S. to the
Soviet Union. In the absence of a new U.S.-U.S.S.R. maritime
agreement, U.S.-flag vessels would be effectively precluded
from participation in carrying grain to the U.S.S.R. Such a
development could have an adverse impact on the cooperation of
U.S. maritime labor in implementing any grain agreement.
6
III. Options
Option 1: Allow the existing U.S.-U.S.S.R. grain agreement to
expire without providing for any formal agricultural
trading arrangement between the two countries after
September 30, 1982.
Advantages:
Would be consistent with the President's policy of
postponing negotiations on a new long-term grain
agreement with the Soviets until there were
improvements in the Polish situation.
Could be presented as the Administration's attempt to
reduce government intervention in the international
marketing of U.S. agricultural products.
Would end the no-embargo guarantee which gives the
Soviets special treatment not accorded to other
buyers, and limits the President's foreign policy
flexibility.
Would be most consistent with our overall Soviet
policy and with the recent decision on the pipeline.
Disadvantages:
Would give the Soviets unrestricted access to the U.S.
grain market and could lead to disruption of the U.S.
grain market if the Soviets were to resume their
erratic purchasing behavior of the early 1970s.
Farmers would view lack of an agreement as eliminating
their chances for maximizing their share of grain
sales to the Soviet Union, and this would be perceived
as undermining the President's commitment to help
increase agricultural exports.
Could lead to the lowest level of U.S. grain exports
under any of the options, and thus increase federal
outlays for agricultural price support and production
control programs.
Would eliminate one more ongoing U.S.-U.S.S.R. tie,
and could affect the atmosphere of the upcoming U.S.-
U.S.S.R. summit.
7
Option 2: Extend the existing U.S.-U.S.S.R. grain agreement
for one year.
Advantages:
Would maintain a formal trading arrangement that would
assure U.S. farmers of some access to the Soviet
market and insulate domestic users from possible
Soviet disruption of U.S. markets.
Would continue the status quo, thereby blunting the
charge that the U.S. was making a concession to the
Soviets in the absence of an improvement in the Polish
situation.
Would allow for a more positive trade atmosphere with
the Soviets than there would be in the absence of an
agreement, and thus would leave open the possibility
of entering into negotiations on a new long-term grain
agreement subsequent to an improvement in the Polish
situation.
Disadvantages:
Would be perceived by U.S. farmers as harming their
chances for maximizing their share of grain sales to
the Soviet Union and thus undermine the President's
commitment to help increase farm exports.
Could be perceived as a weakening of U.S. sanctions
imposed against the Soviets as a result of the Polish
situation, and conflicting with the recent decision on
sanctions on oil and gas equipment and technology.
Could undermine ongoing U.S. efforts to enlist the
support of its allies in restricting government
credits to the Soviet bloc.
8
Option 3: Extend for two or more years the existing
U.S.-U.S.S.R. grain agreement amended to provide
higher minimum purchase requirements.
Advantages:
Would insulate domestic consumers from possible Soviet
disruption of U.S. markets for a longer period.
Ensures higher minimum farm exports to the Soviet
Union under all market conditions, demonstrating the
President's commitment to increasing agricultural
exports.
Disadvantages:
Would signal a U.S. retreat from the sanctions imposed
in response to the Polish situation and could undercut
our efforts to secure changes in the policies of the
Jaruzelski regime.
Would undermine ongoing U.S. efforts to enlist the
support of its allies in restricting government
credits to the Soviet bloc. Our allies would view
this option as inconsistent with the pipeline
decision. It would damage our credibility with the
allies on burden-sharing.
Would broaden the no-embargo guarantee to higher
amounts, enhancing the special treatment given to
the Soviets.
9
Option 4: Negotiate a totally new U.S.-U.S.S.R. grain
agreement.
Such an agreement might include four basic features:
1. A minimum purchase level for the grains covered under
the agreement. The minimum purchase level would be
adjusted each year on the basis of a two-year moving
average of actual Soviet grain purchases.
2. A "prior consultation level" -- expressed as a
percentage above the minimum purchase level --
beyond which the annual Soviet purchases could
not go, without prior consultation with the U.S.
3. A provision to encourage the Soviets to buy
value-added agricultural products.
4. A provision that any decision on supply availability
above the prior consultation level would require
commitments on both sides to purchase and sell
specific amounts.
Under current international circumstances, it is highly
unlikely that the Soviets would agree to a new agreement that
would be viewed as an increase in U.S. leverage over Soviet
affairs.
Advantages:
Would achieve a greater integration of the U.S. and
Soviet trading systems.
Would assure U.S. farmers a reasonable share of the
Soviet market, based on actual levels of grain trade.
Would force the Soviets to be more forthcoming with
respect to their buying intentions.
Disadvantages:
Would signal a U.S. retreat from the sanctions
imposed in response to the Polish situation, and
could undercut our efforts to secure changes in the
policies of the Jaruzelski regime.
Would require protracted negotiations that could
extend beyond the expiration of the current agreement.
Would provide the Soviets much greater opportunity to
press for stronger supply guarantee provisions.
10
APPENDIX
U.S.-SOVIET GRAIN TRADE 1973-1982
Total USSR
US Grain
US Share of Total
Grain Imports
Exports to
USSR Grain Imports
(mmt)
USSR
(%)
(mmt)
FY 1973
22.5
14.1
63
FY 1974
5.7
4.5
79
FY 1975
7.7
3.2
42
FY 1976
25.5
14.9
58
FY 1977
8.4
6.1
73
FY 1978
22.5
14.6
65
FY 1979
19.6
15.3
78
FY 1980
27.0
8.3
31
FY 1981
38.8
9.5
24
FY 1982
45.0
13.9
31
(projected)
G
THE WHITE HOUSE
WASHINGTON
July 12, 1982
MEETING WITH COMMANDER JOHN ELKINS
LIEUTENANT COLONEL JOSE MURATTI
MAJOR JOHN KLINE
July 15, 1982
4:15 p.m.
E.V.H.
From: Edward V. Hickey, Jr.
I.
PURPOSE
Farewell call on the President. LTC Muratti, Major Kline
and Commander Elkins are departing the White House for new
assignments with their respective services.
II. BACKGROUND
LTC Muratti and Major Kline have served as military aides
since May 1979 and September 1980 respectively. CDR Elkins
has served the White House since May 1979 as the Special
Projects Officer.
III. PARTICIPANTS - List attached.
IV. PRESS PLAN - White House Photographer only.
V. SEQUENCE OF EVENTS
Commander Elkins and his family will enter the Oval Office
for their farewell call (no award will be presented).
Major Kline and his family will enter the Oval Office for
their farewell call and the awarding of the Legion of Merit
by the President, followed by LTC Muratti and his family.
LTC Muratti will also by awarded the Legion of Merit by the
President. The citation for each award will be read by
Commander Schmidt. I will be in the Oval Office for each
farewell call ceremony.
LIST OF PARTICIPANTS - 15 July 1982
Lieutenant Colonel Jose A. Muratti, Jr. - Army Aide to the President
Jo Muratti (wife)
Jose (Joe) Muratti (son)
Richardo (Rick) Muratti (Son)
Major John P. Kline, Jr. - Marine Corps Aide to the President
Christine Kline (wife)
Katherine (Kathy) Kline (daughter)
J. Daniel Kline (son)
Commander John C. Elkins - - Special Projects Officer
Beth Elkins (wife)
Slade Elkins (son)
Bart Elkins (son)
Carolu Elkins (daughter)