Foreign Relations of the United States, 1955–1957, South Asia, Volume VIII

134. Memorandum From the Director of the International Cooperation Administration (Hollister) to the Secretary of State¹

Washington, January 13, 1956.

SUBJECT

• Ceylon Situation

As you know, the matter of opening up an aid program to Ceylon is a delicate one, particularly because of the fact that through error in the State Department Ceylon was informed, while the Under Secretary and I were in the Far East and shortly before I arrived at Singapore for the Colombo Conference, that it would be the location of the regional atomic nuclear center for Asia. This involved a somewhat embarrassing disentanglement which I worked out with the Ceylon representatives in Singapore before I delivered the speech on the Asian nuclear center.

I am enclosing a memorandum summarizing as succinctly as I can the present situation.

The matter has been somewhat complicated by the fact that on January 11 a cable which was not cleared with the International Cooperation Administration went to Colombo authorizing the Charge to discuss a bilateral agreement under the President’s Atoms for Peace Plan, intimating that Ceylon was eligible to have half the cost of a reactor paid for by the United States.² The last paragraph of the enclosed memorandum indicates the problems which this offer raises.

John B. Hollister

[Enclosure]

³

Washington, January 13, 1956.

CEYLON SITUATION

Since rubber is on the list of controlled items as defined in the Battle Act, as long as Ceylon ships rubber to Communist China aid may only be given in one of the following ways:

a. Under Section 401 of the Mutual Security Act of 1954;

b. If rubber should be removed from the list of controlled items; or

c. If Ceylon should be declared to have cooperated in the control of rubber.

To invoke Section 401 weakens the whole control picture because other countries can argue that if Ceylon can receive aid while selling controlled items they should be able to do so.

To remove rubber from the controlled items will naturally encourage every other rubber producing country to begin or increase its present deliveries.

There therefore remains only the question of “cooperation”. Ceylon probably would not break its existing contract, and if it would be willing to, we are not able to offer it enough to make it worthwhile. It is also probable that Ceylon would not make any agreement to stop shipping rubber when this contract expires. It might well agree, however, to limit its rubber shipment to the exact terms of the present contract and agree to discuss the problem further when its present contract expires. This could probably be considered “cooperation”.

If we announce the beginning of an aid program for Ceylon we will have to answer questions as to the Battle Act, and it would seem that something would have to be said about Ceylon’s cooperation. This is a delicate problem with Sir John Kotelawala who would prefer to say nothing to his legislature or if he has to say something, would want to say as little as possible. It would seem that this whole matter should be worked out completely with Ceylon before any announcement is made, even perhaps to the wording of the announcement. For if an announcement is made before this is done, we will be committed to give some aid, and if we cannot work out the “cooperation” plan, we will have to give the aid under Section 401 with its resulting disadvantages.

What has been said above with respect to an aid program is equally applicable to a reactor contract with the further complication that if the reactor program is not to be part of MSA appropriations, Section 401 is not available and either “b” or “c” above would have to be followed in order to be able legally to follow up with a bilateral reactor contract.⁴

John B. Hollister

1. Source: Department of State, Central Files, 746E.5–MSP/1–1356. Secret.
2. Telegram 384 to Colombo, January 11. (Ibid., 446E.118/1–1056)
3. Secret.
4. On January 16, Dulles sent a memorandum to Under Secretary Hoover concerning the Ceylon aid question. In the memorandum, which Dulles drafted himself, the Secretary remarked:

   “I have a feeling that there is some confusion, if not as to policy at least as to performance, with respect to the $5,000,000 grant aid to Ceylon and the research reactor on an experimental basis.

   “Do you think I should call a meeting of those concerned on the matter?

   “I attach Hollister’s memorandum to me of January 13th.” (Department of State, Central Files, 746E.5–MSP/1–1356)