561.321D1 Advisory Committee/67: Telegram
The Secretary of State to the Ambassador in Brazil (Caffery)
1045. Reference your telegrams no. 1564, October 23, no. 1512, October 16, and no. 1470, October 10.22 In view of Mr. Dantas’ imminent departure for discussions on sharing the Canadian cotton market,23 there follows for your background and such use as you may consider appropriate a summary of the Department of Agriculture’s attitude toward the cotton subsidy program.
[Page 143]There is strong feeling in the United States against relinquishing the Canadian market. Logically, by reason of location, and historically, the United States has been the source of supply for Canadian cotton mills. During the decade 1929–1939 the United States supplied almost 98 percent of Canada’s imports of raw cotton. In 1939–40 American cotton supplied 92 percent of total consumption. In 1940–41 Brazil supplied more than half of the Canadian market but prior to that year Brazil had supplied less than 2 percent of Canada’s cotton imports.
In view of the fact that assistance to domestic cotton producers has temporarily upset normal price relationships between American and foreign growths the subsidy on exports is the natural concomitant of the program of domestic assistance. It is directed toward the maintenance of the status quo in export markets, and cannot be looked upon as undercutting or unfair competition, since it is designed to bring about a situation as nearly as possible like that which would have obtained had there been no government support of domestic prices. For this reason any competitive advantage which may have been enjoyed by other producers before the subsidy was put into effect should be considered by them as a windfall resulting from temporary maladjustment between the domestic and foreign aspects of this Government’s cotton program. The short period during which American cotton was deprived of its competitive position in Canada cannot be regarded as having created a special privilege for other growths.
The retention of customary markets is especially important in view of the very heavy carry-over and the extremely low level of exports last year. American exports in 1940–41 were 82 percent below the 1939–40 level, while Brazilian exports increased 38 percent. At best, exports of American cotton this season will not materially exceed 1.1 million bales. And carry-over has risen from 4.4 million bales in 1937–38 to about 12 million bales at the beginning of the current season.
It is recognized that other producers face a serious problem in finding outlets for their cotton under war conditions, and an equitable solution is sincerely desired. In the case of the Canadian market, demand has increased from an annual average of about 270,000 bales for the decade 1929–38 to about 500,000 bales in 1940–41, and it is expected to exceed this during the current year. This Government is prepared to share equitably with other producers any increases in demand resulting from the war but the Department of Agriculture insists that pending the conclusion of a world cotton agreement the proposed division of the Canadian market must be on a year to year basis. The Brazilian Government may be assured that we shall welcome Mr. Dantas for the proposed discussions and that on [Page 144] our part there will be the greatest good will to attain a practicable solution acceptable to both governments.
Another factor which may be mentioned is the present acute shortage of shipping space. The war effort of this country and of all countries with a stake in the defense of democracy make it imperative to utilize available tonnage to the maximum efficiency. If cotton can be supplied to Canadian mills overland, valuable cargo space is freed for the transportation of material essential to the defense program, in which Brazil has a vital stake. While there is no intention to advance the shipping argument in behalf of the cotton subsidy policy, this is an example of questions raised by the authorities in charge of shipping routes and cargo space allocations when assigning tonnage to Brazilian-United States trade.
For your own information only, it is understood that the Surplus Marketing Administration expects to increase the subsidy as necessary to meet any fall in the price of Brazilian cotton.