INTRODUCTION

The period since 1970 has witnessed many important changes in the world economy. Firstly, the rise of the OPEC (Organization of Petroleum Exporting Countries) resulted in sharp increases in energy prices in 1973 and 1979. Besides posing the problems of adjustment to such high energy costs and of the recycling of petro-dollars, OPEC has also had a profound psychological impact. It has demonstrated to the developing world that the international economic structure can be changed to their advantage. While the success of OPEC has not been repeated in other areas, it did provide an impetus to calls for restructuring the present world order to one that would be less disadvantageous to the developing world.

Secondly, there have been considerable changes in the structure and location of world production in the different geographical regions. This has meant increasing heterogeneity among the developing countries.

Thirdly, the above changes in structure and location of production would normally have meant smooth restructuring in the developed countries as new centres of production in Asia and Latin America came into existence. In some locations such as ASEAN (Association of Southeast Asian Nations), transnational corporations played a pivotal role in bringing about such a transformation, while in others, such as South Korea, their role was less pivotal. However, due to various reasons, such as the simultaneous need to adjust to high energy costs, demographic changes, saturation of the traditional consumer-durable goods market, prolonged recession, and so forth, this restructuring has not proceeded at the pace required to keep protectionist forces in check.

Fourthly, the combined effects of slow growth in both the developed and the developing countries and protectionism have led to a slow-down in the growth of world trade.

Fifthly, many developing countries, among them many NICs (newly industrialized countries), such as South Korea, Brazil, Mexico, and semi-NICs, such as the Philippines, borrowed heavily during this period from both the multilateral institutions and commercial banks to finance their economic growth.

The September II crop report showed a further deterioration in the U.S. crop, supporting those who had urged caution on further sales. The Food Deputies Report reviewing the September crop report detailed evidence that the Soviets had reduced grain exports to Eastern Europe, causing greater demands on U.S. markets.

Throughout September and early October, the subcabinet-level EPB interagency machinery, relying heavily on the staffs at the Council of Economic Advisers, the Department of Agriculture, and the Central Intelligence Agency, provided detailed technical estimates of Soviet production and requirements and new forecasts of supply and demand for American grain. The reports were distributed to Executive Committee members and discussed either at the regular morning meetings of the Executive Committee or in special sessions, sometimes referred to as meetings of the Food Committee.

The Food Committee meetings were organized by Seidman and his staff under the umbrella of the EPB Executive Committee or in his capacity as staff coordinator of the EPB/NSC Food Committee. Seidman and his staff also coordinated preparation of the substantive analyses considered at the meetings, controled the attendance and timing of the meetings, and prepared the materials sent to the president to keep him informed on the matter. The meetings regularly included representatives from the EPB Executive Committee agencies – Treasury, CEA, OMB, CIEP, State, Labor, and Commerce – and representatives from the Department of Agriculture, the NSC, and occasionally the Office of the Special Representative for Trade Negotiations.

The Friday, July 18, meeting with the president was crucial in establishing the context and identifying many of the interests and objectives that would dominate the grain sales issue during the following thirteen weeks. Secretary Butz began the discussion: The market had dropped thirteen cents the day before because the Russian wheat sales were not as large as the market had anticipated, the prospects were good for a bumper U.S. crop, and the grain companies were “cooperating beautifully” in handling export sales. The president then requested a report comparing the most recent sales of grain to the Soviet Union with the 1972 Soviet grain purchases, including such factors as price, quantity, federal subsidies, and the terms of transaction.

The extended discussion revolved around two themes: the executive branch's need to improve the grain-export-monitoring system and the potential for diplomatic leverage offered by the Soviet crop shortfall and the anticipated bumper U.S. crop. The president remarked that he kept reading “rumors” about the amount of Russian sales and that he wanted the EPB and himself notified of all such sales. Secretary Kissinger pressed for, and succeeded in securing, agreement that USDA would not authorize, formally or informally, any additional grain sales to the Soviet Union without EPB review. The president assigned Seidman to make appropriate arrangements for monitoring the sales and ensuring an adequate flow of information.

CAUTION TOWARD RUSSIA; CONSENSUS WITH LABOR

During the first week of September, the concept of a long-term grain agreement with the Soviet Union began to gain support throughout the executive branch, including the Oval Office. In fact, the idea seemed to occur simultaneously in several places during August; officials at the Departments of State and Agriculture, the Council of Economic Advisers, and Labor Secretary Dunlop all formulated various long-term approaches to deal with the problem of fluctuating Soviet purchases. By the end of August, several strands throughout the executive branch came together at the highest levels.

At the State Department, Secretary Kissinger's attention was focused on the Middle East. Indeed, for much of the summer and autumn he was out of the country negotiating the second Sinai disengagement agreement. In Washington, Under Secretary of State Robinson and Helmut Sonnenfeldt, counselor to the State Department and a close confidant of Kissinger's on Soviet matters, under Kissinger's instructions were exploring the potential for leverage afforded by the grain situation.

On Tuesday, September 2, after briefly reviewing the latest developments with Under Secretary of State Robinson, Seidman called a late afternoon meeting to discuss the situation. Robinson reported that the State Department was exploring a general swap arrangement with the Soviets involving 5 million tons of grain and 10 million tons of oil.

During the fall of 1979, USDA officials met with their Soviet counterparts to discuss Russian grain purchases during the fourth year of the agreement commencing in October 1979. As was standard practice, the Soviets did not request permission to import a specific amount. They left the initiative to their American counterparts. But Soviet import needs were well known. A poor 1979 harvest, 48 million tons (21 percent) short of production targets, led to Soviet plans to import 35 million tons during the next twelve months, meeting their maximum current port and transportation capacities. United States officials, expecting a bumper American crop, were anxious to enlarge the U.S. share of the Soviet market. On October 3, the Department of Agriculture formally gave the Soviets permission to purchase up to 25 million metric tons of wheat and corn during the fourth year of the agreement. The Soviets had purchased 15.7 million tons during the third year.

The Soviet invasion of Afghanistan on December 27, 1979, substantially altered U.S.–Soviet relations. President Carter reflected in an interview four days later: “The action of the Soviets has made a more dramatic change in my opinion of what the Soviets' ultimate goals are than anything they've done in the previous time that I've been in office.”

BACKGROUND

In the wake of their large 1972 purchases, the Soviets harvested a record 222.5 million tons of grain in 1973 and had no need to buy American grain. But in 1974 the Russian crop fell to 195.7 million tons; that autumn the Soviets once again entered the U.S. market, although later in the year than in 1972 and for much smaller quantities.

The summer of 1974 was a tense one in Washington. While the political fate of the president engaged much of the nation's attention, inflation soared to double-digit levels. A potentially tight supply situation for wheat, corn, and soybeans coupled with growing export demands prompted the creation of a cabinet-level Food Committee on June 19, 1974. The president appointed Kenneth Rush, his counsellor for economic policy, as chairman.

Two days later, a Deputies Group was established consisting of representatives from the Departments of the Treasury, State, and Agriculture, OMB, and other appropriate agencies, and chaired by Gary Seevers, a member of the Council of Economic Advisers (CEA). Seevers, an able academic agricultural economist, was widely regarded as both competent and fair. The Deputies Group met first biweekly, then weekly, to monitor the rapidly evolving situation regarding domestic and foreign production, export sales and shipments, domestic consumption, and food aid commitments.

EVALUATING THE AGREEMENT

During its first three years, the grain agreement fulfilled the objectives of its architects. The United States had acquired an assured market of at least 6 million tons annually where before it had none. In the first year of the agreement (October 1976 to September 1977), the Soviet Union purchased 6.116 million tons of grain (3.064 million tons of wheat and 3.052 million tons of corn) during a year in which their own harvest of 223.8 million tons was large enough to have met their own needs without any imports. One knowledgeable USDA official observed that based on past behavior, in the absence of the agreement, the Soviets likely would have made few if any purchases in the U.S. market during the 1976–77 crop year.

The agreement had also reduced Soviet disruption of U.S. and international grain markets because of the requirement for consultations and U.S. government approval of Soviet purchases exceeding 8 million tons in any crop year. In the second year of the agreement, a poor Soviet crop of 195.7 million tons led to Soviet purchases of 14.585 million tons of U.S. grain (11.132 million tons of corn and 3.453 million tons of wheat). But these purchases were made following consultations and U.S. government approval. In the first year the agreement assured a market. In the second year, it handled large purchases with minimum disruption.

In early 1975 Henry Kissinger asked Charles W. Robinson, the recently appointed under secretary of state for economic affairs, to meet with the senior Soviet economic officials in Moscow. There were no pressing unresolved economic issues between the two countries, but Kissinger wanted Robinson to size up his Russian counterparts and to get a feel for the world of diplomacy. Robinson, a successful California businessman, was new to government and anxious to demonstrate his negotiating skills. Moreover, he wanted to establish himself more solidly in the State Department firmament. Although nominally the leading economic official in the department, Robinson had only a very small staff under his direct control. Most of the economic expertise was in the Bureau of Economic and Business Affairs, which reported to Assistant Secretary Thomas O. Enders. Enders, who had a close personal working relationship with Kissinger, was both intellectually brilliant and bureaucratically savvy. At the outset, the Robinson–Enders relationship was left somewhat vague and undefined. Kissinger decided to give Robinsona variety of differing assignments, many of them involving travel abroad, and test his performance.

One of the main issues on Robinson's Moscow agenda was whether the Russians would participate in the international grain agreement negotiations in London. The State Department was pressing for an international grain reserve to ease the U.S. stockpiling burden.

This book is about the negotiation of an international agreement. It focuses on the process of decision making within the executive branch and the interaction of individuals and ideas in shaping policy over time. In tracing the sequence of events it reveals that formulating a policy and implementing it are part of a single tapestry involving a multitude of decisions.

The U.S.–U.S.S.R. grain agreement played an important role in the Ford administration's relations with the American farm community and with the Soviet Union. Its importance was renewed during the Carter administration with the January 1980 embargo on grain for the U.S.S.R. The epilogue recounts the events leading up to the embargo and provides an opportunity to contrast the decision-making styles of two presidents and their administrations. The negotiation of the agreement and the subsequent embargo illustrate how intertwined foreign and domestic economic policy have become.

These episodes contain the seeds of many lessons for policy makers – lessons about developing and articulating policies and lessons about the effectiveness of economic sanctions and the limits of leverage.

This volume is intended for scholars and government officials; for foreign policy and agricultural policy specialists; for students taking courses on the presidency, U.S.–Soviet relations, and business and government; and for general readers interested in what the process of advising the president looks like from inside the White House and how it varied across two administrations.

On July 8, 1972, White House press secretary Ron Ziegler announced that the United States and the Soviet Union had negotiated successfully “the largest long-term commercial trade purchase agreement ever made between two countries.” The Russians had agreed to buy a total of $750 million worth of American grain during the three-year period beginning August 1, 1972. An official summary of the agreement explained:

The sales would make the U.S.S.R. the second largest purchaser of U.S. grain for the next three years, well ahead of every nation but Japan.

President Richard Nixon, Secretary of State Henry Kissinger, Secretary of Agriculture Earl Butz, Secretary of Commerce Peter Peterson, and other administration officials extolled the benefits of the agreement: added income for grain farmers, the creation of thousands of jobs in agriculture and shipping, a reduction in federal expenditures for grain storage and handling, and an improved balance of payments for the United States.

Both the art of governing and the formal abstractions of policy analysis have much to learn from careful accounts of the course of actual decisions, particularly when such descriptions are devoid of journalistic exposé and participant's whitewash. In this insider's detailed account of the substance and process that produced the U.S.–U.S.S.R. grain agreement, Professor Roger B. Porter has provided unusually rich materials for practitioners and theorists alike.

The events surrounding the 1975 negotiation of the five-year grain agreement with the Soviet Union reflect a variety of complex issues, including the interaction of U.S. domestic and international interests; relations between the superpowers; questions of technical economic analysis and stark partisan politics; conflicts among labor, management, and agriculture; the resolution of a work stoppage; policy regarding international trade and shipping and concern over prospective domestic food prices; congressional reactions and involvement; and the appearances conveyed to the press, the media, and the American public about the decision process. These interrelated and tangled issues involving many government agencies provide a complex case to illuminate the shaping and resolution of questions that constitute the art of governing at the highest level of the federal government.

The narrative of the grain agreement illustrates the decisive importance for action that derives from current and reliable data sources.

The negotiation of the U.S.–U.S.S.R. grain agreement is a fascinating subject that yields rich insights and lessons from a variety of perspectives. For those interested in decision making, three central themes dominate the sequence of events.

First, there is the interplay of competing interests. One can explore the ways in which departments, agencies, and senior officials seek to advance their policy objectives. One can examine the internal bureaucratic struggles on a cross-cutting issue that engages the interests of several departments and agencies. Not least, one can evaluate the role of the White House in attempting to “manage” policy development on complex issues.

Second, there is the relationship between the policy analyst and the decision maker. Senior officials frequently feel they are at the mercy of expert advisers, dependent on the experts' technical analyses and judgments. Often they receive conflicting expert opinions. Sometimes they are reminded of the uncertainty underlying an estimate or a “fact.” Other times they are not. Leading up to and throughout the grain agreement negotiations, top decision makers sought expert analysis on the consequences of various possible alternatives. The mobilization, organization, and management of information and analysis form an important part of this story.

Third, there is the interaction between formulating a policy and then attempting to implement it. Deciding what to do – establishing the direction of a policy – is one thing. Marshaling the support necessary for its implementation is another.

There was no question that the furor in the farm community subtly, yet decisively, altered U.S. negotiating strength. Time was now on the Russian side. Farmers, already skeptical of the claim that the suspension of grain sales to the Soviet Union represented a unique act to deal with a unique case, saw their skepticism justified when the suspension was extended to Poland. The emotionalism frequently displayed by American consumers in opposition to Russian grain sales now filled the agricultural community in support of them.

As the fourth week in September drew to a close, it became apparent that the Soviets felt the leverage once held by the United States was ebbing. Each passing day made it more difficult for the administration to deal with the farm community. Clearly, extending the suspension past the end of October would entail heavy political costs for an administration facing an election in twelve months. Moreover, the Soviets had combined retrenching at home with the purchase from non-U.S. sources of small lots of feed grains and wheat totaling almost 3 million tons, increasing their total purchases for the year to more than 20 million tons. Inadequate Soviet port and transportation capacity prevented the Russians from importing much more than 3 million tons of grain a month. Having already bought more than 20 million tons, it would be months before they could take delivery on additional purchases from the United States.

The 1972 Agreement Between the Government of the United States of America and the Government of the Union of Soviet Socialist Republics with Respect to Purchases of Grains by the Soviet Union in the United States and Credit to be Made Available by the United States

The Government of the United States of America (USA) and the Government of the Union of Soviet Socialist Republics (USSR) have agreed as follows:

Article 1

1. The Government of the USA through its Commodity Credit Corporation's Export Credit Sales Program hereby makes available a total amount of US $750 million credit for financing the payment for USA grown grains (at buyer's option – wheat, corn, barley, sorghum, rye, oats) purchased by the USSR in the USA under this Agreement. Such total amount may be increased by the USA.

2. The USSR through its foreign trade organizations shall purchase from private United States exporters not less than US $750 million port value of such grains (at buyer's option – wheat, corn, barley, sorghum, rye, oats) for delivery during the three-year period August 1, 1972, through July 31, 1975, and of such amount not less than US $200 million shall be purchased for delivery prior to August 1, 1973. In case of purchases of such grains for cash for delivery during the period of August 1, 1972, through July 31, 1975, the U.S. dollar amount of such purchases shall be counted as if they were made on credit terms under this Agreement.

DEALING WITH THE SOVIETS

The USDA's hold on additional sales to the Soviet Union, at least until after the August II crop report, temporarily placed the issue on the back burner. Meanwhile, a staff-level interagency group with representatives from the Departments of State and Agriculture and the Council of Economic Advisers was considering ways to capitalize on the leverage that the Soviet predicament apparently gave the United States.

On Monday, August 4, Seidman received a draft of the Department of Agriculture's suggested remarks for the president's speech on August 18 at the Iowa State Fair; a day later he received a draft memorandum on the U.S. and Soviet crop situations that he had requested Paul MacAvoy to prepare. Seidman and Porter met with MacAvoy and later with Under Secretary of State Robinson to discuss the grain situation and the August 18 speech. On Tuesday afternoon, Seidman sent the MacAvoy memorandum to Secretaries Butz and Dunlop, Alan Greenspan, and Under Secretary Robinson, indicating that he wanted to discuss it at a meeting at 11:30 A.M. the following morning.

The memorandum noted a slowdown in Russian demands for U.S. grain, recent dry weather in the western corn belt that had probably reduced the U.S. corn crop by as much as 5 million tons, and Soviet purchases of approximately 14 million tons of grain in international markets, including the 9.8 million tons from the United States.