260. Memorandum From the Assistant Secretary of State for Inter-American Affairs (Holland) and the Assistant Secretary of State for Economic Affairs (Waugh) to the Under Secretary of State (Hoover)1

SUBJECT

  • Sugar Legislation

Recommendations:

1.
That we inform Agriculture that we are willing to consider sugar legislation effective before the present Act expires, provided that Agriculture will agree to support us in recommending a Presidential veto of legislation less favorable to foreign countries than that on which we may mutually agree.
2.
That in our negotiations with Agriculture we seek to obtain their approval of legislation meeting the following conditions:
a.
A termination date of December 31, 1962.
b.
No increases to be made in the present basic quotas of the domestic sugar producers.
c.
Domestic producers not be permitted to share in increases in consumption until consumption reaches 8.5 million tons.
d.
Increases in consumption above the 8.5 million tons to be split on a 50–50 basis between domestic and foreign suppliers.
e.
The present method of allocating a domestic deficit to other domestic areas and Cuba be continued.
3.
That we be authorized, if it is impossible to obtain Agriculture approval in full to the foregoing, to make the following concessions, in the order indicated:
a.
Agree that a deficit in the quota of a domestic area be allocated in the first instance to other domestic areas.
b.
Agree that increases in consumption above the level of 8.5 million tons be divided 55 per cent to domestic areas and 45 per cent to foreign areas.
c.
Agree that domestic producers begin to share in increases in consumption when consumption levels reach 8.4 million tons, but in this event that they shall share on a 50–50 basis and that Cuba share in reallocation of domestic deficits.
4.
That we explore with Agriculture the possibility of amending or administering the provisions of the Act relating to prices and to domestic production and marketing controls in such a way as to [Page 794]assure that incentives to increased domestic production are minimized.

Discussion:

Although it was the general expectation when the Sugar Act was last revised in 1951 that its quota provisions would remain in effect until January 1, 1957 and although Cuba especially has relied on being able to help meet the serious problem which it faces by being able to supply to the United States the quantity of sugar provided under the present Act, production in our domestic cane and beet areas has increased to such an extent that the producers are holding unusually large inventories. They are therefore urging an immediate change in the Sugar Act to obtain relief. In this they are being supported by their Congressional representatives, by many of the cane sugar refiners and by the Department of Agriculture. It appears that the only way in which it would be possible to avoid changing the Act would be for the President to use his veto authority. It would probably be inadvisable for the President to use this authority if legislation can be obtained that will not reduce foreign participation in the United States market in the absolute sense. The proposal made herein would avoid any reduction in the amount of sugar that the foreign producers are now supplying to this market. It is felt that the President would be justified in using his veto authority to assure that foreign participation in this market is not reduced in absolute tonnage and that changes in the Sugar Act are not of a retroactive character.

Basic Quota

Although the domestic sugar producers are urging that their basic quotas be increased immediately, it is believed that the Department of Agriculture would agree that this should not be done provided domestic participation in increases in consumption is started at a level of consumption to which the Department of Agriculture will agree.

Level of Consumption at which Sharing of Increases Should Begin

In determining the consumption level above which increases in consumption should be shared consideration should be given to the following:

1.
The present consumption estimate on which this year’s quotas for foreign areas are now based (8.2 million tons).
2.
The quantity of sugar actually distributed last year (8,375,000 tons).
3.
The Department of Agriculture forecast of consumption for the current year (8,500,000 tons).

[Page 795]

Domestic growers have proposed the first of these and the refiners’ proposal is similar to the second. The Administration should recommend the third, since it is the only one which would:

a.
Give adequate consideration to the reasonable expectations of foreign suppliers under existing legislation.
b.
Not be retroactive in effect.

Base No. 1 is not acceptable, since it is lower by 175,000 tons than actual distribution of sugar in this market last year. Furthermore, foreign countries were penalized last year to the extent of 125,000 tons (the difference between the final 1954 consumption estimate of 8,250,000 tons and actual distribution of 8,375,000 tons), because domestic producers were permitted to deliver in 1954 sugars which were produced in 1953 and declared against the 1953 quota, when their production was low. In effect, the normal 1954 increase in consumption was given to domestic producers in 1953 through the device of so-called “constructive deliveries”. Consequently the 1955 final quota may be expected to be higher than the 1954 final quota by the equivalent of 2 years normal increase in consumption. Under existing legislation the full increase (250,000 tons) would go to foreign suppliers.

To the extent that domestic producers are permitted to supply the difference between last year’s quota of 8,250,000 tons and the 8,500,000 tons which Agriculture estimates will be consumed this year, foreign suppliers will lose the 1955 consumption growth as well as that of 1954.

Certain Agriculture officials have indicated that a 50–50 split above the 8.3 million level would be acceptable to Agriculture and could probably be negotiated with the domestic industry. At the outside therefore there will be a 200,000 ton difference in our positions on this point, which immediately suggests a compromise at a level of 8.4 million tons. This would give Cuba a quota of 2,860,000 tons, which is 113,000 tons greater than their average of the past two years. If it is necessary to compromise, a split above the 8.4 million ton level would probably not be disastrous to Cuba. If we have to agree to such compromise, however, we should, as indicated below, exact a return on two collateral issues, namely, the 50–50 split in the market and the present method of sharing deficits.

Reallocating Deficits

The domestic sugar industry is presently advocating that a deficit in a domestic area should be reallocated first to other domestic areas. This would be a radical departure from present policy. Over the years there are large fluctuations in sugar beet production. [Page 796]Beet deficits are therefore sizeable in some years and Cuba should continue to share in them.

50–50 Split of Increases in Consumption

Although Agriculture is agreeable to a 50–50 split of increases in consumption, there is historical precedent for a 55 per cent share for the domestic areas, and they may well insist on it. However, as a practical matter, the actual tonnage involved is only about 6,000 tons annually.

Avoiding Further Pressure to Change Quotas

One of the principal reasons why domestic producers are now in difficulty is the fact that the present price of sugar is relatively attractive as price supports of other agricultural products are being reduced, and acreage restrictions on other crops have resulted in some shift to sugar beets. There is danger that unless sugar prices are kept in line with those of competing crops we may, in a few years, be faced with another request to revise the Act for the benefit of domestic producers. Anything that we can get Agriculture to do to prevent such a development would, of course, be desirable.

  1. Source: Department of State, Sugar Files: Lot 65 D 212, Revision of Sugar Act, 1955, Mem. Con. II. Confidential. Drafted by Callanan, Cale, and Mulliken; concurred in by Willis C. Armstrong; and approved by Hoover on March 11.