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

460.46E9/10–454: Telegram

The Ambassador in Ceylon (Crowe) to the Department of State

secret
priority

Colombo, October 4, 1954—11 a.m.

118. Reference Department Circular telegram 169 September 30.¹

I believe that most important consideration as far as Ceylon is concerned is equal treatment this country with that accorded Indonesia respecting application Battle Act on shipment rubber to Communist China (either as “not knowingly permitted” or by withdrawal listing rubber under UN embargo). This factor is sine qua non if hoped for other objectives our relations with Ceylon can be expected. With regard proposed course outlined in Deptel, I perceive as previously reported Embtels 98 September 15² and 100 September 16³ and Despatch 190 September 22,⁴ any advantages our relations Ceylon. We are now on dead center here with little prospect on present basis of improvement for future.

In light these over-all considerations following points are believed to be significant:

1. Negotiations for renewal 1955 rubber-rice contract with Communist China now taking place in Peking and probably will be concluded by end of this week.

2. Even if time permitted it probably would not be advisable to attempt influence these negotiations. We could drop hints of possibility that Ceylon may be able to become eligible for US assistance, but this probably have to be in form firm commitment and even so might be used by Ceylon to improve its negotiating position or enable it to play off US with Communist China in future.

3. Embassy feels our government’s course of action should be predicated entirely on Indonesian case as outlined Deptel paragraph 3 and 4A, with equal treatment all rubber producing countries this area and with no reference at this time or later to Ceylon.

4. It would follow that no impression be given to Ceylon of any quid pro quo for this country in sense of buying it out of Communist China rubber-rice agreement or buying it into Manila Pact.

5. On basis these conditions and ensuing lifting prohibition under Battle Act for Ceylon’s qualification US assistance favorable climate would be automatically created for initiative by Ceylon to request economic cooperation from US and chances of bringing about closer relations between two countries through mere improvement of psychological atmosphere would be greatly enhanced.

6. I agree with procedure outlined reftel [paragraph] 4B with such adjustments as may be necessary by prevailing circumstances: keeping in mind that Ceylon may still have an operative agreement to sell rubber to China.

7. In order gain maximum benefit Department’s course action as far as Ceylon concerned question of timing may be important. It is hoped in this respect steps contemplated by Department could be brought to stage where public announcement might be made in conformity paragraph 4A Deptel prior Ceylonese Prime Minister’s arrival US this December. He departing Ceylon November 10.

8. It is anticipated that if such timing possible Sir John could then discuss in Washington US economic cooperation without inhibitions now attached by part of government and all of Ceylonese press. Any negotiations between our government and Prime Minister could be done therefore openly and preparatory to Parliamentary consideration and approval upon his return this country.

This in turn would unquestionably increase acceptability to Ceylon of Manila Pact. But as recommended in paragraph 4 above two factors should not be publicly linked.

9. Reverting to question of possible outcome of Ceylon-Communist Chinese rubber–rice contract negotiations, impossible to offer any guess what will happen. There are probably three alternatives; A. New contract will be entered into with same provisions as last year i.e., exchange 50,000 tons rubber for 277,000 tons rice, with rubber again to be bought by China at above world market and rice at cheap price; B. Complete failure of negotiations and breakdown of agreement; C. Compromise of reduced quantities of rubber in exchange for rice with diminished financial benefits to Ceylon.

Embassy would not be surprised if third alternative would result. If either possibility of A or C eventuate there is one plus value to be borne in mind. As far as Ceylon’s economy is concerned and as far as the special economic interests of the country are involved criticism from these quarters of US economically stifling Ceylon and at same time criticism of government accepting US aid would be countered. Moreover a transition period would be provided over one year’s time, an interval in any event which would probably be required to negotiate and implement any US assistance to Ceylon, for Ceylon’s change over to the conditions of the free world rubber market from its present peg on China.

Crowe

1. Department circular telegram 169, not printed, requested the comments of 14 U.S. Embassies on the question of how the U.S. Government should react to violations of the U.S. and UN embargo of Communist China. In addition to Ceylon, Indonesia seemed on the verge of exporting rubber to China. The Department noted (paragraph 3) that its policy of exerting pressure on rubber-producing nations to embargo rubber to China could increase international opposition to the UN embargo. The U.S. should avoid the premature reversal of its position so as not to create the impression of being weak or vacillating, but it needed also to reduce its political liabilities in Asia and retain a maximum degree of diplomatic flexibility there. Therefore, in the event that Indonesian rubber shipments to China were definitely established, the Department proposed (paragraph 4A) that the U.S. urge Indonesia to inform the UN that it was removing rubber from the UN list (requiring total embargo to North Korea and China), but that it was adhering to the embargo in all other respects. Such an action would make it easier for the Battle Act administrator not to insist upon the total embargo of rubber to China, without undermining other aspects of the UN embargo resolution. The Department proposed (paragraph 4B) that Ceylon be informed promptly, in the event that Indonesia formally lifted its embargo of rubber to China (and only in that event), that “something less than the complete embargo of rubber” would be acceptable to the United States under the Battle Act. Ceylon should be told, if it inquired on the subject, that if it were to moderate its rubber trade with China and cooperate with the terms of the Battle Act in all other respects, that it would satisfy the Act’s preconditions for U.S. aid. (460.509/9–3054)
2. Supra.
3. See footnote 1, supra.
4. Despatch 190 from Colombo, not printed, provided a further analysis of Ceylon’s attitude toward the Manila Pact and included pertinent local newspaper reportage (790.5/9–2254).