Attachment
Review of U.S. Economic Policies Toward Latin America4
Problem
What changes should be made in U.S. economic policies toward Latin
America as a result of the decline in commodity prices, the opening
of a Soviet economic offensive in this area, and the rise of
protectionist sentiment in the U.S.?
Summary
This memorandum deals with financial assistance, commodity and trade
problems, and policy toward Latin American trade with the
Sino-Soviet Bloc.
With respect to commodity and trade problems, the most significant
recommendations are the following, which place increased emphasis on
possible commodity study groups or stabilization arrangements: (1)
adopt, if possible, measures other than tariff increases to provide
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relief for
domestic lead-zinc industry aid, if a tariff increase proves
unavoidable, limit its scope and duration and indicate our
willingness to join a multilateral study of a lead-zinc
stabilization agreement; (2) oppose any increase in the currently
stipulated tax on imported copper and be prepared to discuss the
possibility of establishing a study group looking towards an
international copper agreement; (3) study the feasibility of a
western hemisphere oil commission to review the oil supply and
demand situation; and (4) indicate U.S. willingness to cooperate in
a multilateral coffee study group on a world-wide basis.
As to financial assistance, the more important recommendations are:
(1) that the Eximbank continue its development loan program in Latin
America and be prepared, if necessary, to make assistance available
supplementary to IMF assistance, to
help meet temporary payments problems; (2) that the reasons for the
recently low volume of IBRD loans
to the area be investigated and, if indicated, that efforts then be
made to increase IBRD operations;
(3) that U.S. public loans be made to state petroleum enterprises
for certain very limited purposes when U.S. foreign policy
objectives thereby can be served; and (4) that we study the
desirability of an Inter-American development bank.
In regard to the Sino-Soviet Bloc economic offensive in Latin
America, it is recommended that the U.S.: (1) continue its existing
policy of not opposing expansion of trade-in non-strategic
commodities with the European
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Soviet Bloc; (2) maintain
efforts to persuade individual countries, as appropriate, to
minimize or eliminate their trade and financial arrangements with
Communist China; and (3) alert countries to the political and
economic pitfalls associated with certain aspects of trade with the
Sino-Soviet Bloc.
I
Commodity Problems
As producers of primary products, the Latin American countries are
perhaps more interested in stable and remunerative prices for their
commodities than in any other aspect of our economic relations. They
feel they are particularly vulnerable because in most of the
countries, foreign exchange earnings depend on only one or a few
commodities. Generally, raw material prices decline sooner and stay
depressed longer than do the prices for finished products. The
traditional U.S. position has been strongly opposed to international
commodity agreements. Wheat and sugar are exceptions.
Efforts have been made in the recommendations below to ease gradually
into a changed position on commodity agreements.
1. The lead-zinc problem is an important one for which there is no
easy solution. It seems realistic to assume that the Tariff
Commission report will probably recommend maximum increases in
duties and possibly even import quotas. Yet if increased protection
is granted to
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the lead-zinc industry serious injury will be done to U.S. relations
with a considerable number of countries in Latin America and
elsewhere.
Since the summer of 1957, when the Administration sponsored a bill
providing for increased protection for lead and zinc,5 there have been important developments affecting
the U.S. position of leadership in the world, and it can well be
argued that a new situation now exists.
Therefore, a new and exhaustive search has been made in the
Department for an acceptable alternative. A program has been
devised, consisting of assistance of various kinds for the
communities, workers, and companies involved in the lead-zinc
industry, and it is being put forward separately for consideration
at a high level in the Department. Opinions differ as to whether
there is a worthwhile chance of getting it accepted in Congress.
On this basis, it is recommended:
- (a)
- that the United States adopt, if possible, measures other
than tariff increases or quotas to provide relief for the
domestic lead-zinc industry, and
- (b)
- that if a tariff increase proves to be unavoidable, every
effort should be made to limit its scope and duration. When
the tariff increase is announced there should be a
simultaneous announcement that the U.S. is prepared to
participate in an international study group for lead and
zinc.
2. Copper
- (a)
- Oppose the pending bills which would increase the tax on
imported copper, and
- (b)
- in response to requests, if made, indicate to supplying
countries a willingness to discuss copper prospects, including
possible establishment of a regular study group looking toward
an international copper agreement.
3. Petroleum
Events in the petroleum field are moving rapidly. By the Voluntary
Oil Import Program6 the Administration
is trying to reduce imports into Districts I–IV to 12 per cent of
domestic production, and has also imposed a limitation on imports
into District V. This additional import reduction into Districts
I–IV, coupled with the problem of trying to get the major oil
companies to relinquish portions of their quotas to new
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importers,
threatens the continuance of the voluntary quota system which to
date has been remarkably successful.
Considerable pressure is being exerted on the Administration to
convert the voluntary program to a mandatory program. While restive
under the voluntary program, Venezuela has indicated that conversion
to a mandatory program would be considered a violation of the
U.S.–Venezuela trade agreement, and that it was studying the
imposition of retaliatory measures in that event.
The seriousness of the problem to our relations with Venezuela and
Canada subsequently moved the United States to suggest high level
consultation by all three governments. Accordingly, early in March,
consultations were held in Venezuela7 with high level Canadian observers.8
The U.S. delegation sought to obtain acquiescence to the continued
imposition of unilateral import quotas by the U.S. under Article 7
of the Trade Agreements Act,9 and on a mandatory basis if that
should be necessary, on the ground that a serious price decline
would be imminent in the absence of such controls. No definite
decisions or agreements were reached. Venezuela reserved the
position that it objected in principle to restrictive measures on
its petroleum exports, and that
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additional restrictive
measures (e.g. mandatory controls) would give grounds for their
consideration of retaliatory measures. The advantage of such
consultation was affirmed by all parties and the desirability of
their continuance as required. Both Venezuela and Canada have
indicated their interest in the creation of a more permanent type of
inter-Governmental consultative body for a continuing review of
petroleum matters of mutual interest.
Recommendation
It is recommended that:
- (a)
- to meet the immediate problem, the type of
inter-Governmental consultation undertaken be continued,
and
- (b)
- study be undertaken of the feasibility of a western
hemisphere oil commission which would keep the western
hemisphere supply and demand situation under constant
review.
4. Coffee
- (a)
- At the appropriate time in the near future indicate that the
United States is prepared to cooperate in a multilateral coffee
study group on a world-wide basis, and that
the United States would be prepared to consult with the
Preparatory Group of the International Coffee Convention, signed
at Rio de Janeiro on January 27, 1958 (not yet in
operation)10 or in any other forum acceptable to the
Latin American and African coffee producers.
II
Financial Assistance
The Latin Americans persistently contend that existing sources of
financing are inadequate, in the light of their enormous needs of
foreign capital for development, to attain a satisfactory rate of
economic development. Many are irritated by our insistence that the
major contributions to such development must be made by private
enterprise, Latin American as well as foreign. Without changing this
cornerstone of our policy on financial assistance, or the hard
criteria of the existing banking institutions, there is much which
can be done to satisfy the legitimate and reasonable aspiration of
these countries.
Our loan policy is already undergoing some changes and the
recommendations below, although seemingly novel, will merely
maintain or somewhat accelerate the existing trend. For example, our
present policy states that we make grants of soft loans in Latin
America only when a country finds itself in a temporary emergency
which it cannot meet with the resources at its command. The
establishment of DLF and PL
48011 have
already rendered part of this rule obsolete. The continuance of
grants to Bolivia and Haiti for years have strained the term
“temporary emergency” and yet nobody would seriously contend that we
can
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withdraw grant aid from these two countries. Guatemala may also be
in this category. In essence the rule said, “Regardless of our
assistance policies in other areas, in Latin America there is no
grant aid except in case of temporary emergency.”
Steps have already been taken to bring our NSC policy statement into accord with the facts and
practice. It is expected that the rule will be dropped and decisions
made on a case basis as overall U.S. interest require. It is not
anticipated that any more money will be spent as a result of
dropping this rule.
Recommendations:
- 1.
- Continue the recent and satisfactory acceleration of the
Export-Import Bank activities in Latin America. (It is assumed
that the lending authority of that Bank will be extended as
requested).
If, as seems probable, commodity prices continue to decline
and balance of payments problems worsen the U.S. (through the
Eximbank or Treasury) should be prepared increasingly to extend
temporary balance of payments support, in concert with such
support from the IMF (private
banks where possible) upon evidence that the countries concerned
are taking reasonable self-help measures.3.Determine the reasons for the relatively low volume of recent
IBRD loans to Latin
America and, if so indicated, take appropriate steps such as
high level representations by the Department to IBRD management to induce an
increased volume and broader range of IBRD loans to Latin America (including increased
financial and technical assistance to national development
financing agencies).4.Taking into account world-wide requirements, employ DLF credits in Latin America in
accordance with the criteria of the DLF.5.Participate actively in the study called for by Resolution
XVIII of the Buenos Aires Conference concerning the desirability
for establishment of an Inter-American development bank.12 Particular attention
should be given to the type of operations appropriate to such a
bank and capital contributions to it, as well as management and
voting rights.
III
Petroleum Development Policy
There has been in force an informal, but nevertheless rigid,
prohibition against U.S. financial assistance to foreign government
petroleum agencies. It is recommended that the rule be changed as
follows:
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- (a)
- In the light of developing circumstances, we should work
carefully in the direction of limited and selective loan
assistance to petroleum projects of foreign governments,
subject to the condition that foreign policy objectives will
be served, and particularly in the expectation that the
attitude toward American private capital will be improved by
such loans.
- (b)
- Loan assistance may be granted for surface geological
work, transport, storage, refining and marketing. Except for
exporter credit facilities, the loan assistance contemplated
will not be granted for exploratory or developmental
drilling.
IV
U.S. Trade with Latin America
The very cornerstone of our relations with Latin America is trade.
When trade is maintained at high levels and commodity prices are
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remunerative,
nearly all facets of our relations with Latin America are good.
In the last quarter of 1957 Latin American total exports to the
United States began to slump, with prospect of a decline in 1950 of
at least seven per cent. The problem has been especially critical in
lead, zinc, tin and copper. Coffee, the most vital commodity of all,
started to decline but this was stopped by the main producers
holding coffee off the market; most experts are predicting serious
trouble ahead for the coffee market. Although we extended financial
assistance to Mexico, Bolivia, Chile and Peru, which were affected
by the metals decline, this was offset by the profoundly negative
impression created by the Administration-sponsored bill last year
for increased tariffs on lead and zinc.
Recommendations:
It is recommended that:
- (a)
- The Department continue to emphasize to Congress and
business leaders the importance of a continuing stable and
liberal trade policy as an instrument for attainment of
broader U.S. foreign policy objectives. Conversely emphasize
damage to U.S. trade, investments and
international relations generally which are caused by
restrictive actions.
- (b)
- Resist strongly any tendencies within the U.S. Government
to yield to protectionist pressure and oppose, so far as
possible, any specific restrictive actions, except as
clearly justified in the national interest.
- (c)
- Review within the Department the present policy against
negotiation of reciprocal trade agreements on a bilateral
basis.
- (d)
- Review within the Department the U.S. policy toward Latin
American market integration proposals and participate freely
in joint study projects on this subject.
V
Soviet Bloc Trade
While making determined efforts to evaluate the precise scale and
objectives of Soviet Bloc economic offensive in Latin America:
- (a)
- Maintain the existing policy that the U.S. is not opposed
to expansion of trade in non-strategic commodities with the
European Soviet Bloc, but encourage individual free-world
countries, wherever feasible and desirable from a foreign
policy standpoint, to minimize such trade or financial
arrangements with Communist China.
- (b)
- Continue to induce Latin American governments to adhere to
relevant COCOM security
trade controls, as applied to the Sino-Soviet Bloc,
and
Try to make countries which engage or contemplate engaging
in trade with the Sino-Soviet Bloc aware of political and
economic pitfalls associated with certain aspects of such
trade with the Soviet Bloc, with particular attention on
risks of dependence and political penetration.
If, nevertheless, trade is expanded significantly, or in sensitive
items, such as oil well supplies, we shall have to review the
problem and consider countermeasures. In the absence of a concrete
case, it would be dangerous to attempt specific guidance at this
time.
