Shipments of Agricultural Commodities to the Soviet Union Letter to the Speaker of the House and the President of the Senate Transmitting a Report.

Dear Mr. Speaker: (Dear Mr. President:)

The Soviet invasion of Afghanistan and the installation of a puppet government is an extremely serious threat to peace. It threatens vital U.S. security and foreign policy interests:

—It places the Soviets within aircraft striking range of the vital oil resources of the Persian Gulf;

—It threatens a strategically located country, Pakistan;

—It poses the prospect of increased Soviet pressure on Iran and on other nations in the Middle East;

—Above all, it shows that the Soviets will use force to take over a neighboring country.

The Soviet invasion requires a firm and vigorous .response by the United States. We must make clear to the Soviet Union that it cannot trample on the independence of other states and at the same time carry on business as usual with the rest of the world.

I have therefore taken several measures. I have directed the Secretary of Commerce to restrict exports and reexports of identified agricultural commodities from the United States to the U.S.S.R., except for exports of wheat and corn authorized under Article I of the Agreement on the Supply of Grain of October 20, 1975. These restrictions became effective January 7, 1980 under regulations issued by the Department of Commerce. The restrictions were initially made applicable to a broadly described group of agricultural commodities and products as a means of quickly achieving the objective of stopping exports of any items which are significant in terms of the grounds on which I acted. The Department of Commerce is revising the list to eliminate items for which controls are not warranted.

I have acted in the national security and foreign policy interests of the United States under the authority of the Export Administration Act of 1979. I transmit herewith my report pursuant to Sections 6(e) and 7(g) (3) of the Act.

I have recognized that other countries are major exporters of agricultural commodities. At my direction, United States officials promptly began consultations with other major agricultural exporters to seek their cooperation in restricting exports in harmony with our actions. These consultations and negotiations have been fruitful and will' continue. We have also consulted with U.S. farm organizations and trading companies, and these consultations have contributed valuable information concerning the domestic impact of these export restrictions, their adverse impact on the Soviet Union, and the availability of identified items from foreign sources. I have considered the possibility that some of the agricultural commodities involved might be obtained by the Soviet Union from other countries. I have also assessed the threat to our national security and foreign policy posed by the Soviet aggression and the consequences of a failure to take prompt and decisive action. I have determined pursuant to Section 4(c) of the Act that the absence of such controls would prove detrimental to the foreign policy and national security interests of the United States.

Pursuant to Section 6(d) of the Act, I have determined that although reasonable efforts have been made to achieve the purposes of these controls through alternative means, available alternatives would not comparably advance the foreign policy and national security interests of the United States.

I have also directed that the Secretary of Commerce, in consultation with the Secretary of Defense and other appropriate officials, review and revise our policy with respect to the export of high technology and other strategic items to the Soviet Union. This review is to proceed with the utmost urgency. Effective January 11, 1980 the Department of Commerce suspended all outstanding licenses and authorizations for exports to the Soviet Union and announced that it has suspended the issuance of new licenses and authorizations. The review I have directed will also consider what our policy should be on future applications for licenses, whether existing special licenses should be amended or revoked, and whether validated licenses should be required for any other exports currently permitted to the Soviet Union under general license. The Secretary of Commerce announced on January 11, 1980 his denial on national security grounds of eight license applications for export of high technology items to the Soviet Union.

When the review and revision of our policy on high technology and other strategic items is completed, I will submit a further report to the Congress concerning any additional controls that may be imposed.

Sincerely,

JIMMY CARTER

RESTRICTIONS ON AGRICULTURAL COMMODITY EXPORTS TO THE USSR: REPORT TO THE CONGRESS PURSUANT TO THE EXPORT ADMINISTRATION ACT OF 1979

Acting pursuant to a Presidential directive issued on January 7, 1980 under the authority of the Export Administration Act of 1979, the Department of Commerce has issued rules effective p.m. January 7, 1980, restricting the export of identified agricultural commodities and products to the Soviet Union. (45 Fed. Reg. 1883, Jan. 9, 1980). This is the Report required by Sections 6(e) and 7(g) (3) of the Act with respect to the imposition of these export controls.

These Restrictions Further Significantly U.S. National Security and Foreign Policy Interests

The Soviet invasion of Afghanistan and the installation of a puppet government is an extraordinary and grave act of aggression which threatens vital U.S. security and foreign policy interests. This invasion is an extremely serious threat to peace.

—It places the Soviets within aircraft striking range of the vital oil resources of the Persian Gulf;

—It threatens a strategically located country, Pakistan;

—It poses the prospect of increased Soviet pressure on Iran and on other nations of the Middle East;

—Above all, it is the first Soviet invasion of a previously independent and unoccupied nation since World War II.

These extraordinary circumstances demand prompt and forceful response by the United States. We must show the Soviet Union that it cannot expect to continue to do business as usual with the United States while it is invading and occupying an independent nation. Accordingly, restrictions have been placed on agricultural exports to the USSR. These exports make a substantial contribution to Soviet strength. U.S. security interests are affected when that strength is devoted to the military invasion of previously independent nations. Curtailment of these exports is a critical element in our efforts to demonstrate to the USSR in tangible ways that it cannot engage in armed aggression with impunity and without cost to itself.

As President and Commander-in-Chief of the Armed Forces of the United States, I find that the exports being curtailed by this action make a significant contribution to the military potential of the Soviet Union that is detrimental to the national security of the United States.

Probability of Success. The restrictions can reasonably be expected to bring home to the Soviet leaders that they cannot act as they have in Afghanistan without paying a significant price. The controls are expected to have a significant impact on the Soviet economy. They will impress upon the Soviet people the consequences of their government's actions. Absent substitutes from other sources, the restrictions will mean the loss of up to half of projected grain imports for FY 1980. Combined with the 48 million ton shortfall from planned 1979 production, the effect will be a major reduction in the availability of livestock feed, the slaughter of livestock that cannot be fed, and in due course .a significant reduction in USSR meat production below planned levels. Moreover, contacts with the governments of other major grain supplier countries indicate that there will be substantial cooperation in limiting the Soviet Union's ability to replace the curtailed U.S. shipments with imports from other sources.

Compatibility with Foreign Policy. The controls are essential to achieve U.S. national security and foreign policy objectives and are compatible with overall U.S. policy toward the USSR, for the reasons given above.

Foreign Reaction. Many countries have expressed support for these actions by the United States, and United States officials are urgently consulting with other suppliers to seek complementary actions.

Economic Impact of Controls. The most significant effect of the control on U.S. exports relates to the 17 million tons of grain previously authorized for the Soviet Union, valued at about $2.3 billion. In FY 1978 U.S. exports of all agricultural commodities to the USSR were $1.9 billion, and in FY 1979 $2.2 billion. These exports constituted 6.8% of total U.S. agricultural exports in FY 1978 and 6.9% in FY 1979. Grain exports accounted for about 80% of the value of U.S. agricultural exports to the USSR in FY 1979. Soybeans accounted for another 15%.

The U.S. provided 65.1% of Soviet grain imports in FY 1978 and 77.8% in FY 1979.

Total Soviet grain utilization is estimated at 231 million metric tons from July, 1978 to June, 1979, and—before imposition of these restrictions—was projected to be 228 million tons for July, 1979 to June, 1980. U.S. grain exports (11.1 million tons) accounted for 4.8% of the 1978/1979 Soviet use. Before these restrictions, U.S. exports were projected to provide 11.2% (25.5 million tons) of the Soviets' projected 1979/1980 utilization (228 million tons).

The United States is the world's largest. exporter of wheat and corn and will remain so even after the suspension of most agricultural commodity exports to the Soviet Union. The United States has been undertaking consultations with other governments to reduce the possibility that other suppliers would take advantage of U.S. action to build up their own competitive position at U.S. expense. Because the export restriction has been imposed on agricultural commodities destined to the USSR in response to a Soviet act of aggression and on the basis of fundamental U.S. national security and foreign policy interests, it is unlikely that such action will diminish the overall reputation of the United States as a reliable supplier.

With respect to foreign availability of wheat and corn, the United States is the major supplier of these commodities in world trade. At this time, it appears that additional supplies available in the world market are limited. With respect to soybeans and soybean products, there is substantially greater foreign availability. The availability of these commodities to the Soviet Union will depend therefore, in part, upon the cooperation of foreign suppliers.

In the absence of offsetting domestic policies the restriction on agricultural exports to the USSR would have an economic impact primarily on grain farmers, on firms and employees in the grain sector, on certain rail and barge lines, and on communities in grain producing areas.

Absent offsetting action, it is estimated that the restrictions on the export of agricultural commodities to the Soviet Union would reduce 1980 farm income by approximately $3.0 billion.

The Secretary of Agriculture has been directed to take a number of actions, using authorities already available under current law, to ensure that the suspension of exports to the USSR will not fall unfairly on farmers and on grain marketing systems. To assure that it does not, he has taken the following actions:

To prevent immediate market congestion

The Department of Agriculture:

• has requested that future trading in wheat and corn be suspended for the market days, January 7 and January 8;

• has announced that it will purchase up to 4 million tons (150 million bushels) of wheat, including the assumption of the contractual obligations on up to 3.7 million tons (135 million bushels) that will not be shipped to the Soviet Union;

• is preparing to assume the contractual obligation on up to 10.0 million tons (395 million bushels) of corn.

None of these grain purchases will be resold on the domestic market until it can be done without adversely affecting market prices. All contractual assumptions will be made at prices that will protect against losses, but will not guarantee profits.

To fully offset the intermediate term impacts of the suspension of sales to the USSR

The Department of Agriculture has taken action to:

• increase the wheat loan price to $2.50 a bushel;

• increase the corn loan price to $2.10 a bushel, with comparable increases in loan prices for the other feed grains;

• increase the reserve release price to $3.75 a bushel for wheat—representing 150 percent of the new loan price;

• increase the reserve call price to $4.63 a bushel for wheat—representing 185 percent of the new loan price;

• increase the reserve release price to $2.63 a bushel for corn—representing 125 percent of the new loan price;

• increase the reserve call price to $3.05 a bushel for corn—representing 145 percent of the new loan;

• make comparable increases in reserve release and call prices for the other feed grains;

• waive first-year interest costs for the next 13 million tons of corn (corn only) entering the reserve;

• increase reserve storage payments from 25 to 26 1/2 cents a bushel for all reserve commodities except oats, which is increased from 19 to 20 cents a bushel.

To facilitate long-term supply and demand adjustments

The Department of Agriculture is now evaluating:

• increased commercial grain exports, and increased food donations under P.L. 480 where appropriate;

• increased production of fuel alcohols from grain and other agricultural commodities;

• acreage diversion programs.

These steps are intended to offset the reduction in farm income and, assuming a suspension through 1980, will limit the reduction in value of agricultural exports to approximately $2.0 to $2.25 billion (instead of $3 billion). It is anticipated that these actions will result in increased budgetary costs of $2.5 to $3.0 billion during FY 1980 and 1981. Most of the increase in budget outlays will be associated with removal of wheat and corn from the market and, therefore, the budget impact will be lessened when these commodities move back into the market and loans are repaid or sales proceeds are obtained.

ENFORCEMENT

No unusual problem is anticipated in enforcing the control on United States direct sales of agricultural products. With respect to reexports from third countries to the USSR, the fungible nature of the commodities makes it somewhat difficult to control their ultimate destination. The Department of Commerce and other agencies will watch this situation closely and will take enforcement action in case of violations.

FOREIGN POLICY CONSEQUENCES OF NOT IMPOSING CONTROLS

If this and other measures which have immediate and practical effect had not been imposed, United States reactions to Soviet aggression would have been limited largely to words. Vigorous and far-reaching action was required to confirm to the Soviets that they cannot with impunity engage in acts of aggression that threaten the foreign policy and national security interests of the United States.