The Secretary of State to the Ambassador in the United Kingdom (Bingham)

No. 1236

Sir: With reference to the Embassy’s despatch No. 1897 of January 3, 1936,15 enclosing an informal note from Mr. Ashton-Gwatkin16 regarding the possible International Sugar Conference, there is enclosed herewith a memorandum approved by the President, a copy of which it is desired be left with the Secretary of State for Foreign Affairs or the Permanent Under Secretary of the Foreign Office. You will please state that this memorandum is for the confidential information of the Foreign Office and is not to be made public without the consent of this Government, which cannot be given at this time.

Very truly yours,

For the Secretary of State:
Sumner Welles


The note of Mr. Ashton-Gwatkin of January 2, 1936, raised a number of questions and problems for the consideration of the governments [Page 529] which are interested in or might be invited to a world sugar conference and it specifically raised the question as to whether the Government of the United States would be likely to accept an invitation to participate in a conference along the lines set forth in this note and if so, whether this Government has any observations to offer on the points discussed therein. In response to this request it is desired to make the following observations:

1) It is probable that the Government of the United States would welcome an invitation to attend an international sugar conference organized for the purposes and along the lines set forth in Mr. Ashton-Gwatkin’s note. Recognizing the interdependence between the American sugar situation and the position of sugar elsewhere in the world, especially in the so-called “free market”, the Government of the United States is prepared to support any well directed move toward stabilizing the production and distribution of sugars destined for world markets on a basis that would be economically sound. The Government of the United States considers that it has’ already taken far-reaching steps for the stabilization of the sugar industry of the United States, and that one of the steps has resulted in the marketing of greater quantities of Cuban sugar in the United States than would have been the case had there been no sugar control program. The Government of the United States desires to make it clear, therefore, that its participation in the proposed sugar conference cannot be predicated upon the admission of sugar from foreign countries, including Cuba, greater than the quantities which have been admitted under the existing provisions of the Jones-Costigan Act. During the present calendar year 1936 the basic quota established for Cuba is 1,982,401 short tons, raw value, and the basic quota for foreign countries other than Cuba is 27,440 short tons, raw value. The Government of the United States’ also desires to state as its opinion that even should pending legislation in the United States to which reference is made below not be enacted prior to the proposed international conference, the conference could proceed, since, as indicated hereafter, the broad purpose of removing surplus supplies and of reducing the amount of protection to domestic producers’ and producers in areas (except foreign countries) which supply continental United States has already been accomplished.

2) The Government of the United States has been engaged in a farreaching program to attain order and economic stability in the sugar industry in all principal areas supplying the American market during the past two years. The program included six main elements:

A reduction in the general rate of duty on sugar from 2½ cents per pound to 1.875 cents per pound. This reduction was made on June 9, 1934.
A further reduction in the effective duty on sugar (i. e. the duty on Cuban sugar from which source practically all foreign importations [Page 530] of sugar have been derived for many years) from the rate of 1.5 cents per pound to .9 cents per pound. This reduction was accomplished by a trade agreement with Cuba which became effective on September 3, 1934.17
A limitation upon the amount of sugar admitted from the Philippine Islands, duty free, to 850,000 long tons. This limitation upon Philippine sugars was brought about by the enactment of the Tydings-McDuffie Act (Philippine Independence Act) on March 24, 1934.18 This limitation upon the admission of duty free sugars from the Philippine Islands became effective for the first time for the year 1936.
Establishment of quotas on the importation or receipts of sugar from all areas supplying the United States market in order to adjust available supplies to consumption requirements.
Production adjustment programs in all sugar producing areas supplying the United States market (except foreign countries) under which growers were compensated for reducing production of sugarcane or sugar beets to the level established by the quotas, with due allowance in each area for domestic consumption and necessary reserve stocks.
Regulation of labor conditions in the sugar producing areas supplying the United States market which are benefitted by the quota system and production adjustment payments, and control of the prices to be paid by processors to farmers for cane or beets.

3) It is believed that the effect of the foregoing policy of the Government of the United States upon the world sugar market has been of considerable importance. By making it possible for Cuba to obtain a market in the United States at a more remunerative price than has prevailed for many years for a satisfactory quantity of sugar, it has been possible for Cuba to avoid, since the termination of the international sugar agreement of 1931, pressing upon the world sugar market the tonnage which would otherwise have been forced upon it because of a curtailed market for Cuban sugar in the United States. By making payments to producers in the Philippine Islands to compensate them for the transition from the high level of production attained in the 1933–34 crop year of 1,500,000 long tons to the level of production established in the Philippine Independence Act, the excess stocks of Philippine sugars which would otherwise have accumulated and which might have been forced upon the world market were eliminated, and the relatively remunerative price established in the United States as the result of the quotas made it unnecessary for the Philippine producers to seek an outlet in the world market for part of its production. The world market has also been favorably affected by the avoidance of a possible surplus in continental United States and its sources of supply which threatened the world and the United States market at the time of the enactment of the Jones-Costigan Act.

[Page 531]

4) The Jones-Costigan Act which authorized the Secretary of Agriculture to establish quotas for importations or receipts of sugar from the insular areas and foreign countries and to establish marketing quotas for cane and beet sugar produced in the continental United States was enacted as an amendment to the Agricultural Adjustment Act. At the time of the United States Supreme Court’s decision in the Hoosac Mills case on January 6, 1936 (U. S. vs Butler, 56 S. Ct. 312) there was considerable uncertainty regarding the future status of the Jones-Costigan Act on which the Government’s sugar program of marketing quotas and benefit payments to producers had been based. The Secretary of Agriculture announced on January 7, 1936, that the decision of the United States Supreme Court of January 6, 1936, in the Hoosac Mills case, which had evidently invalidated those portions of the Agricultural Adjustment Act concerned with production adjustment and processing taxes, did not affect the quota provisions of the Jones-Costigan Act. Further, no suit to invalidate the quota provisions is now pending in the courts or is likely to be initiated in time to reach final adjudication in the Supreme Court during 1936. The present act, however, expires December 31, 1937, and, although new legislation is now pending in the Congress of the United States, which if enacted into law, would continue the power to maintain sugar quotas to the end of the year 1940, it is not possible for the government of the United States to give assurance at this time that the quotas will be continued after the year 1936, although it is reasonable to assume that the quota will be continued at least for the calendar year 1937.

The authority contained in the Jones-Costigan Act to supplement quotas by far reaching cane and beet production adjustment programs, under which growers were compensated for maintaining production at the quota level in the continental United States and insular areas has been invalidated and it has not yet been determined whether alternative measures are possible or desirable to accomplish the same purposes. The Soil Conservation and Domestic Allotment Act recently enacted19 provides for conditional payments to producers who comply with a governmental program for rational land utilization. A far reaching program of economic readjustment in Puerto Rico has been launched under special legislation which is aimed in part to reduce the present over-concentration of the Islands’ economy in the production of sugar. Diversification of production is receiving increased attention in the Hawaiian Islands and the expansion of sugar production is not considered probable. In the Philippine Islands the control of sugar production, administered at first under provisions of the Jones-Costigan Act, has now been taken over by the Commonwealth Government under legislation adopted by that Government. The amount [Page 532] of Philippine sugar which may be marketed in the United States free of duty each year is strictly limited by the Philippine Independence Act, as has been stated above, and the objective of the sugar control program of the Commonwealth Government under existing legislation is

“to limit the production of sugar cane and sugar in the Philippine Islands to such an amount as would be sufficient to cover the quota allotted to the Philippine Islands under the United States laws and the needs of the local consumption, plus such reserves as may be determined from time to time in accordance with the provisions of this Act.”*

5) It is impossible to predict at this time the form which the pending sugar legislation will ultimately take and whether enactment of such legislation is likely. It will be noted from the above summary, however, that the results of the measures already taken by the Government of the United States in adjustment of sugar supplies, the reduction of the general duty on sugar and the special reduction of the duty on Cuban sugar in connection with the trade agreement with Cuba, the limitation upon the quantity of sugar which can be admitted from the Philippine Islands free of duty, and the measures of control which may be instituted under the Soil Conservation and Domestic Allotment Act should be of material aid in the working out of an International Sugar Agreement, even if the pending legislation in the United States affecting sugar should not be enacted.

6) In view of the fact that the Government of the United States exercises at the present time no control over production of sugar in the Philippines, it is felt that the Government of the Commonwealth of the Philippines should be directly represented upon a United States delegation attending an international conference on sugar. The contents of your note of January 2, 1936, have been brought to the attention of Philippine authorities. In the absence of their views, which will be communicated upon their receipt, the Government of the United States is disposed to believe that the Philippine Government will cooperate with the American Government in any discussions or conferences which may eventuate.

  1. Not printed; see telegram No. 4, January 3, 4 p.m., p. 521.
  2. Frank T. A. Ashton-Gwatkin, Counselor for Economic Relations in the British Foreign Office.
  3. Signed August 24, 1934; for text, see Foreign Relations, 1934, vol. v, p. 169.
  4. 48 Stat. 456.
  5. Approved February 29, 1936; 49 Stat. 1148.
  6. Act No. 4166, approved December 4, 1934, Tenth Philippine Legislature, First Session. [Footnote in the original.]