Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

230. Memorandum From the Chief of the International Resources Division (Nichols) to the Deputy Under Secretary of State for Economic Affairs (Prochnow)¹

Washington, October 4, 1956.

SUBJECT

• CFEP Meeting for October 3, 1956:² Commerce Proposal to Impose Restrictions on Licensing of Exports of Ferrous Scrap

1. Problem and Proposal

For at least the fourth time within a 12-month period Commerce has proposed to the CFEP that quotas be placed on the export of ferrous scrap. On the other occasions that this matter had been considered, the CFEP had turned down the Commerce proposals. The present Commerce proposal (Tab A)³ calls for the immediate imposition of restrictions on the licensing of ferrous scrap exports to the level which the major scrap importing countries had earlier indicated would be their estimated requirements from the United States for calendar year 1956. (In this conclusion, Commerce listed the UK’s estimated requirements at 500,000 tons while the British Embassy had earlier informed us that its requirements from the United States were 600,000 tons of ferrous scrap for 1956.)

2. Background Explanation

At the CFEP Staff Meeting of October 3, 1956, the Commerce representatives stated that the CFEP was being asked to approve the principle that export restrictions would be placed on ferrous scrap exports in calendar year 1957. The exact level of permissible scrap exports in that year was not yet determined, although it was clear that such exports would not exceed the 1956 level and would probably be considerably lower. It was agreed at the staff level that Commerce was requesting the CFEP to anticipate and to prejudge the conclusions of a study on the outlook for ferrous scrap in the United States before that study had been completed. It was also agreed that the ODM had been unable to determine in the absence of that study whether or not the future availability of the scrap supply in the United States would adversely affect this country’s national security.

Commerce representatives stated that the primary reason for requesting an immediate CFEP decision on this matter was to enable Commerce to restrict the granting of export licenses so as to prevent the major foreign purchasers from placing speculative orders in the United States in anticipation of restrictive export quotas in calendar year 1957. Commerce also believed that the imposition of such licensing restrictions would put the foreign purchasers on notice that scrap exports would be curtailed by quota restrictions in 1957.

The Commerce representatives stated that since its last presentation to the CFEP no new facts had come to light regarding the availability of ferrous scrap supplies in the United States. About the only new interim developments were: (1) after the rise in steel prices following the strike settlement, the average price of number 1 composite scrap had risen from about $53 or $54 a ton in the spring of 1956 to about $57 a ton at present; (2) the Japanese had already obtained licenses for 2,035,000 tons, although they had stated their total requirements for calendar year 1956 would be 1,800,000 tons; and (3) certain domestic steel industry officials had recently made strong representations to the Secretaries of Commerce and of Treasury for the imposition of export quotas on ferrous scrap, primarily as a means of holding down the price of steel scrap and hence that of finished steel production in this country.

3. Recommendations:⁴

It is recommended that the Department oppose the Commerce proposal that the CFEP should at this time, prior to the completion of the study of steel scrap availability⁵ and requirements in the United States (scheduled for January 31, 1957), agree that quotas will be placed on the export of ferrous scrap in calendar year 1957.

It is also recommended that the Department oppose the Commerce proposal that restrictions should be placed on the licensing of exports of ferrous scrap during the last quarter of calendar year 1956, primarily because (a) it is doubtful whether the major foreign scrap purchasers in the United States would engage in speculative buying during the next four months and thereby jeopardize their scrap supply in the United States in later periods and (b) if such speculative purchasing should occur, Commerce could amend by administrative action the terms and conditions on which it issued licenses, for example, shipments would have to be made within 30 days after issuance rather than 90 days at present and the number and amount of unused licenses held by scrap importers could be limited.

If restrictions on the issuance of licenses during the last quarter of 1956 should be approved by the CFEP, consideration should be given to the exemption of exports to Canada and Mexico, primarily because the economy of those countries is closely associated with the United States, particularly in time of emergency mobilization. Also, the quota for the United Kingdom should be raised to the level of its stated requirements, that of 600,000 tons.⁶

1. Source: Department of State, E–CFEP Files: Lot 61 D 282 A, Export of Ferrous Scrap and Semi-Finished Steel—CFEP 532. Confidential. Drafted by William H. Bray.
2. The minutes of this meeting are in Eisenhower Library, CFEP Records.
3. Not printed. This proposal is outlined in an October 3 memorandum from Weeks to Clarence B. Randall. A copy is in Department of Commerce Files, Office of the Secretary, Miscellaneous 1953–1961 (Weeks, Strauss, Mueller).
4. FE and EUR concurred in these recommendations.
5. On May 31, the Council had considered a request from the Department of Commerce to establish, in the interest of national security, quotas on scrap, and had agreed (1) that strong representations should be made to importing countries that export controls would become necessary if they continued their imports of U.S. steel scrap at current levels; (2) that the DMB should determine the national security implications of the present level of scrap exports; and (3) that the studies being made by the Department of Commerce of U.S. reserves of steel scrap should be expedited. The DMB notified the CFEP on June 26 that it could not determine the national security implications of the present level of scrap exports until the studies being made by Commerce had been concluded. These studies were completed by the Department of Commerce on January 31, 1957.
6. On February 8, 1957, the Department of Commerce temporarily suspended licensing of exports of iron and steel scrap to Japan, the European Coal and Steel Community, and the United Kingdom pending a review of U.S. policy on scrap exports. On April 30, 1957, the Council agreed to a proposal by the Department of Commerce to suspend the processing of 1957 export license applications for heavy melting scrap to Japan, the Coal and Steel Community, and the United Kingdom, when licensing reached the level of 1956 shipments to each of these areas. By June 30, 1957, the United Kingdom, Japan, and the European Coal and Steel Community had voluntarily agreed to limit their imports of heavy melting grade steel scrap from the United States for 1957 to an increase of 13 percent over their imports for 1956. (Eisenhower Library, CFEP Records, Status Reports for 1957) Additional documentation on the export of steel scrap is in Eisenhower Library, CFEP Records.