Foreign Relations of the United States, 1951, Asia and the Pacific, Volume VI, Part 2

846E.2395/11–1451

Memorandum of Conversation, by Miss Mildred M. Yenchius of the Office of South Asian Affairs

confidential

[Washington,] November 14, 1951.

Subject: Possibility of US–Ceylon Rubber Agreement; Rubber Shipments to Communist China: Procurement of Rice for Ceylon

Participants:	Mr. G. C. S. Corea, Ambassador of Ceylon
	Mr. George C. McGhee, Assistant Secretary
	SOA—Mr. Weil
	Mr. Fluker
	Miss Yenchius

Problem:

1. Possibility of a US–Ceylon rubber agreement.

2. Procurement of rice for Ceylon.

Action Required:

1. To investigate the desirability of taking further action with respect to a rubber purchase agreement with Ceylon.

2. To investigate the possibility of a loan of rice from JLC purchases in Bangkok. To assist the Embassy of Ceylon in purchasing rice in the US and obtaining shipping space for it.

Action Assigned to;

SOA/E

Ambassador Corea came in at his request prior to his departure on November 15 for the FAO meeting at Rome. He referred to the rubber shipment to Communist China, saying there were no further shipments under way and that Mr. de Soysa, principal Ceylon rubber shipper, had promised to make no further sales. The Government of Ceylon hoped there would be no further shipments, but without an embargo on its part, which it did not feel it could impose, there was no guarantee of stoppage. He wondered therefore whether this might not be a good time to pursue more actively the question of the US–Ceylon rubber agreement broached last summer, in order to enable the Government of Ceylon to establish a position. (He had stated in a previous conversation with SOA officers that he was bringing up the subject of rubber on his own initiative, and not under instructions of his Government.)

Mr. McGhee replied that we did not want the Government of Ceylon to take any steps embarrassing to it, but that we very much wanted shipments to stop. If the Government of Ceylon really wanted to stop further sales, given the cooperation of large shippers, it seemed to him that it could do so. The question of a rubber purchase contract was one that would have to be examined on its own merits, however, and could not be linked with that of rubber shipments to Communist China. It would put us in an impossible position to have to buy everything in the world to keep it from the common enemy. No consideration, he said, had been given to preemptive purchasing of rubber, and no raw material was protected by a long term contract. Mr. Fluker added that we had hoped for an arrangement that would establish a flow of rubber to the US through regular commercial channels. The terms were tentatively about forty per cent of production at market price on an 18 month basis. The discussions fell apart because of unfavorable publicity in Ceylon, making it impossible for the US to send a representative there to discuss a contract with the Government of Ceylon. The question now remained as to what alternative procedures of negotiation or discussion the Government of Ceylon wished to suggest. The Ambassador replied that his Government still preferred having a representative go to Ceylon. Mr. Fluker mentioned there was another consideration now—there had been a new type of publicity which would probably tie any discussions to the matter of the shipment to China. Mr. McGhee said we would give every thought to a contract, but it must be kept separate from the China shipment.

The Ambassador then referred to his country’s urgent need for rice, and said he was trying to purchase some rice in the US. In the meantime, however, his Government wanted him to try to arrange a loan of rice in Bangkok from stocks belonging to the Japan Logistics Command. Mr. McGhee replied that we were working on it and would do everything we could, since we understood that Ceylon was dependent on imports of rice. He mentioned that the rubber sale had no influence on the question of rice as we did not barter human beings, and then related an incident in which a small country, Iceland, wished to receive a quid pro quo from the US in exchange for something the US wanted. It was pointed out that a small country did not have very much to offer and therefore was bound to be the loser in any arrangement of barter, item by item, with a large country. Therefore, over a period of time Ceylon would certainly benefit much more from cooperation with us than it would by taking a step which is not only uncooperative but unfriendly, in order to obtain a small temporary gain.

The Ambassador remarked that there seemed to be a misunderstanding of the real situation in Ceylon. All of Ceylon’s actions hitherto had proved that it was not unfriendly. However its domestic political situation required that it not forbid the sale of rubber to Communist China, and the US should allow some latitude for that internal situation. The Government would suffer seriously if it placed an embargo in effect. He remarked with some emotion upon the fact that exceptions under the Battle Act had been granted other countries trading with the enemy, referring particularly to the sale of jute by India to China, and said it was very difficult for Ceylon to understand why other countries could send materials continuously to the satellites and get exceptions, yet when only one shipment of rubber leaves Ceylon, Ceylon could not get an exception.¹

Mr. McGhee replied that our analysis of the political situation in Ceylon resulted in the conclusion that the sale of rubber to China was not necessary for the survival of the Government, and that politically the Government could stop shipment if it wanted to. As for suffering, we have had to suffer by raising taxes and sending more soldiers to Korea. It was a great disappointment to us that Ceylon, which we had thought one of our best friends, had been the worst offender in this matter. India, with its neutralist tendencies, had seen fit to go along with UN action by embargoing the movement to China of certain strategic materials. As for jute, there was a traditional movement of trade. There had been no traditional movement in the case of Ceylon, and the country itself did not benefit from the sale, the entire transaction being a case of sheer greed on the part of one man who compromised the entire country in the eyes of the world. We could see no justification for this very unusual shipment in spite of all the explanations given.

The Ambassador then asked what the situation would be if Ceylon obtained rice from China. Mr. McGhee replied that if it were not possible for Ceylon to obtain rice elsewhere, there might possibly be some reason for trade with China.

Ambassador Corea then brought up the matter of Ceylon’s sacrifice on rubber prices during World War II. He summed up the picture on the China sale by stating that there was no desire to help communism in China. The Government considered it would be more dangerous to weaken its position in Ceylon than to allow a few thousand tons of rubber to go to Communist China. Someone in Ceylon got the bright idea of making a few rupees by selling to China. The Government, not wanting to weaken itself, made no effort to interfere.

The conversation then reverted to rice and the question of shipping space for it. The Ambassador said he would go ahead with purchases in the US, having received Mr. McGhee’s assurances the Department would do everything it could to assist.²

1. No formal decision on an exemption for Ceylon under the Battle Act was made by the end of 1951, and consideration of the matter continued into 1952.
2. In telegram 202 to Colombo, November 17, not printed, the Department of State summarized the above conversation and added the following: “Dept assisting by approach to JLC mission for advancing 18,000 tons from Asian supplies under negot for prompt delivery Ceylon, to be repaid by shipments US rice to be purchased by Ceylon. Alternative possibility being investigated is advance from Japan-bought supplies on same basis. Also looking into possibility shipping assistance for US rice. Direct shipment US rice still possible but timely deliveries (Embtel 313 Nov 10) [not printed, but see footnote 1, p. 2075] more likely be assured by one of loan arrangements. You may your discretion pass on to GOC info re rice request.” (846E.2317/11–1051)