APPENDIX

STATEMENT OF JULIUS L. KATZ, DEPARTMENT OF STATE

Mr. Chairman, I am appearing on behalf of the Assistant Secretary of State for Economic Affairs, Mr. Anthony M. Solomon, who could not be here today. I am pleased to join Secretary Schnittker and Ambassador Roth in recommending Senate approval of the International Grains Arrangement.

Accession to this arrangement will enable us to continue our cooperation with other wheat exporting and importing countries-cooperation which dates back to 1949 when the Senate first approved US membership in the International Wheat Agreement.

This cooperation has brought susbtantial benefits over the years in terms of more stable world wheat prices and expanded world trade. During the past decade, world wheat exports have doubled. US wheat exports, total as well as commercial, have more than held their own. It is clear, Mr. Chairman, that there is no substance to the charge sometimes heard that internatioanl cooperation in the field of wheat prices has restricted international trade or impeded US wheat exports.

The Administration has, nevertheless, felt for some time that the agreement could be made more meaningful and more effective by giving greater precision to its price provisions, and by extending its scope to include provisions on market access and food aid. While we did not accomplish all of our objectives, we believe the agreement now before you represents a significant improvement over the old agreement. Under Secretary Schnittker and Ambassador Roth have already discussed the new features of the Arrangement. I should like to add a few comments on what is probably the most important innovation, the provisions on food aid.

During the past few years we have made major efforts to enlist the cooperation of other developed countries in meeting the food crisis in India and similar emergencies. We have had a gratifying response from some governments-Canada, for example-and also from private citizens in Europe and elsewhere. For a number of years, other countries have joined with the United States on a fiftyfifty matching basis in the World Food Program of the United Nations, which is now providing food aid at an annual rate of about $60 million.

The Food Aid Convention included in the International Grains Arrangement represents a significant step forward in this multilateral effort. The 4.5 million ton program provided in this arrangement represents an annual value of about $300 million, five times the annual rate under the World Food Program.

This is the first time that food aid provisions have been included in an international commodity agreement. Food aid shipments under this agreement will be of substantial benefit to developing countries. At the same time the program should serve to stabilize and to strengthen the commercial wheat market by increasing consumption in countries which do not have the foreign exchange to pay for their food needs. As Under Secretary Schnittker has pointed out, by diverting surpluses from the commercial market the program will help us maintain our access to the markets of importing countries and reduce the pressure on export markets. The program thus should make a modest contribution toward a more equitable sharing of the responsibility for managing supplies. And, of course, the program will help spread the financial burden of food aid.

There is one additional comment I should like to make. Some critics have said that the food aid provisions of the agreement are poor compensation for the higher prices that will be charged to the developing countries on their commercial wheat purchases. Instead of raising prices, we should reduce prices in order to increase wheat consumption in these countries.

I do not believe this reasoning is valid. In the first place, the new minimum prices are lower than the actual prices which prevailed most of the time, and we therefore do not expect that they in themselves would have any particular effect on the normal level of international market prices, although by reducing downward fluctuations, average returns will be higher. In theory, lower prices might be expected to increase the individual demand for wheat in the developing countries. The fact is, however, that individual demand for food in countries like India is already in excess of foreign exchange availabilities, with the result that these countries must rely on food aid to meet about half of their import requirements. Lower wheat prices would not remove this overriding constraint.

Even with substantial food aid, many of these countries ration their food supplies. I should think that food aid will be vastly more effective in increasing consumption in these countries than reducing the price by a few pennies. This is particularly true if food aid is provided on generous terms as in the Food Aid Convention.

Mr. Chairman, we consider that the Wheat Trade Convention and the Food Aid Convention, together comprising the International Grains Arrangement serves the interests of our Nation and I am pleased to join with Secretary Schnittker and Ambassador Roth in recommending its approval. Thank you, Mr. Chairman.

SUMMARY OF STATEMENTS ON ADJUSTMENTS IN MINIMUM PRICES

(Prepared by General Agreement on Tariffs and Trade, June 14, 1967)

In response to clarifications sought by the representatives of India and Pakistan on 7 June, the following statements were made in explanation of Section IV, paragraphs 1-5, of the Memorandum of Agreement reproduced as Article 8A of the Draft Grains Agreement (INT(67)161).

The representative of the United States pointed out that for the seventeen years of its existence the International Wheat Agreement had identified a specifie minimum and maximum price for only one type of wheat-Manitoba No. 1. the top quality. The result had been to leave to administrative determination. when required, the minimum and maximum prices for other wheats. As a consequence, there had been no identifiable floor for wheats generally and considerable uncertainty as to when the floor was reached.

The new Agreement represented a major effort to correct this situation by establishing a price schedule for representative wheats. Nevertheless, it recognized that relative prices for various wheats fluctuate with market conditions and that therefore it was impossible to set in advance a schedule of prices which would prove equitable under the conditions that were likely to prevail at some future time when prices might in fact reach the minimum. The schedule of prices in the Agreement would, of course, only be relevant when prices were at either the minimum or maximum. At all other times market forces would determine the relative prices.

The purpose of the schedule of minimum prices is to contribute to market stability by making it possible to determine when the level of market prices for any wheat was at or approaching the minimum of the range. Since price relationships between types and qualities of wheat fluctuate with competitive circumstances, provision was made for review of and adjustments in minimum prices. The schedule of minimum prices that appears in the Agreement, therefore, functions as a barometer to indicate if prices were generally at or approaching the minimum. Procedures were established whereby agreement could be reached to adjust minimum prices and differentials between various grades and classes of wheat as required. The United States delegation would expect that, in most instances agreement could be reached on the adjustments required. Nevertheless. if agreement were not reached regarding the action required as to the schedule of minimum prices, the procedures recognize that an exporting country may price below the published schedule of minimum prices of the Agreement.

However, if supply and demand conditions are such as to push prices to the minimum, the Agreement places an obligation on all exporters to adjust supply and marketings so as to restore market stability, consistent with the objectives of the Agreement. It would, therefore, not always be appropriate to rely on prices alone to correct the situation. Further, when any minimum price has been adjusted in accordance with the procedures provided in the Agreement, provision is made for such adjustments to terminate once the con

ditions requiring the adjustments no longer existed. In other words, if prices fall to the minimum and adjustments are made, and prices subsequently rise above the minimum, the adjustments would then be cancelled. If prices later again fell to the minimum, adjustments the second time would again be made in the published schedule of minimum prices, not in the adjusted schedule. The representative of Canada recalled that the representatives of India and Pakistan asked a series of questions about the price range and the provisions relating to the minimum prices set out in the Memorandum of Agreement. The representatives of Canada noted that there was widespread recognition by governments that commodities which were important in international trade could provide an area for meaningful international co-operation. For a number of these commodities especially agricultural commodities-it was also agreed that the objective was a viable international agreement which would bring about a measure of stability in the prices at which the commodities were traded. The historic means of providing this price stability for wheat was to establish a range of minimum and maximum prices which were fair and equitable to both consumers and efficient producers. The minimum prices in the Memorandum of Agreement are lower than current selling prices and have been for some time. A review of trends in supply and demand provide some grounds for believing that the minimum prices could remain below the selling price.

The Canadian delegate went on to explain that effective minimum prices are essential for a viable international wheat agreement. The objective of Article 8A was to maintain prices at or above the minimum levels set out in the Memorandum of Agreement. To this end, the Article provides that certain specific steps be taken when prices are at or are approaching the minimum. The Article provides a framework for close and meaningful co-operation between members of the Agreement in this key area. The Canadian delegation envisages that these co-operative efforts will result in agreement by the members concerned on any issues which may arise. The Canadian delegate did not believe that attempts to elaborate or interpret provisions of this Article would serve a useful purpose. Attention was also drawn to paragraph 4 of Article 8A which provides that any adjustment made in minimum prices will be terminated as soon as conditions permit.

The representative of the United Kingdom suggested that the procedures laid down in Article 8A were designed to deal with two problems arising at the minimum. In the first place, the schedule of prices in the Memorandum of Agreement generally related to the highest grade and quality of a particular grade of wheat, but when prices were down at the minimum, it might be necessary to determine minimum prices for various other grades and qualities of an individual type of wheat or for other wheats. The second problem, which had already been covered by the representatives of the United States and Canada, related to the differentials between the different wheats which might have to be adjusted in the light of the actual market situations when the minimum was reached. Adjustments in the minimum prices for wheats listed in the schedule would be cancelled once the market situation, which had necessitated them had changed.

Without wishing in any way to detract from the wording contained in the Memorandum of Agreement, it was the feeling of the United Kingdom delegation that Article 8A might have to be elaborated upon in order to provide an adequate legal basis for the procedures envisaged.

The representative of Australia said that the minimum pricing provisions in the Memorandum of Agreement had to be viewed in their historical perspective. The various International Wheat Agreements had contained a minimum price for only one wheat, Manitoba No. 1 and had thus tended to be ineffective when the market was at the minimum. In the Kennedy Round negotiations, exporters had considered it desirable to introduce more effective minimum pricing provisions. It had been the hope of Australia that it would be possible to establish firm quality differentials for all types of wheat. It had, however, been recognized that the firm differentials established might not in the event reflect the market situation at the minimum. They might give rise to instabiliy in the working of an agreement. It had, therefore, been necessary to devise means of enabling adjustments of prices at the minimum in order to avoid any unbearable strains on the Agreement. Various techniques had been considered but after considerable discussion the procedures set out in Article 8A had been adopted. The provisions of Article 6 and Article 8A were a considerable advance on the pricing provisions of the current International Wheat Agreement and, whilst ensuring some degree of market stability, would provide for sufficient flexibility to ensure that

the marketing position of particular exporters was not jeopardized at the minimum.

As regards the points raised by the representative of the United Kingdom concerning further elaboration of procedures in Article 8A, he suggested that it might be appropriate to provide for this elaboration under the Rules of Procedure which would have to be drafted.

The representative of India thanked the representatives who had explained the provisions of Article 8A. On the technical level he could see that the establishment of a schedule of prices with fixed quality differentials gave rise to the problems which differed from those inherent in the minimum pricing provisions of the International Wheat Agreement. It was his hope that sufficient flexibility would be introduced at the minimum so as to prevent any undue impediment to downward price movements reflecting market circumstances so that, developing countries, many of which had acute balance-of-payments problems, would be able to benefit from lower prices for their imports. He would suggest that market flexibility was as much an objective as price stability, to which India subscribed. It was the view of a number of delegations that the prices established were too high and that attempts to preserve the prices at those high levels irrespective of supply and demand situation would create considerable strain for a grains agreement and also for developing countries. Wheat should not be regarded on the same footing as other commodities because it was the staple diet of many who were already under-nourished. India had long held the view that it would be incorrect to shore up the price of wheat by artificial marketing techniques. It was the hope of his delegation that the provisions of Article 8A would, in their final form, be sufficiently flexible to enable developing countries to benefit from the natural movement of market prices below the minima specified.

STATEMENT BY THE AUSTRALIAN AMBASSADOR, SIR KEITH WALLER

MARCH 25, 1968.

The International Grains Arrangement of 1967 has been ratified by the Australian Government.

The Australian Ambassador, Sir Keith Waller, said this to-day in announcing that the instrument of ratification had been deposited by him with the United States Department of State.

Sir Keith said that the Australian Government attached great importance to the new Arrangement. It had been Australia's objective, over a long series of international negotiations-even before the Kennedy Round began-to obtain a better deal for wheat in world markets. The Kennedy Round had provided a unique opportunity for achieving this.

Ambassador Waller said that the new Arrangement would be of great benefit in helping to stabilize world wheat prices and of considerable assistance to the developing nations in helping to meet their food deficits.

Ambassador Waller said: "The new Arrangement is to enter into force on 1st July. It will continue for another three years the system of orderly marketing for wheat which has been developed over a series of international wheat agreements. It also introduces a number of improvements on earlier agreements. Under the earlier wheat agreements, a "price range" has been established with declared "minimum" and "maximum" prices. Member countries agreed to trade within the price range. That concept has been retained in the new International Grains Arrangement, and the new minimum and maximum prices have been set at levels substantially higher than those specified in the previous International Wheat Agreement of 1962.

"The second part of the new Arrangement, the Food Aid Convention, provides for a number of importing and exporting countries, in each of the three years of the Arrangement, to provide developing countries with food aid to a total of 4.5 million tons of grains.

"This new programme is an important step forward in feeding the hungry people of the world. It recognizes an important principle, long advocated by the Australian Government, that the only equitable way of providing food aid to developing countries is for all affluent countries to contribute their fair share in meeting these food needs."