The Secretary of State to the Ambassador in Peru (Steinhardt)

No. 38

Sir: There is enclosed a memorandum (with enclosures)18 in which there are set forth certain questions which have arisen with respect to the application of Article 9 (c) of the International Sugar Agreement signed at London on May 6, 1937. Under that Article the United States is permitted to make certain sugar-quota allotments to Peru and other countries not enjoying preferential treatment in the United States market which are not to be charged against the export quotas for those countries established in the International Agreement. A misunderstanding has apparently arisen among various signatories as to the meaning of this Article and the use which the United States intends to make of it, and it has become necessary for this Government to make a formal statement in the near future to the International Sugar Council of the policy which it intends to pursue in this respect.

In view of the rather delicate nature of the problem which has arisen as a result of the misunderstanding, the Department proposes to approach informally at least the governments principally interested in this question prior to making a formal statement to the Sugar Council. Such informal conversations will be undertaken with the Governments of Peru and the Dominican Republic and probably later with those of the Netherlands and the United Kingdom, which have demonstrated great interest in this matter. The enclosed memorandum indicates the general approach which the Department has in mind with regard to these conversations and the difficulties which may be encountered in reaching a solution which is satisfactory to the interested governments.

Before taking the subject up with any other Government, the Department is anxious to secure the views of the Peruvian Government with regard to the use which should be made of Article 9 (c).

Representatives of Peru have frequently stated that there are close natural limitations on Peruvian sugar production and that Peru does not wish to add more areas to those already devoted to the production of sugar. This has been the consistent position taken by Peru in its statements at international sugar conferences. It is desired, therefore, that you discuss this matter informally with the Peruvian authorities and ascertain, in view of the probable difficulties to be encountered in the Sugar Council, what is the total quantity of permissible exports [Page 964] of Peru in any year during the life of the Sugar Agreement which the United States should attempt to provide for by fixing the tonnage of ex-Philippine quota sugar which shall not be chargeable to the free market export quota of Peru but shall be additional thereto.

If the maximum export possibility foreseen is 385,000 metric tons, then a global exception of 100,000 metric tons, of which Peru could supply about 56%, could be suggested by the United States. If a maximum export possibility of 360,000 metric tons in any 1 year would provide ample outlet for Peruvian production over the next 5 years, then the United States need ask a global exception of only 60,000 metric tons. A global exception of 40,000 metric tons, which is probably the maximum amount to which Article 9 (c) could be applied without being disputed by other signatories to the International Agreement, would permit about 22,500 metric tons to be exported from Peru over and above its free market quota. This would assure Peru an export possibility of 336,000 tons even if its free market quota were reduced 5% by application of Article 21 (a). An “inflexible quota” of 336,000 tons was the quota requested by the Peruvian delegation at the Sugar Conference of April–May 1937. The reservation in Article 9 (a) was in fact introduced largely to assure that this basic request of Peru for an irreducible quota of this magnitude should be satisfied even if there were a 5% reduction of free market quotas under Article 21 (a).

In your discussions with the Peruvian authorities, you should indicate that the United States has in mind, if time permits, to take this matter up informally with the British and Netherlands Governments and possibly others prior to making a formal declaration, with a view to securing their agreement to some tonnage figure to which the reservation in Article 9 (c) shall be applied. The Department feels that such a figure should be one which will permit the United States to make use of the reservation to an extent commensurate with the purposes for which it was proposed, but one which will not endanger the stability of the International Agreement. The Department believes that the strongest opposition would be encountered by the use of Article 9 (c) in a way which would result in the expansion of the area of production devoted to sugar in any of the countries benefiting from the application of the Article.

You may use any of the material contained in the attached memorandum which you deem appropriate in your discussions with the Peruvian authorities. You are requested to report the results of your discussions to the Department by telegraph.

Very truly yours,

For the Secretary of State:
Sumner Welles
  1. Memorandum of Information, December 3, with copy of Sugar Act of 1937, and of International Sugar Agreement prior to its ratification by United States Senate, not printed.