The Chairman of the American Delegation (Davis) to President Roosevelt

My Dear Mr. President: I have the honor, as Delegate of the United States to the International Sugar Conference held in London from April 5 to May 6, 1937, to submit the following report of the results of the Conference.

The International Sugar Agreement entered into by twenty-one governments at London May 6, 1937,31 has for its purpose the establishing and maintaining of an orderly relationship between the supply and demand for sugar in the world market, on bases equitable both to producers and consumers.

The Agreement is the result of inter-governmental negotiations initiated at the World Monetary and Economic Conference in 1933 and culminating in the International Sugar Conference which met in London April 5, 1937. The Agreement has been signed by the Governments of The Union of South Africa; The Commonwealth of Australia; Belgium; Brazil; The United Kingdom of Great Britain and Northern Ireland; China; Cuba; Czechoslovakia; The Dominican Republic; France; Germany; Haiti; Hungary; India; The Netherlands; Peru; Poland; Portugal; The Union of Soviet Socialist Republics; The United States of America; and with it the Commonwealth of the Philippines; and Yugoslavia.

Subject to the necessary ratification by the signatory governments, the Agreement provides for the regulation of the world sugar market by the joint action of the governments of almost all the principal producing and consuming countries. It will be recalled that nearly two years have elapsed since termination of the so-called Chadbourne [Page 947] Plan32 through which nine exporting countries attempted unsuccessfully from 1930 to 1936 to eliminate the over-production and destructive competition which had reduced the world market price of sugar far below the cost of production of the most efficient producers with ruinous results on the purchasing power and social conditions of producing countries, and with corresponding impairment of world trade. In some respects the International Agreement may be compared to the internal regulations by which the United States and some of the other countries of the world have undertaken to regulate the production and marketing of sugar within their territories in order to achieve stabilization and to assure a fair balance between the interests of producers and consumers.

Of the total world production of sugar amounting to some 30,000,000 metric tons, it is estimated that during the year beginning September 1, 1937, about 3,400,000 metric tons will be exported from producing countries to countries in which it will receive no preferential treatment, the so-called world or free market. Under the Agreement, fifteen countries which have in the past been important exporters of sugar agree for a five year period to limit their exports to the free market to certain specified annual amounts, and also to prevent the accumulation within their territories of excessive stocks of sugar.

Under the Chadbourne Plan the consumers’ interests in sugar-importing countries had no part in the regulation of the world market. Producing interests in nine exporting countries endeavored to regulate their production, export, and surplus stocks of sugar with a view to improving sugar prices. During the life of the Plan, these countries by extraordinary curtailment of production reduced their excessive stocks of sugar to manageable proportions but the effect of this was largely offset by great increases in production in countries not parties to the Plan. Although no stabilization of the market on a remunerative price level was accomplished by the Chadbourne Plan, the experience under it was helpful in working out a more comprehensive and effective agreement. The present Agreement which is on a broader base includes most of the countries which are important producers and consumers of sugar, and establishes a permanent organization or council in which all these countries are represented with a view to regulating the sugar market in a way which is fair to each country and to consumers as well as producers.

The Agreement allots basic free market export quotas to each of thirteen exporting countries in the total amount of 3,622,000 metric tons subject, during the first two years of the Agreement, to reduction [Page 948] by a uniform percentage not exceeding five percent, if the International Sugar Council established by the Agreement decides, after a survey of the probable requirements of the market for the year in question, that such a reduction is necessary. The Council also has power to redistribute any unused parts of quotas within each year and to allot additional quotas to all exporting countries pro rata in case it at any time decides that, having regard to the market requirements, additional supplies are desirable. The Contracting Governments have agreed that it is their policy so to direct the arrangements made under the Agreement as always to assure consumers of an adequate supply of sugar on the world market at a reasonable price not to exceed the cost of production, including a reasonable profit, of efficient producers.

The importing countries whose requirements for consumers constitute the greater part of the so-called free market have signed the Agreement of May 6, 1937, in order to afford assurances to the producing countries that the free market shall not be reduced by governmental or artificial measures during the period of the Agreement and that the countries producing for the free market shall share in supplying any increased demand for sugar during that period.

On the consuming side, in the British Empire, which is a net importer of sugar, the United Kingdom of Great Britain and Northern Ireland has undertaken to maintain in operation its existing legal provisions designed to limit the annual production of sugar in Great Britain and will also limit the total exports of sugar from the British Colonies to a stated basic figure per quota year. The Governments of the Commonwealth of Australia and of the Union of South Africa similarly undertake to limit their annual exports (which also enjoy preferential tariff treatment within the British Empire). The Government of India undertakes an obligation not to export by sea except to Burma. The Government of Canada, while not at present signing the Agreement, has given the assurance that it does not propose to stimulate the production of sugar in Canada during the term of the Agreement by subsidy, increased protection, special remission of taxes or by any other similar measures.

Another great importing country, China, has agreed to use its best endeavors not to decrease sugar import requirements.

The participation of the United States is regarded as important both to the making and to the successful operation of an agreement of this kind. The United States is the largest consumer, and the largest importer of sugar in the world. Although the sugar requirements of the United States are satisfied principally from production within its own territories and from sugar imported from Cuba enjoying preferential tariff treatment, any change in our established policies [Page 949] affecting the importation and marketing of sugar whether from Cuba or from other countries would directly or indirectly affect the non-preferential world market. The United States is also one of the largest sugar producing areas in the world and sugar producers in the United States are interested in the agreement because of the base therein in the form of world prices and its relation to the prices received for sugar produced in the United States. For these reasons the Government of the United States has taken an active part in the drafting of the Agreement and has signed it, and it is deemed important that the United States be represented on the International organization regulating the world market.

Article 9 of the Agreement contains specific undertakings of the United States to permit a net importation of sugar from foreign countries not enjoying preferential duty rates, and as to the allocation of quotas among such countries. These undertakings involve no departure from policies which have been in force since the enactment of the Jones-Costigan Act of May 9, 1934.33 The Agreement is in fact the application on a world-wide scale of some of the principles embodied in the policy of the United States with regard to sugar.

In Section (c) of Article 9 the United States reserves the right to increase its imports of full-duty sugar above recent levels without having any increase over the percentage of American consumption now supplied by full-duty imports reckoned as part of the world export quotas allotted the exporting countries in the International Agreement. The effect of this provision is to further protect consumers in the United States and at the same time permit future increases in the exports of the countries that normally export full-duty sugar to the United States. If the United States should not become a party to the Agreement these advantages would not be obtained. It is essential, however, that any use of the rights reserved in this Section be limited to quantities which will not seriously affect the general distribution of export quotas established in the Agreement.

In Article 10 of the Agreement there are contained certain obligations to be assumed by the Commonwealth of the Philippines and certain stipulations made in favor of the Philippines in view of the possibility of some change in the relation between the Commonwealth and the Government of the United States during the period of the Agreement. This Article will require the approval of the Philippine National Assembly. The Agreement was signed in respect of the Commonwealth of the Philippines by Mr. Urbano A. Zafra, representing the Commonwealth in the delegation of the United States.

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While giving certain undertakings in the Agreement, the United States is also enabled to protect its interests by participation in the permanent organization for administering the Agreement. In the International Sugar Council, the United States will have seventeen votes and the Commonwealth of the Philippines will have one vote in the total of one hundred votes allotted among the twenty-one participating countries. The United States is also to be represented on the Executive Committee and its representative and the representatives of Great Britain are each to have two votes on the Committee. The voting arrangements have been designed to assure a fair representation of consumers’ interests, and it is believed that with these arrangements the Government of the United States will be able to see that the Agreement is not operated to the disadvantage of American consumers. There is, however, a clause in Article 51b of the Agreement which would permit the United States to withdraw from the Agreement, after a short period of notice, in case of an acute shortage of supplies or an abnormal rise in world prices against which the Council should fail to take remedial measures.

At the moment of signing the Agreement, I wrote after my signature the following statement:

“I am instructed by my Government to state that in the event that its existing legislation imposing quotas upon the importation and marketing of sugar lapses within the life of this Agreement, it will be its policy to maintain its tariff on full duty sugar at no higher rate than that now existing.”

The International Sugar Agreement of May 6 is to be effective for five years beginning September 1, 1937. Its arrangements are based on quota years, meaning the periods from September 1 to August 31 of each year. However, it is important that measures be taken at once to establish on a provisional basis the permanent organization provided for in the Agreement. This is provided for in a Protocol annexed to the Agreement and signed simultaneously with it. Through this Protocol the signatory governments agree to appoint, as soon as possible, representatives who shall constitute a Provisional Council which shall exercise all of the functions of the International Sugar Council to be set up under the Agreement. Under the Protocol each signatory government also undertakes to insure that so far as its territories are concerned the situation as regards production, export and import of sugar shall not be modified in a manner contrary to the aims of the Agreement during the period between the date of its signature and the date of entry into force of the Agreement. Any infringement of this undertaking shall be equivalent to a violation of the Agreement. The Protocol was signed May 6, 1937, for the [Page 951] Government of the United States and in respect of the Commonwealth of the Philippines.

Sugar is of universal importance as a necessary foodstuff which under favorable conditions can be made available to consumers at a very low price. It also has widespread economic importance as a branch of agricultural production in a great many countries and as a factor in international trade. Few commodities have been so widely affected by subsidies and protective devices costly either to national treasuries or to consumers forced to pay high prices. Nevertheless, in the case of few commodities have conditions of production and marketing been reduced by the world depression to worse chaotic conditions than that of sugar, and it has been one of the slowest in recovery from price levels so low that, if long continued, they would not permit the necessary volume of production by even the most efficient producers without further subsidies or other costly forms of government assistance. It is these conditions that have brought twenty-one governments from all parts of the world to units in organizing the world market for sugar on bases acceptable by all as equitable to both producer and consumer.

An Agreement made by so numerous and diverse a group of nations on a practical question of great economic importance to them is a significant achievement in international cooperation in the interest of all. While the Agreement calls for no sacrifice on the part of the United States and is entirely consistent with the sugar policy independently established by the United States, the other signatories seek the assurance which will be afforded by the ratification of American participation in the Agreement. The United States should be glad to make this contribution to international economic cooperation.

I am enclosing herewith a copy of the Agreement and Protocol.

Faithfully yours,

Norman H. Davis
  1. The International Agreement Regarding the Regulation of Production and Marketing of Sugar was signed at London, May 6, 1937; the Senate advised ratification, subject to a reservation, December 20, 1937, and the President ratified the Agreement on March 22, 1938. A Protocol enforcing and prolonging the Agreement was signed on July 22, 1942, at London, and proclaimed on April 20, 1945, by the President. An Additional Protocol was signed on August 31, 1944, at London; the Senate advised ratification December 6, 1944, and the President ratified the Additional Protocol March 9, 1945; Department of State Treaty Series, No. 990, or 59 Stat. 922, 949, 951.
  2. See telegram No. 1, January 4, 1934, 10 a.m., from the Consul at Geneva, Foreign Relations, 1934, Vol. i, p. 664.
  3. 48 Stat. 670.