260.
Memorandum From the Assistant Secretary of State for Inter‑American
Affairs (Holland) and the Assistant Secretary of State for Economic Affairs
(Waugh) to the Under Secretary of State (Hoover)[1]
Washington, March 10, 1955.
SUBJECT
Recommendations:
1. That we inform Agriculture that we are willing to
consider sugar legislation effective before the present Act expires, provided
that Agriculture will agree to support us in recommending a Presidential veto
of legislation less favorable to foreign countries than that on which we may
mutually agree.
2. That in our negotiations with Agriculture we seek
to obtain their approval of legislation meeting the following conditions:
a. A termination date of December 31, 1962.
b. No increases to be made in the present basic
quotas of the domestic sugar producers.
c. Domestic producers not be permitted to share in
increases in consumption until consumption reaches 8.5 million tons.
d. Increases in consumption above the 8.5 million
tons to be split on a 50‑50 basis between domestic and foreign suppliers.
e. The present method of allocating a domestic
deficit to other domestic areas and Cuba be continued.
3. That we be authorized, if it is impossible to
obtain Agriculture approval in full to the foregoing, to make the following
concessions, in the order indicated:
a. Agree that a deficit in the quota of a domestic
area be allocated in the first instance to other domestic areas.
b. Agree that increases in consumption above the
level of 8.5 million tons be divided 55 per cent to domestic areas and 45 per
cent to foreign areas.
c. Agree that domestic producers begin to share in
increases in consumption when consumption levels reach 8.4 million tons, but in
this event that they shall share on a 50‑50 basis and that Cuba share in
reallocation of domestic deficits.
4. That we explore with Agriculture the possibility
of amending or administering the provisions of the Act relating to prices and
to domestic production and marketing controls in such a way as toassure that
incentives to increased domestic production are minimized.
Discussion:
Although it was the general expectation when the
Sugar Act was last revised in 1951 that its quota provisions would remain in
effect until January 1, 1957 and although Cuba especially has relied on being
able to help meet the serious problem which it faces by being able to supply to
the United States the quantity of sugar provided under the present Act,
production in our domestic cane and beet areas has increased to such an extent
that the producers are holding unusually large inventories. They are therefore
urging an immediate change in the Sugar Act to obtain relief. In this they are
being supported by their Congressional representatives, by many of the cane
sugar refiners and by the Department of Agriculture. It appears that the only
way in which it would be possible to avoid changing the Act would be for the
President to use his veto authority. It would probably be inadvisable for the
President to use this authority if legislation can be obtained that will not
reduce foreign participation in the United States market in the absolute sense.
The proposal made herein would avoid any reduction in the amount of sugar that
the foreign producers are now supplying to this market. It is felt that the
President would be justified in using his veto authority to assure that foreign
participation in this market is not reduced in absolute tonnage and that
changes in the Sugar Act are not of a retroactive character.
Although the domestic sugar producers are urging
that their basic quotas be increased immediately, it is believed that the
Department of Agriculture would agree that this should not be done provided
domestic participation in increases in consumption is started at a level of
consumption to which the Department of Agriculture will agree.
In determining the consumption level above which
increases in consumption should be shared consideration should be given to the
following:
1. The present consumption estimate on which this
year's quotas for foreign areas are now based (8.2 million tons).
2. The quantity of sugar actually distributed last
year (8,375,000 tons).
3. The Department of Agriculture forecast of consumption
for the current year (8,500,000 tons).
Domestic growers have proposed the first of these
and the refiners' proposal is similar to the second. The Administration should
recommend the third, since it is the only one which would:
a. Give adequate consideration to the reasonable
expectations of foreign suppliers under existing legislation.
b. Not be retroactive in effect.
Base No. 1 is not acceptable, since it is lower by
175,000 tons than actual distribution of sugar in this market last year. Furthermore,
foreign countries were penalized last year to the extent of 125,000 tons (the
difference between the final 1954 consumption estimate of 8,250,000 tons and
actual distribution of 8,375,000 tons), because domestic producers were
permitted to deliver in 1954 sugars which were produced in 1953 and declared
against the 1953 quota, when their production was low. In effect, the normal
1954 increase in consumption was given to domestic producers in 1953 through
the device of so‑called "constructive deliveries". Consequently
the 1955 final quota may be expected to be higher than the 1954 final quota by
the equivalent of 2 years normal increase in consumption. Under existing
legislation the full increase (250,000 tons) would go to foreign suppliers.
To the extent that domestic producers are permitted
to supply the difference between last year's quota of 8,250,000 tons and the
8,500,000 tons which Agriculture estimates will be consumed this year, foreign
suppliers will lose the 1955 consumption growth as well as that of 1954.
Certain Agriculture officials have indicated that a
50‑50 split above the 8.3 million level would be acceptable to
Agriculture and could probably be negotiated with the domestic industry. At the
outside therefore there will be a 200,000 ton difference in our positions on
this point, which immediately suggests a compromise at a level of 8.4 million
tons. This would give Cuba a quota of 2,860,000 tons, which is 113,000 tons
greater than their average of the past two years. If it is necessary to
compromise, a split above the 8.4 million ton level would probably not be
disastrous to Cuba. If we have to agree to such compromise, however, we should,
as indicated below, exact a return on two collateral issues, namely, the 50‑50
split in the market and the present method of sharing deficits.
The domestic sugar industry is presently advocating
that a deficit in a domestic area should be reallocated first to other domestic
areas. This would be a radical departure from present policy. Over the years
there are large fluctuations in sugar beet production. Beet deficits are
therefore sizeable in some years and Cuba should continue to share in them.
50‑50 Split of Increases in Consumption
Although Agriculture is agreeable to a 50‑50 split
of increases in consumption, there is historical precedent for a 55 per cent
share for the domestic areas, and they may well insist on it. However, as a
practical matter, the actual tonnage involved is only about 6,000 tons
annually.
One of the principal reasons why domestic producers
are now in difficulty is the fact that the present price of sugar is relatively
attractive as price supports of other agricultural products are being reduced,
and acreage restrictions on other crops have resulted in some shift to sugar
beets. There is danger that unless sugar prices are kept in line with those of
competing crops we may, in a few years, be faced with another request to revise
the Act for the benefit of domestic producers. Anything that we can get
Agriculture to do to prevent such a development would, of course, be desirable.
[1] Source: Department of State, Sugar Files: Lot 65
D 212, Revision of Sugar Act, 1955, Mem. Con. 11. Confidential. Drafted by
Callanan, Cale, and Mulliken; concurred in by Willis C. Armstrong; and approved
by Hoover on March 11.