Subject: Ceylon Request for Exception From the
Provisions of the Kem Amendment
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.
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.
Colombo
, 10th September, 1951.
