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

446E.119/10–2252

Memorandum by M. G. Lyon of the Office of International Trade to the Chairman of the Operating Committee (Sawyer)¹

secret
OC Document 950

[Washington,] October 22, 1952.

Subject:

• Expansion of Program Determination 810² to Cover Problems Raised by Ceylon’s Export of Rubber to Communist China

Discussion:

Ceylon is at present the principal source of rubber for Communist China. Ceylon is not a member of the U. N. and did not commit itself to adhere to the U. N. embargo of May 1951 on shipments of rubber to Communist China as did Malaya and Indonesia.

In the absence of an agreement to embargo rubber to Communist China, the U.S. entered into negotiations with the Government of Ceylon to impose destinational controls. Despite advance warnings by the U.S. that continuation of rubber shipments to Communist China might precipitate the denial of economic aid to that country, Ceylon continued such shipments and aid was terminated in October 1951 under provisions of the Kem Amendment (Public Law 45, Section 1302).

The Kem Amendment was superseded by the Battle Act (Public Law 213), the provisions of which likewise provided for suspension of economic aid to nations supplying a specified list of strategic commodities to the Soviet Bloc. Rubber is one of the commodities included in Title II of this Act. Nations exporting Title II commodities to the Soviet Bloc can receive aid under the Act if negotiations between such countries and the U.S. for cessation of such shipments are concluded favorably. Since negotiations with Ceylon regarding discontinuance of rubber shipments to Communist China were not successfully concluded, aid to that country has not been resumed.

OIT in consultation with interested agencies issued, in the Export Control Manual, on January 11, 1952, Section G–12, “Applications for Shipments to Ceylon”. G–12 details the treatment to be accorded all “Applicants for Shipments of Refined Sulphur or any Other Commodity Directly Related to the Production of Rubber”. As a result of this instruction, applications for shipment of 1738 tons of dusting sulphur, which have been received, have been rejected or are still pending in OIT during 1952.

Prior to the death of its late Prime Minister in March 1952, Ceylon had indicated that it was prepared to negotiate, pursuant to the Battle Act, regarding possible suspension of further shipments of rubber to China, provided a suitable quid pro quo could be worked out. Ceylon considered a rubber buying agreement by the U.S. as an essential element of such quid pro quo and negotiations conducted by the Department of State were progressing satisfactorily when interrupted by the death of the Prime Minister. The caretaker government did not continue the negotiations. Meanwhile rubber purchases by the U.S. Government have ceased and if resumed could only be on a token basis at most.

Meanwhile rubber shipments to China have continued at an accelerating rate and amounted to 20.2 percent by quantity of all rubber exports during the period September 1951 to June 1952, compared with less than 1 percent in prior years to all Soviet Bloc countries. During August 1952, rubber shipments to China totalled 2400 long tons, equivalent to 38.7 percent of Ceylon’s rubber exports; this was exclusively sheet rubber, amounting to 92.2 percent of exports of that commodity. The price differential offered by China amounted to 36.9 percent (weighted average) over Singapore prices for the period from October 2, 1951, to August 15, 1952.

The U.S. share of Ceylon’s rubber exports have decreased from 59 percent of total exports in 1947 to 15 percent for the period September 1951 to June 1952, whereas U.S. exports to Ceylon have increased substantially in the postwar period.

During the late spring of 1952 it became obvious that Ceylon would intensify its attempts to obtain U.S. sulphur for its rapidly deteriorating rubber plantations. A number of direct and indirect approaches were made to OIT to permit export of a minimum of 1200 tons of dusting sulphur urgently needed for the current crop year (commencing in December). After consultations by the Office of International Trade with representatives of the Department of State, including the U.S. Ambassador to Ceylon, it was decided to continue the existing U.S. policy of denying export of dusting sulphur for the time being, in view of continuation of rubber shipments by Ceylon to China. Latest information on Ceylonese requirements from the Government of Ceylon indicates an estimate of 6000 tons of sulphur needed annually to implement a new Government of Ceylon order making dusting of rubber trees mandatory.

In June 1952, The Government of Ceylon made representations to the French and British to obtain shipments of dusting sulphur. The Governments of France and the United Kingdom were apprised informally by the U.S. Government of its concern over any such shipments. The United Kingdom, in spite of known U.S. desires to the contrary, issued export licenses and shipped 500 long tons of refined sulphur to Ceylon (all of which is presumed to have been refined from crude sulphur of U.S. origin). The Government of France, contrary to previous assurances to the U.S. Embassy at Paris and after making reference to the U.K. licenses, issued export licenses for the shipment of dusting sulphur to Ceylon; during August and the first week of September, Ceylon received 255 long tons of dusting sulphur (presumably of U.S. origin). The Italian Government, understood to be prepared to license refined sulphur shipments to Ceylon, was requested to withhold export licenses. The Government of Italy informed the U.S. Embassy at Rome that licenses in an amount of 2000 long-tons of sulphur had been issued; shipment of 325 tons was received in Ceylon during the first week of September. As a result of a U.S. request to the Italian Foreign Ministry, assurances were received that half of the quantity licensed would temporarily be withheld from shipment. Meanwhile U.S. dusting sulphur exporters have learned from their Ceylonese business associates that Ceylon was importing sizeable quantities of dusting and refined sulphur, presumably of U.S. origin. U.S. merchants have advised OIT that this was grossly unfair if true. Only recently the Government of Canada approached OIT to request information regarding U.S. policies on licensing sulphur to Ceylon, since many applications are now pending in Ottawa for exports of Canadian (U.S. origin) sulphur to Ceylon.

Total shipments of sulphur completed or assured are estimated by the U.S. Embassy, Colombo, at 3500 tons to date. A further fact, not directly related to rubber or dusting sulphur but very pertinent to the problem, is that Ceylon, which in July indicated its desire to purchase U.S. rice, has failed to place any contracts as of the end of August, while simultaneously negotiating a rice-rubber barter agreement with Communist China. In the meantime, the U.S. decided to place all rice exports on a quota basis and arranged a quota for the August–December 1952 period of 1,125,000 bags (100 lb. bags) for Ceylon. (Total U.S. export quota for this period—7,280,000 bags). As a further point of interest, Ceylon now appears to have met its rice while Indonesia and Hong Kong are seriously short of their annual requirements. (Indonesia is abiding by the U.N. embargo on rubber shipments to Communist China and the U.S. Ambassador at Djakarta has requested explanation of preferential treatment of Ceylon vis-à-vis Indonesia in view of Ceylonese shipments of rubber to China.)

It is clear from information obtained from Ceylon that our policy was approaching fruition and imposition of destinational controls was imminent until Ceylon received sulphur supplies from the United Kingdom (in spite of our known concern), after which other sulphur suppliers saw no further need to consider U.S. desires in the matter.

Recommendations:

It would appear from the above that the steps taken by OIT in denying licenses have not been and cannot be successful by themselves in accomplishing the desired result. The OIT believes that trade controls are not the complete answer to our economic defense program. OIT further recognizes that success in our efforts to divert Ceylon’s rubber from Communist China depends on successful parallel action by other supplier nations and the development of free world markets for rubber.

OIT therefore proposes adoption of the three following courses of action. It should be clearly understood that these three recommended lines of action cannot be successful unless, there is effective implementation of each of them:

I. Unilateral Trade Control Measures

a. That OIT continue to deny applications for export to Ceylon of commodities directly related to the production of rubber, including sulphur and sulphur formulations.

b. That OIT redefine items embargoed for export to Ceylon to include any commodities used in the growing, processing, and shipping of raw rubber.

c. That OIT place on the denial screen all Ceylonese firms known to be selling or shipping rubber to Communist China with the result that no licenses for any commodities are issued to these consignees until they are removed from this screen.

II. Multilateral Trade Control Measures

a. That the U.S. Delegation in COCOM³ be instructed to request through appropriate COCOM channels that the international rating of crude rubber be increased from International List III to International List II.⁴

b. That the U.S. Delegation in COCOM be instructed to request through COCOM the adoption of trade control measures similar to those mentioned in (I) by all the participating countries.

c. That the U.S. without awaiting the outcome of discussions in COCOM, approach the United Kingdom, France, Italy, Canada, Belgium, and Western Germany, on a bilateral basis, conveying to those countries the U.S. position as expressed under (I) above, and advising those countries of the seriousness with which we view rubber shipments to the Bloc, and especially those made to Communist China by Ceylon.

III. Trade Promotion

That the U.S. Government shall give active and immediate consideration to the problem of expanding and stabilizing the free world market for natural rubber. OIT believes that until a solution to this phase of the problem is found, actions suggested above in (I) and (II) will not lead to a wholly satisfactory solution of the problem.

In addition to the three types of action listed above, OIT recommends that PD 810 be amended to permit OIT in cases of extreme importance and after consultation with other interested agencies, to curtail exports of any commodity going to a friendly country if that country, contrary to U.S. policy, is shipping a similar commodity to a second friendly country where the material is being used to produce strategic items for shipment to the Soviet Bloc. Such authority could then be used by OIT, if after a reasonable time it becomes obvious that action pursuant to (II) above does not meet with full cooperation.

In making these suggestions the OIT believes that unilateral action on the part of the United States will not be sufficient to solve this problem, as has been demonstrated in recent developments outlined above. OIT believes, however, that it would be a mistake to abandon our present policy, even though it has not as yet been effective, while attempting to secure multilateral action in COCOM. If we should abandon our present embargo on sulphur and similar items while waiting upon international cooperation, we would lose much of the force behind our case in COCOM and would undoubtedly convince other participating countries that we are not seriously interested in achieving the desired objective. In making these recommendations, OIT is aware that previous efforts to have the strategic rating of rubber upgraded have met with opposition from the United Kingdom. It is felt however, that if the Ceylon shipments of rubber to Communist China continue there is a grave danger that Indonesia may abandon its present embargo on rubber to Communist China. Such a development might well be the beginning of the end of the U.N. embargo of May, 1951, on strategic items to Communist China. At the same time, it must be recognized that the embargo of rubber to Communist China cannot be effective as long as the United Kingdom and other countries feel free to ship rubber in practically unlimited quantities to the European Soviet Bloc, since the transshipment of such rubber or products made from it, from Eastern Europe to Comunist China does not present an insurmountable obstacle.

1. The Office of International Trade (OIT) was one of the four major branches of the Bureau of Foreign and Domestic Commerce in the Department of Commerce.

   The Operating Committee (OC) was an interdepartmental advisory group headed by the Secretary of Commerce and consisted of representatives from the Mutual Security Agency and the Departments of Commerce, Agriculture, and Defense as well as State. The committee, part of the larger Advisory Committee on Export Policy (ACEP), met approximately twice a week and concerned itself primarily with problems of licensing and export control.

2. Program Determination 810 set forth U.S. export policy with regard to the shipment of strategic materials to friendly foreign countries. No copy of the original document was found in Department of State files although Revision 1, dated Aug. 3, 1953, is available from the Department of Commerce.
3. The Coordinating Committee (COCOM) was established in 1949 to perform the day-to-day task of coordinating free world trade controls. It was a working committee subordinate to the Consultative Group, which consisted of most of the nations of Western Europe, Turkey, Japan, and the United States. For further general discussion, see the Ninth Semi-Annual Report to Congress on operations under the Mutual Defense Assistance Control Act of 1951 entitled “The Strategic Trade Control System, 1948–1956”.
4. See footnote 4, p. 1588.