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

446E.119/11–553

Memorandum by the Bureau of Foreign Commerce¹ Member to the Chairman of the Operating Committee (Sawyer)²

secret
OC Document 1120

[Washington,] October 30, 1953.

Subject:

• Dusting Sulphur for Ceylon

BFC recommends the resumption of licensing of dusting sulfur to Ceylon. This recommendation is made to the Operating Committee at this time, following review by the P.D. 810 Consulting Group at meetings of October 14 and October 19, 1953.³ The Consulting Group failed to concur in the BFC proposal with State, Defense and the ACEP staff member expressing the view that the sulfur question should not be considered separately from the question of general U.S. policy toward Ceylon with regard to trade in strategic goods. It was the opinion of the group, however, that it was not improper to consider dusting sulfur as a P.D. 810 problem, under the concept of a production material as expressed in Section VI. Dusting sulfur, in this view, is a necessary material for the production of natural rubber, being an insecticide essential to the growth of rubber trees. Ceylon is currently shipping natural rubber to Communist China.

Sulfur is rated IL II and, dusting sulfur US IIB and IL III.⁴ It was BFC’s contention in the Consulting Committee, from which there was no serious dissent, that the conditions for exceptional approval, as set out in PD 812, Sect. V B, Par. 4(a) had been met, namely: (a) the negotiating history clearly indicates that assurances are not to be expected; (b) the withholding of approval of licenses in question will have no significant effect in decreasing shipments of rubber by Ceylon; and (c) approval of the applications will not affect the willingness of Ceylon to grant assurances in other items.

General U.S. Policy Affecting Ceylon

Ceylon has been favorable to the West with the exception of this rubber trade, and has agreed to all U.S. and international requests concerning limiting shipments of strategic materials to Communist China and the Soviet Bloc. In an effort to induce Ceylon to embargo or at least materially restrict rubber shipments to China, the U.S. Government has undertaken the following:

1. Withheld U.S. assistance under the Mutual Defense Assistance Act;

2. Made an offer to purchase the rubber in question, rather than allow it to go to China, which Ceylon rejected on economic grounds;

3. Refused to bunker ships carrying rice and rubber in Ceylon’s trade with China; and

4. Embargoed shipments of dusting sulfur to Ceylon, and other materials directly required for the production of rubber.

To the present time none of the individual actions listed above has been effective, and the entire program has brought us no closer to the ultimate objective of cutting off Ceylon’s rubber shipments to China. This is evidenced by the recent conclusion of the 1954 contract under the five year rubber-rice agreement between Ceylon and China.

It is not our purpose in this paper to attempt fully to analyze the reasons for the failure of this general U.S. policy objective with regard to Ceylon. Among the factors mitigating against the success of U.S. policy, however, are the following:

1. The importance of rubber to the economy of Ceylon. Rubber constitutes 20–30% of Ceylon’s export trade;

2. The importance of an assured supply of rice to Ceylon, which constitutes the means by which China pays for the rubber;

3. The relative lack of dependence of Ceylon on trade with the U.S., and the traditional ties of Ceylon with the U.K. and Commonwealth countries;

4. The unwillingness of the U.K. to join the U.S. in withholding rubber under its own control from the Bloc, and the consequent support given by the U.K. to Ceylon’s position both directly an indirectly.

5. The relative unimportance of U.S. assistance to Ceylon, which had consisted of technical assistance only.

6. The general decline in world prices for rubber, and the especially serious impact of such a decline on Ceylon, which is a high-cost producer of rubber relative to its competition in Malaya and Indonesia.

7. The unwillingness or inability of the U.S. and the rest of the Free World to offer Ceylon a practicable long-term solution, in terms of rubber procurement and supplies of grain.

For the reasons cited above, and perhaps others, U.S. policy to date to reduce or cut-off Ceylon’s shipments of rubber to China have been fruitless. We are aware of no changes in the factors cited above which would indicate greater success in the future of present U.S. policy. Furthermore, we are aware of no new proposals to make the present policy effective.

General Policy Alternatives

In terms of general U.S. policy to withhold Ceylon’s rubber from Communist China, there would appear to be basically only three alternatives available at this time:

1. To reaffirm the general policy and intensify efforts to convince the Government of Ceylon to cooperate;

2. To reaffirm the general policy but not to develop increased pressure to implement it; or

3. To abandon the policy as incapable of being achieved under present circumstances.

It is the view of BFC that dusting sulfur ought to be freely licensed to Ceylon under all three alternatives. This conclusion is based on the opinion that withholding dusting sulfur as such provides no leverage in negotiation with Ceylon—regardless of whether this control is taken alone or in conjunction with other controls now in effect or to be put into operation in the future. The sections below amply demonstrate the ineffectiveness of the embargo in the past, and indicate why it is not likely to produce any impact in the foreseeable future.

Ineffectiveness of Present Sulfur Embargo

The policy of withholding dusting sulfur from Ceylon was adopted at time of a world-wide shortage of sulfur and particular need for insecticidal sulfur on the part of Ceylon. Ceylon was deprived of U.S. sulfur for a period which threatened the rubber crop, but the plantations were saved by timely shipments from the U.K., France and Italy. In August 1952 Ceylon received 56.4 long tons of sulfur (35 L.T. from U.K. and 21.4 L.T. from Germany), and 704 L.T. in the following month (Italy 324.8; France 254.7; U.K. 118; other 6.5). These shipments effectively aided Ceylon over the crisis period.

Analysis of Ceylon’s requirements for sulfur and an appraisal of supply prospects, indicate that approximately 4,000 L.T. per year are necessary, and this can be met entirely from non-U.S. sources. In 1952 Ceylon imported a total of 4,070 L.T., supplied as follows: Germany 37%, Italy 23%, U.K. 14%, Canada 9%, France 6%, and the balance from 5 other countries. In 1953, through September, Ceylon had issued import certificates for 6,390 L.T., as follows: France 2,000; Canada 1,300; Germany 1,027; Italy 584; U.K. 547; Sweden 564; U.S.A. 500. Presumably import certificates have been issued in excess of requirements by about 50% in an effort to build up reserves.

It has been suggested, even by those who frankly admit the failure of the present embargo on sulfur to Ceylon, that an intensified effort involving sulfur shipments to countries which are in turn supplying dusting sulfur to Ceylon might offer significant prospects for success. In this view the U.S. would take advantage of its position as the predominant supplier of natural sulfur for the free world and use our position as a means of forcing the U.K., France, Italy, Germany, etc. to adopt a policy of embargoing dusting sulfur to Ceylon. Although superficially this course might appear to have merit, it is evident that it has as its basis a very serious and questionable premise—that is, that a coercive attempt to withhold sulfur will succeed in international negotiations with our major allies when direct negotiations with them with regard to rubber have failed. In this view, sulfur would appear to offer no new approach to this problem other than providing an excuse for taking this matter to the very highest levels in international negotiations. If the strategic significance of rubber is deemed to require such high level treatment, it would appear to us better that the negotiations take place on this ground rather than on the less germane question of sulfur.

Conclusion

From the above it appears that Ceylon no longer needs U.S. sulfur, although it would presumably buy U.S. sulfur for reasons of price, assured deliveries, etc. It follows therefore that the U.S. is not likely to induce Ceylon to withhold shipments of rubber from China, as called for by the recent 5-year Ceylon-China rubber-rice agreement, by further restriction on shipments to Ceylon of sulfur.

It is evident that the U.K., France, Italy and Germany are not disposed to cooperate with the U.S. in withholding sulfur from Ceylon, as is indicated by the unsuccessful negotiations to date, recent allocations by U.K. for Ceylon, and general lack of interest displayed by the U.K. in withholding rubber from the Bloc.

Therefore further U.S. embargo of sulfur to Ceylon appears to serve no useful purpose under present circumstances.

Recommendation

The BFC recommends that the U.S. discontinue the present policy of withholding sulfur from Ceylon, on the ground of its obvious failure in the past and indications of lack of success in the future. Unless the U.S. is prepared to undertake a new and vigorous approach to Ceylon and/or Western countries shipping rubber to the Bloc, the continuation of the U.S. embargo on sulfur serves no purpose. In the event of adoption of a new and vigorous approach, it would be necessary to examine the place, if any, of sulfur controls. It is our preliminary view that sulfur offers no more satisfactory lever for such an intensified program as it does for the present program.

1. The Bureau of Foreign Commerce (BFC) was the new name for the Office of International Trade (OIT). The writer of this particular memo was not identified.
2. See footnote 1, p. 1547.
3. No minutes or summaries of these meetings were found in Department of State files.
4. International Lists were established in 1949 by an informal Consultative Group consisting of the United States, Canada, and several Western European countries for the purpose of preventing or curtailing the shipment of strategic materials to Communist countries. International List (IL) I consisted of items of direct military value which were to be withheld from Iron Curtain countries. Of these arms, ammunition, implements of war, and nuclear materials fell under Category A; all other items considered to be of strategic importance but which did not necessarily have a military or nuclear application were subsumed under Category B. IL II contained other strategic commodities whose shipment was to be “controlled”, or permitted only to a limited degree. The traffic to Soviet bloc nations of IL III goods, which were only indirectly related to military capabilities, was to be kept under surveillance in case future developments warranted their curtailment. Materials on all three lists were embargoed to North Korea and Communist China. (For further details on the operation of Battle Act trade controls, see the reports to Congress on the Mutual Defense Assistance Control Act of 1951.)