Foreign Relations of the United States, 1952–1954, Africa and South Asia, Volume XI, Part 2

891.2546/11–1453: Telegram

The Secretary of State to the Embassy in India¹

secret
priority

Washington, January 16, 1954—12:25 p.m.

841. Deptel 287,²Embtel 788,³Deptel 556⁴ and Embdes 848.⁵ This telegram supplements and modifies as appropriate instructions Deptel 287.

A. Begin FYI. Difficulties have arisen here regarding entrance of AEC into this contract directly with GOI Now GSA will enter into contract at $2.20 per pound (using FOA funds) with internal US arrangement for AEC to take over at US port. GSA contract will contain details standard AEC contract.

B. Washington review of sulphate counterproposal and general situation leads us to following conclusions re points at issue:

1. Contract should be in terms thorium nitrate. Since this is commercial product, existing knowledge of specifications and methods of handling would make for cleaner-cut arrangement which important in view need for speedy conclusion. Uncertainty as to cost additional processing of thorium sulphate to put it in usable form might result in higher total cost to US. Because of uncertain cost factors AEC able to pay only $1.10 per pound sulphate. This would result in higher premium than for nitrate and also produce undesirable situation in which premium higher than contract price.

2. Indian proposal for sale of sulphate raises point basic to purpose of contract, i.e., arrangement whereby India will be committed sell all exportable thorium compounds to US. Emphasis on thorium nitrate was in belief it only saleable thorium compound and that GOI aware our desire help in GOI problem of necessary disposal sensitive material. Arrangements therefore should cover all thorium compounds by requiring conversion to thorium nitrate so as to preclude possibility of direct or indirect export any other thorium-bearing substances to destinations interdicted by Battle Act. See D (1) below.

3. If Indian conversion ratio correct, offer of 180 tons sulphate annually equals 150 tons nitrate when plant in full production. On basis very rough estimate that 20 tons nitrate now available, that perhaps as much as 60 tons additional might become available from Indian controlled production next year before Trombay plant comes into production, and that India will have as much as 150 tons exportable thorium nitrate in first full year Trombay operation (which might fall in second year of proposed two-year contract), previous two-year contract ceiling of 135 tons should be raised to 230 tons. If Embassy believes estimate 230 tons seriously out of line, should inform Washington soonest with revised estimate and reason therefor, otherwise Embassy should proceed on basis 230 tons or any slightly reduced tonnage deemed appropriate by Embassy without further reference this question to Washington.

4. The Indian demand for $3.50 per pound for thorium nitrate should be met by increasing the premium through the dollar grant and without increasing the $2.20 per pound figure in the GSA contract. Purpose of going to $3.50 immediately is to stop further haggling on price which might also permit GOI open discussion on other points. As indicated Deptel 287 paragraph 5 GSA $2.20 price is delivered New York and US acceptance of $3.50 per pound price is of course on same basis.

5. In view (a) desirability making FOA premium dollar grant in one lump subject to normal FOA–GOI project agreement expenditure procedures and (b) possibility GOI might not for several reasons deliver amount thorium nitrate estimated in contract period, GSA two-year contract should provide that in event full amount not shipped within two-year period of contract GSA at its option may purchase up to balance contract amount from first thorium nitrate available for sale abroad. End FYI.

C. You should proceed immediately to secure a Memorandum of Commitment (this title deemed preferable to term “Memorandum of Agreement” mentioned in Despatch 848 enclosure 1 page 1 paragraph 2 which liable interpretation that it is International Agreement requiring publication). This should facilitate negotiations by commitment GOI and US to signing three types documents noted below. Memorandum should commit Governments to:

1. GSA contract for up to 230 tons thorium nitrate (see paragraph B 3 above) as outlined previous communications and B 5 above.

2. An exchange of letters which supplements GSA contract and makes following points:

(a) (According B 3 above) Premium of $1.30 per pound will be provided in form of regular TCM/I project agreement for scientific and industrial research. This amount ($669,760 in case of 230 long tons estimate) to be administered under normal project agreement procedures and therefore should be based on most realistic estimate two-year availability thorium nitrate. This amount will be additional to amounts otherwise available in US economic and technical aid to India in FY 1954. FYI reference above premium will be taken from funds other than Sections 302 (a) and (b) of Mutual Security Act of 1951, as amended. Entire amounts programmed under these two sections have not been finally apportioned (Usfoto 472).⁶ End FYI. Since difficulties this regard may arise, stress should be laid on fact that other funds being used for this project of scientific and industrial research.

(b) GOI will undertake to sell to the US under the terms of the contract and exchange of letters all thorium-bearing materials at the disposal, and surplus to the internal requirements, of India, and such materials shall be made available in the form of thorium nitrate of the required specifications.

(c) Except for production from proposed Trombay plant, the GOI shall undertake not to increase above present levels the quantities of thorium-bearing materials at its disposal.

(d) Intent of total arrangement involving the GSA contract, project agreement and this exchange of letters is to offer GOI a reasonable market for its exportable supplies thorium-bearing materials under arrangement which will make all such materials available to US in form of thorium nitrate and which will further aid India in its scientific and industrial research. (Desire Ambassador to work out best method of making point to Pillai that purpose of arrangement is to assist GOI avoid situations involving Battle Act.)

3. Project agreement involving US grant in dollars of $669,760, should be prepared and signed in usual fashion by US and Indian representatives for Indo-American Technical Cooperation.

D. Regarding Indian questions Despatch 848 enclosure 1 page 4:⁷

(1) Department unable understand meaning of term “established customers” in light of relatively recent availability of exportable Indian thorium nitrate. In any case recently reported shipments through Polychemia (London) indicate advisability restricting shipments to US, in GOI’s own interest. GOI should be told therefore all thorium compounds up to amount specified be made available to US.

(2) US does not intend sell during period of this contract material furnished by India under the contract.

E. Begin FYI. Conclusion of contract and fact that potential explosiveness total situation appears be increasing with passage of time point to advisability not pressing further discussions on additional Battle Act assurances. Agree your indication Battle Act problems and commodities have been given thorough airing throughout top GOI officialdom (Embtels 554⁸ and 570⁹) and that quite possible GOI sensitivities and internal political situation would preclude their going on record with firm assurances. Believe that, in this situation, US may well attain its objectives by putting matter squarely in hands of GOI with implication moral responsibility to effect control over Battle Act items. End FYI.

GSA contract will follow. Desire Embassy cable developments. This necessary in course Washington deliberation on final steps total Indian Battle Act problem.

Dulles

1. This telegram was drafted by Fluker of SOA, Hamilton of S/AE, and by K. Hansen of FOA, and it was signed by Samuel C. Waugh, Assistant Secretary of State for Economic Affairs.
2. Dated Sept. 15, p. 1720.
3. Dated Nov. 17, p. 1727.
4. Dated.Nov.23, p. 1728.
5. Not printed. (891.2546/11–1453)
6. Not found in Department of State files.

7. The two questions raised by the Indian negotiators, as detailed in New Delhi despatch 848, page 4 of enclosure 1, read as follows:

   “(1) Whether the United States would object to the Indians’ exporting limited amounts to established customers in the United Kingdom, Belgium, and other ‘approved consignees.’

   “(2) Whether the United States would sell, or attempt to sell, the material India would furnish under the proposed contract.” (891.2546/11–1453)

8. Dated Sept. 26, p. 1723.
9. Not printed. (493.919/10–153)