Foreign Relations of the United States, 1964–1968, Volume XXXII, Dominican Republic; Cuba; Haiti; Guyana

201. Memorandum From the Presidentʼs Special Assistant (Rostow) to President Johnson¹

Washington, May 11, 1967.

SUBJECT

• Special Sugar Quota for the Dominican Republic

In the attached memorandum (Tab A) Secretary Rusk asks you:

1. to authorize a special deficit allocation of sugar to the DR of about 105,000 tons, provided Balaguer agrees to set aside at least 1½ cents per pound for mutually-agreed programs to improve the efficiency of the Dominican sugar industry.

2. to sign the directive to Secretary Freeman at Tab B, to be implemented if Balaguer accepts the condition.

The considerations in favor are:

• —Balaguer badly needs the added dollars to help his balance of payments position.
• —The added income from sugar should reduce the need for supporting assistance from us.
• —The special allocation translates itself into US political support which is a stabilizing influence in the DR.
• —Balaguer has made a good start in improving the efficiency of the state-owned sugar industry by reducing production costs by two cents a pound, and the special fund will advance this effort.
• —The legislative history of the Sugar Act mentions the possibility of a substantial increase in the Dominican quota through the reallocation of deficits.
• —It permits you to be forthcoming on Balaguerʼs principal request at Punta del Este.

The considerations against Secretary Ruskʼs proposal are:

• —It discriminates against other Latin American sugar producers, who want the full deficit pro-rated, and they may protest.
• —Conditioning the entry of additional Dominican sugar on setting up the special fund is technically inconsistent with our GATT commitments.

Mitigating against the adverse aspects are these considerations:

• —Even with the special allocation for the DR, the other Latin American sugar producers will receive slightly larger quotas than they did last year.
• —There was no hue and cry last year when you gave the DR a special allocation, and none is expected this year.
• —Secretary Rusk does not think that the inconsistency with GATT will lead to any objections.

I have consulted Secretary Freeman on this proposal and it is fine with him.

I favor your:

1. Approving Secretary Ruskʼs recommendation

Approve²

Disapprove

See Me

2. Signing the directive to Secretary Freeman at Tab B.³

Walt

Tab A

Washington, May 8, 1967.

Memorandum From Secretary of State Rusk to President Johnson

SUBJECT

• Recommendation for a Special Sugar Quota Allocation to the Dominican Republic

Recommendations:

1) That you authorize me to instruct our Embassy at Santo Domingo to obtain assurances from the Government of the Dominican Republic that, if the United States makes a special deficit allocation to the Dominican Republic of about 105,000 short tons, that Government will set aside a minimum of1½cents per pound from the proceeds of the sale of this sugar to be spent on mutually agreed programs to improve the efficiency of the Dominican sugar industry or to assist in diverting excess sugar lands into the production of food or other crops.⁴

2) That you sign the attached directive to Secretary Freeman, to be implemented as soon as our Embassy at Santo Domingo reports Dominican agreement to the conditions we are establishing for assignment of the special allocation.

Background:

During your conversations with President Balaguer at Punta del Este last month he asked you to assign the Dominican Republic a special deficit allocation in order to raise the Dominican sugar quota in the United States market to at least 600,000 tons this year. President Balaguer was reflecting a request previously made by the Dominican Government for an annual quota of 600,000 tons for the next five years. Last year the Dominican Republic received a special allocation of 123,000 tons from the Philippine and Panamanian share of the Puerto Rican deficit. Its total quota for 1966 was 603,000 tons.

We believe it would be in the national interest to assign the Dominican Republic a substantial special allocation again this year, but not to meet its request in full. We recommend a special allocation of about 105,000 tons, which will raise the Dominican quota to 590,000 tons. This figure will be well above the quota of any other Latin American supplier, evidencing our continuing support for the Balaguer Government and our satisfaction with the progress it has made in the past year toward solution of the sugar industryʼs problems. At the same time it will establish our intent gradually to phase out preferential treatment for the Dominican Republic in assigning sugar quotas. This will serve the dual purpose of (1) reassuring other Latin American suppliers that we are not neglectful of their interest in an expanded market in the United States and (2) place additional pressure on the Dominican sugar industry to reduce costs and become competitive in world markets.

The Dominican Government has been making vigorous and politically courageous efforts to improve the efficiency of the state-owned sector of the sugar industry and to diversify out of sugar production. In this first year of President Balaguerʼs administration, production costs in the state sugar industry have been cut by somewhat more than two cents a pound. To continue this program, the State Sugar Council is contracting for the services of American consultant firms to draw up a detailed program of rationalization and diversification that will be eligible for international financing.

We do not believe that a special allocation should be granted unconditionally. Rather, we should take the opportunity to further developmental activities—while at the same time decreasing somewhat the potential requirement for AID assistance—through promoting rationalization of the sugar industry and diverting excess sugar lands to the production of food and other crops.

To this end we propose that a part of the proceeds of the sale of this sugar be set aside in a special fund for mutually agreed programs. We will try to reach agreement with the Dominican Government to set aside 2 cents a pound, which would provide a fund of about $4.2 million. At a minimum we would require a set-aside of1½cents a pound, for a prospective fund of about $3.2 million. While small in terms of total financing required for the projects to be developed, the proposed fund would assure that, when approved, the projects could be started promptly.

Several other Latin American countries have asked for preferential treatment this year in reallocation of the Puerto Rican deficit. These countries will be disappointed if the Dominican Republic alone receives a special allocation. Furthermore, all countries in the Western Hemisphere will receive smaller allocations than they had anticipated if preferential treatment is accorded the Dominican Republic. We may expect protests from some. However, we would be able to cite the recommendation by the CIAP subcommittee on the Dominican Republic that special treatment be given that country in sugar deficit allocations this year. Moreover, since the Philippines have turned back their share of the deficits, other Western Hemisphere countries will receive slightly larger quotas in the United States market than they did in 1966, even if the Dominican Republic receives a special allocation of about 105,000 tons.

While the language of the proposed directive provides for a special allocation of about 105,000 tons, the practical effect of such an allocation would be to give the Dominican Republic about 85,000 tons more than it would have received in the absence of such an allocation. The use of the higher figure in the proposed directive results from the complicated formula which the Department of Agriculture is required to use in administering the Sugar Act.⁵

No other country in the Hemisphere is as dependent as the Dominican Republic on finding a satisfactory market for its sugar. Furthermore, there is mention in the legislative history of the Sugar Act of the possibility of a substantial increase in the Dominican quota through reallocation of deficits. It should be noted that imposing conditions on the entry of Dominican sugar that are not imposed on other countries could be considered technically inconsistent with the General Agreement on Tariffs and Trade. Nevertheless, we do not anticipate any objections on GATT grounds.

I believe, therefore, that the granting of a special allocation of about 105,000 tons would be in the national interest and would be consistent with the legislative history of the Sugar Act.

Dean Rusk

1. Source: Johnson Library, National Security File, Country File, Dominican Republic, Vol. XVII. Confidential.
2. This option is checked and a handwritten note reads: “State Secretariat advised of approval on 5/12.”
3. Johnson signed the directive to Secretary of Agriculture Freeman on May 11, which determined that “in view of the unique and heavy burden of rehabilitation expenditure on the Government of the Dominican Republic in 1967 it would be in the national interest to give the Dominican Republic a special allocation of about 105,000 short tons of sugar from the unused Philippine share of the Puerto Rican and Virgin Island deficits and its pro rata share of the balance of those deficits and of any other deficits that might be declared in 1967.”
4. The approve option is checked.
5. Reference is to Section 204(a) of the Sugar Act of 1948, as amended by the Sugar Act Amendments of 1965. (79 Stat. 1275)