The Acting Secretary of State to the Chargé in Cuba (Woodward)

No. 826

The Acting Secretary of State encloses for transmittal to Mr. Evaristo Sotolongo, Acting President of the Cuban Sugar Stabilization Institute, a letter dated June 25, 1946, together with a modus vivendi43 for the purchase of the 1946 sugar crop, from Mr. James H. Marshall, Director, Sugar Branch, Production and Marketing Administration, United States Department of Agriculture. There are also enclosed copies of these documents for the Embassy’s files.

[Page 785]

The Director of the Sugar Branch of the Department of Agriculture (Marshall) to the Acting President of the Cuban Sugar Stabilization Institute (Sotolongo)

Dear Mr. Sotolongo: Your letter of June 13 together with the enclosed copy of a “modus vivendi”44 has received our most careful consideration.

We have been, and still are, desirous of arriving at an agreement, and to that end we have made substantial and repeated concessions to the wishes of your negotiating commission. Despite these concessions, we have not yet been able to meet on common ground.

Prior to the first meeting for the negotiation for the purchase of this crop in June 1945, your negotiating commission had steadily maintained the position that Cuba was entitled to equality of treatment with Puerto Rico except for the duty and Sugar Act payments. When our negotiators left for Havana in June 1945 the new Secretary of Agriculture, Clinton P. Anderson, had agreed to this request and our negotiators were so instructed. Early in the discussions in Havana this position was placed before your negotiators and a Puerto Rican equivalent price of 3.45 cents per pound was immediately offered for the 1946 crop. Between the June meetings and the resumption of meetings in October, the rate of payment under the Puerto Rican program was increased and with the arrival of your commission in Washington in the fall of 1945 to resume negotiations, they were immediately informed that the Cuban equivalent of the new Puerto Rican program was 3.675 cents per pound, f.o.b. Cuba. As a result, at no time in these negotiations has price been a problem. Your commission has repeatedly stated, both in meetings with the United States Committee and privately, that equality of treatment with Puerto Rica is all that Cuba expects.

The draft of your “modus vivendi” eliminates the Puerto Rican equivalent ceiling on the Cuban price and our interpretation of this is that you have in mind the possibility of obtaining a better price than is being paid Puerto Rico. The position of the United States negotiators is that Cuba is entitled to a Puerto Rican equivalent but is not entitled to anything more. This position is unchanged. The draft contract assures Cuba of such equality.

There is a great need for sugar to meet ration requirements in the United States, United Kingdom, Canada, and other allied and associated countries where consumption is far below the prewar levels. [Page 786] Because of this great need, the United States negotiators have urged Cuba to hold to the lowest figure possible the amount of sugar set aside for local consumption and for free export. The figures first suggested by the United States negotiators were 250,000 short tons, raw value, for Cuban local consumption and 50,000 short tons for free export. Cuba’s reply was that a total of 550,000 long tons, raw value, was needed for these two purposes. This figure was later increased to 600,000 tons because, as we were informed, it was necessary to return a total of 47,500 tons to us which had been borrowed by Cuba from our stocks in 1945. Later, an additional 20,000 tons was made as a contribution by Cuba to UNRRA but, instead of taking it out of Cuba’s share for local consumption, it was taken from our prospective purchase. A Presidential Decree issued early this year provided for 350,000 long tons, raw value, for local consumption and 250,000 tons for free export. We now are informed that the 47,500 will be returned to us in sugar that would otherwise have been included in our purchase. The Institute has agreed to reimburse us for the difference between the 3.10 cents f.o.b. 1945 price and the 1946 price of 3.675 cents f.o.b. Based on earlier conversations, we expected, and still expect, that the 47,500 tons owed to us would be returned to us from the 350,000 tons.

The 250,000 tons for free export has been sold mostly to other American Republics where sugar consumption generally is at an all-time high. Although these countries were members of or sympathetic with the allied cause, nevertheless their sacrifices were far less than those borne by the countries now on short sugar ration.

Our negotiators have been told that it would not be practical to restrict the use of sugar in Cuba because of the fact that the production was so greatly in excess of local demand. We might point out that the United States has limited the consumption of foodstuffs produced within its borders in order that other nations could share in our supplies. In the case of Cuba, this includes lard which has been supplied Cuba when it has been on rigid rationing here in the United States. Also, the distribution of rice has been sharply curtailed in the United States in order to make more available to foreign claimants, including Cuba.

As you know, almost half of the sugar that will have been purchased by the United States from the 1946 Cuban crop will go to other than United States destinations. Much of it has been sold to other countries direct or through relief programs, but these sales have been largely financed by the United States.

Cuba has been anxious to develop new industries such as candy, industrial alcohol, beverage alcohol, fruit preserves, etc. However, [Page 787] the great need in the countries now depending on Cuba for a portion of their sugar requirements is for a rationable product and not for the articles just enumerated.

Early in the negotiations, the Cuban Commission indicated that it would be agreeable to make allowances for the higher price being paid for sugar in arriving at the formula to be used in the cost-of-living escalator clause. In later discussions this position was revised. The increased price of sugar would not be used to offset the first increases in the food index and thereby delay the time when the index would require an increase in the contract price; instead the cost-of-food average of the last three months of the preceding year would be the basis for the quarterly price determination under this clause. In order to further the negotiations we finally accepted this change.

During previous negotiations when a cost-of-living index was first introduced, the Cuban Commission stated that it was not disturbed by minor fluctuations but felt that Cuba should have protection against major variations, particularly what might become runaway inflation in the United States. We felt that this position was reasonable and, as a result, the cost-of-living clauses have been incorporated in our contracts and proposals. You now suggest that the 4 percent be reduced to 1½ percent. We cannot accept this as we consider such variations of a minor nature and not indicative of inflation. We would like to point out that we have agreed if the variations amount to more than 4 percent that the full amount of the variation is applied to the price and not just that portion that is in excess of 4 percent.

The wording of your proposed “modus vivendi” regarding other sugar purchases, both raw and refined, by the United States Government or any agencies thereof is unacceptable. Our armed forces, our relief agencies, the War Shipping Administration, and other branches are constantly purchasing sugar at best prices obtainable in various portions of the world. It would be impossible for us to acknowledge that such purchases of comparatively small amounts would have a bearing on the price we pay Cuba for an entire crop. The clause included in our draft contract of May 30 affords Cuba complete protection and continues to be the extent of the concession that can be made on this issue.

We note in the “modus vivendi” that a new issue has been raised, namely, beverage alcohol. This has not been a subject of discussion heretofore in the 1946 negotiations and as it represents a withdrawal of much needed sugar or blackstrap supplies, it cannot be agreed to by the United States Committee.

In our submission of April 4 we offered to purchase industrial alcohol as a consideration for a two-year sugar contract. As your negotiators [Page 788] were advised at the time, a one-year sugar purchase cannot include the purchase of any industrial alcohol.

We are prepared to purchase blackstrap under the terms of our previous offer, but if it is necessary to purchase industrial alcohol or admit into the United States beverage alcohol in order to secure further supplies of blackstrap, we are prepared to withdraw our offer for the blackstrap.

The United States Committee is still prepared to proceed along the lines of the draft contract submitted to your commission on May 30 or along the lines of the enclosed proposed “modus vivendi” for 1946. You will note that the enclosed proposed “modus vivendi” for 1946 is for sugar only as we are assuming that in view of your statements in your letter of June 13 and our reply herewith you do not wish to include the sale of blackstrap. In your letter of June 13, 1946, you mention that payment has not yet been made for the 60,000,000 gallons of blackstrap. We understand from the Reconstruction Finance Corporation that payment can now be made as soon as the necessary tax decree has been issued in Cuba. If no further purchases of blackstrap are made during these negotiations, a separate contract can be prepared covering blackstrap.

If a “modus vivendi” is finally agreed upon, the United States would admit the same amount of candy for the calendar year 1946 as was agreed to in 1945, namely, 20,000 short tons sugar equivalent or 50,000,000 pounds of hard candy.

The foodstuff program for 1946 outlined in our proposal of April 4 would be included.

We will be prepared to make the 90 percent advances on sugar as soon as an agreement has been reached and the proper tax decree issued in Cuba.

Very truly yours,

James H. Marshall
  1. Modus vivendi not printed.
  2. Copies transmitted to the Department in despatch 1755, June 17, from Habana, not printed.