400.46E9/9–1151

The Chargé in Ceylon (Black) to the Secretary of State

restricted
No. 231

Subject: Ceylon Request for Exception From the Provisions of the Kem Amendment

There is enclosed a copy of an Aide-Mémoire which the Ministry of External Affairs delivered to the Embassy on the afternoon of September 10. This Aide-Mémoire develops a case for and concludes with a request that Ceylon be granted a special exception from the provisions of the Kem Amendment “or any other similar legislation which may be enacted in the United States”.

The Ministry telegraphed the full text of this Aide-Mémoire to the Ceylon Embassy in Washington which presumably already has submitted it to the Department.

In view of the very limited justification on which a request for an exception might be based, the Embassy considers that the attached Aide-Mémoire develops the best arguments possible under the circumstances. The Embassy will not comment on the validity of these arguments as its views have, it is believed, been made clear in previous communications on the subject.

Myron L. Black
[Page 2046]
Enclosure

The Ministry of External Affairs of Ceylon to the Embassy in Ceylon

Aide Mémoire

case for exemption of ceylon from application of section 1302 of the u.s. third supplemental appropriation act, 1951

The attention of the Government of Ceylon has been drawn to Section 1302 of the United States Third Supplemental Appropriation Bill, 1951 (HR 3587), popularly referred to as the KEM Amendment, which provides for the denial of American economic or financial aid to any country which exports, or permits the exportation of, strategic materials to any of the Communist countries. The United States Authorities are aware that Ceylon has not found it possible to impose any destinational prohibition or restriction on exports from Ceylon and this Aide-Mémoire seeks to set out the considerations which have led the Ceylon Government to take up this position.

2. Ceylon’s only export, which comes within the category of strategic materials, is rubber, and the Island’s economy is vitally dependent on the securing of a fair price for this commodity in world markets. Local producer interests demand the preservation of an open market as the only way of guaranteeing fair and competitive prices, and the imposition of any artificial limitation on this market, through destinational control, is a step which the Government does not feel justified in taking in present circumstances. In point of fact, the present pattern of Ceylon’s external trade is, almost wholly, confined to the democratic countries. The Ceylon Government is perfectly content with this state of affairs and has no need or desire to seek new markets in Communist countries. Ceylon has no shipping of her own and is wholly dependent on foreign shipping for her overseas trade. This in itself should, under ordinary circumstances, automatically discourage exporters from seeking markets in Communist countries. In any case, such exports, if any, will not take place with any assistance or special facilities rendered by the Ceylon Government.

3. On the other hand, local Rubber interests have represented to Government that a deliberate imposition of a ban on the export of rubber to Communist countries would immediately destroy the prevailing free market and may well lead to an artificial depression of price levels. Should such a fall in prices occur, as is likely, its economic effects on the country will be serious, and it will, in addition, mean a cessation of the efforts now being made by the Government to improve the existing low economic standard. The imposition of a limitation on the existing free market, in the face of known opposition on [Page 2047]the part of the producers, will, in addition to estranging the friends of Government, only lend support to what Communist propaganda, is accustomed to call “imperialist exploitation”.

4. It would also be relevant to recall that after Japan entered the Second World War, Ceylon was the sole supplier of natural rubber to the war effort of the Allies. This circumstance made tremendous demands on the rubber industry of the country and whole estates were slaughter-tapped in the effort to make available adequate supplies of this vital war material. Improved conditions following the end of the war have made some slight recovery possible, but the recovery of the industry is by no means complete, and much more capital needs to be invested to restore the rubber industry to its pre-war standard. It is understandable, therefore, why producers are in no mood to make further sacrifices by agreeing to, what would amount to, Governmental intervention in the natural trends of the rubber market.

5. It is accordingly requested that a special exception be made, in the case of Ceylon, from the operation of section 1302 of the Third Supplemental Appropriation Act, 1951, or any other similar legislation which may be enacted in the United States.