Colombo Embassy Files

Memorandum by the First Secretary of Embassy in Ceylon ( Black ) to the Chargé in Ceylon ( Gufler )

confidential

Subject: Conversations re Rubber Agreement

Last night at a large party Sir Oliver Goonetilleke buttonholed me and told me with a very long face that “Ceylon is in trouble” and that he is gravely concerned. He went on to say that the reports which the Ceylon Government had received from Burma were sufficiently disquieting to make Ceylon very apprehensive over the future of her rice supplies. Sir Oliver then proceeded to tell me that the Minister of Food had told him of the very great assistance which our Government had been in arranging the rice loan from Japan and expressed his appreciation for our having taken an interest in this matter.

Just when I thought the conversation had ended, Sir Oliver said, “Didn’t N. U. Jayawardena1 tell you that I wanted him to bring you over to talk to me about a rubber purchase agreement?”. As a matter of fact, Jayawardena had mentioned it, but I told him at the time that there was no use anyone talking to me further; that, in my opinion, the matter had been discussed on an informal basis long enough, and that all the Ceylon Government had to do was to take the initiative in the matter and instruct Ambassador Corea to inform the Department of State that the Ceylon Government is interested in resuming discussions with respect to an agreement. I reviewed briefly the background of the situation and told Sir Oliver that my personal impression was that in recent conversations with Ambassador Corea, the State Department had left the door open for a resumption of discussions. I emphasized, however, that the procedure which had been suggested by the Ceylon Government, i.e., that the United States send a negotiator to Ceylon to discuss an agreement with the trade, definitely was not acceptable and that it would be necessary for the Ceylon Government to suggest an alternate procedure or at least to indicate to the State Department that it would be willing to consider such other procedures as the Department might have in mind. Sir Oliver [Page 2083] said that he was in complete accord and remarked that “Obviously the negotiations would have to be between the two Governments”.

Sir Oliver then asked me what quid pro quo the United States would require in return for a rubber purchase agreement. I said that so far as I knew no quid pro quo was involved and that our willingness to discuss an agreement had resulted from urgent requests made last summer by high Ceylon officials, including himself, for the United States to “do something for Ceylon rubber” and was motivated solely by our desire to show Ceylon that we were not wholly disinterested in her problems. Sir Oliver asked whether it would not be to our advantage to have an assured source of supply of rubber “from the only producing country that is not in danger”. I said my personal view was that it wouldn’t make much difference because the agreement would be on a market price basis and we would, in any event, have to compete price-wise for any rubber which we might buy.

Sir Oliver then raised the question about rubber shipments to China. I ventured the purely personal opinion that, although the Department of State had very carefully emphasized to Ambassador Corea that there was no connection whatsoever between the proposed rubber agreement and Ceylon shipments to China, it was wholly unrealistic to suppose that an agreement would be finalized unless we were convinced that no further rubber shipments to China would be made. I emphasized most strongly, however, that we would not under any circumstances allow ourselves to be jockeyed into the position of appearing to buy Ceylon off in any way whatsoever.

Sir Oliver then asked me whether we would have any objection to his discussing the matter with the Prime Minister, as he would like to have the opportunity to “prepare the Prime Minister’s mind” before the Minister of Finance and the Central Bank officials “got to him”. I replied that this was a strange question to ask and pointed out that it was completely up to him with whom he discussed the matter. I repeated, however, that in so far as we were concerned, the whole matter had been on an informal plane long enough and that, in my opinion, there could be no further step forward until the Ceylon Government took action to begin discussions on an official basis.

In concluding I couldn’t resist mentioning to Sir Oliver that the initial conversations last summer had been suspended as the result of a leak to the press, and that the Embassy considered it most unfortunate that someone should have talked on this occasion as well. Sir Oliver agreed that it was most unfortunate, and with a very innocent expression (which is not easy for him to achieve), remarked that “N. U. Jayawardena must have mentioned something to a reporter”.

[Page 2084]

This morning Raju Coomaraswamy told me that the Minister of Finance had already discussed the question of a rubber agreement with the Prime Minister. The latter’s initial reaction was that “he was always ready for negotiations of this kind”, but inasmuch as Ambassador Satterthwaite was in Washington, and presumably would have the latest views of the Department on the situation, it might be well to await his return to Ceylon. Subsequently, however, the Minister of Finance sent a memorandum to the Prime Minister recalling their conversation and pointing out that Ambassador Satterthwaite Would not be back in Ceylon until after the middle of January. In view of the fact that the Minister of Finance is leaving for London early in January for the Meeting of the Commonwealth Finance Ministers,2 the memorandum urged that discussions with the United States be commenced immediately on an official basis.

Both Coomaraswamy and John Exter confirmed that both the Ministry of Finance and the Central Bank are still seriously worried over the weakening Ceylon dollar position and that the improved trade balance With the United States for November had not relieved this “worry to any degree.

I believe that the Minister of Finance is extremely anxious to have some assurance of a steady dollar supply before he goes to London. Failing this, he would hardly be in a position to maintain an independent attitude toward the sterling bloc. He has always been very proud of the fact that he could be so independent, and I think that it would be a great blow to him if he had to take a less strong position at this meeting. Sir Oliver also maintained the same independent position vis-à-vis the United Kingdom Government when he was High Commissioner in London, and I think that his support has been enlisted on that account. In addition, I understand that Mr. Ratnayake, Minister of Food and Co-operative Undertakings, has also been brought into the picture. The Ministry of Food has a legitimate interest as it may require a substantial quantity of dollars for its rice purchases for the coming year.

It would appear, therefore, that there is substantial evidence of a strong Ceylon Government interest in concluding a rubber agreement with us, and that there was little justification for Sir Kanthiah Vaithianathan’s rather indifferent attitude and his contention that the matter was one of primary interest to the trade.

  1. Deputy Governor of the Bank of Ceylon.
  2. The conference of Commonwealth Finance Ministers was held in London from January 15 to 21, 1952, under the chairmanship of Mr. R. A. Butler, Chancellor of the Exchequer.