Foreign Relations of the United States, 1958–1960, Cuba, Volume VI

413. Memorandum From the Assistant Secretary of State for Economic Affairs (Mann) to the Assistant Secretary of State for Inter-American Affairs (Rubottom)¹

Washington, December 23, 1958.

SUBJECT

• Sugar Legislation

While we have made considerable progress in reaching agreement within the Administration and with the domestic industry for a common front on the Sugar Act, there remain a few unresolved issues which deserve urgent attention:

I

Question: If we request Congress to give the Executive power to change foreign quotas, will we actually use the authority to reduce the Cuban preferential position in our market?

Comment: We seem to be proceeding on the assumption that if we alter the Cuban quota we will automatically stand convicted of applying economic sanctions to bring about the overthrow of Castro. I question this. There are cogent economic reasons for making a reduction in Cuba’s quota.

In the past, account was taken of the fact that Cuba has the lion’s share of the foreign country allocation.² Several other countries whose need for foreign exchange and economic development is no less pressing than Cuba’s have persistently requested a more equitable sharing of our sugar market. So great a degree of preference for Cuba is unnatural, discriminatory, inconsistent with our policy of generalizing trade concessions and inconsistent with our general political policy of treating all American Republics alike.

If these general considerations influenced, as I believe they did, previous reductions in Cuba’s quota, there are even stronger economic reasons for following the same course now.

In the past it could at least be said that Cuba was entitled to a large subsidy because it accumulated and stored at its own expense huge quantities of sugar which it was willing to sell to the United States at fair prices in periods of need. The United States was at least guaranteed an adequate supply of sugar at fair prices.

These advantages are no longer reciprocal. The Cuban agrarian reform program, as well as its plans for diversification and for agricultural cooperatives, promise gradually to reduce sugar production. The development of alternate sources of foreign supply will takes years and should be started now by increasing their share of our market.

Even if production should not decline there can be no assurance that Cuban surplus will continue to be accumulated in quantities adequate for our needs or, indeed, that it will be sold to us at fair prices. Cuban government officials have repeatedly declared their objective to be a reduction of their trade ties with us and an increase of trade with the rest of the world, both free and communist, in order to gain “economic independence” from us.

It is our dependence on Cuban sugar that counsels restraint in the size of any quota cut. But unless one believes that the old order will be permanently re-established soon in Cuba, there is no reason why we should not start now—while there is still time—gradually to transfer some of our eggs to other more reliable baskets. The Department of Agriculture has already warned of the possibility of sugar shortages in the future. What are we to say to the American people if these shortages occur as a result of the deliberate perpetuation of United States dependence on Cuba at precisely the time when Cuba is moving in the opposite direction?

Moreover, Cuba has already violated its obligations to give our products preference in the Cuban market. Are we to say to American exporters that we remain bound while Cuba does not?

The Cuban quota has already been twice reduced by Congress; if a third reduction followed the same pattern and rested on the same reasons it would be difficult to show that our political motives are different now then they were on the two previous occasions when friendly Cuban regimes were in power.

But if it is politically impossible to reduce the quota then we ought to say so now and accept the alternative suggested by Mr. Cooley of extending the Act without changes for a one-year period even though this would mean loss of support of the domestic industry.

II

Question: Do our non-intervention agreements and our obligations under GATT prevent us from making a moderate reduction in the Cuban quota?

Comments: The essence of our non-intervention obligation is not to bring pressure against Cuba with the intention of obliging the Cuban Government to change its policy. The essence of the GATT obligation is not to use quotas as an instrument of political policy—to take historical patterns of trade into account.

It follows from what has already been said that there is adequate economic justification for continuing our policy of gradually reducing the degree of our dependence on Cuban sugar. True, we are obliged to consult with Cuba as Castro has demanded and it is also true that we cannot and should not depart radically and abruptly from the historical pattern; but there is nothing in any of our obligations which requires us to maintain indefinitely a particular level of preference for Cuban sugar. All that is required is to have the legislative history adequately explain the economic reasons for the cut.

III

Question: Should the United States seek some concession from Castro in exchange for an undertaking on our part not to reduce the quota preference?

Comment: Mr. Turkel suggested recently³ that the quota preference should be used to bargain with Castro regarding compensation for the expropriated properties. Mr. Wieland’s memorandum to you of December 9⁴ opposes any changes in the sugar quota but recommends elimination of the sugar tariff preference in order that “the way may be cleared for a request for legislative authority to submit the question of the valuation of and compensation for expropriated properties to the United States Commission on International Claims plus an additional request for authority to the Executive to impose appropriate taxes on all Cuban imports”, the taxes to be used to create a special fund with which to settle the claims of expropriated American interests in Cuba. Of the seven specific recommendations made by Mr. Wieland, all relate directly or indirectly to compensation for expropriated properties.

I suppose all of ARA will agree—certainly I assert—that any attempt on our part, however indirect, to relate our attidude and acts on the quota preference to political policies of the Cuban Government would be folly. I therefore suggest that the question of compensation be handled separate and apart from the quota. There are other and better ways to collect debts.

I do not wish to comment on the political conclusions of Mr. Wieland—some of which appear questionable—but I note in passing that no mention is made in his memorandum of what I should have thought was a much larger political issue than the question of compensation, namely, the infiltration of communists in the Cuban Government and all that this implies. And I am somewhat puzzled by the ease with which Mr. Wieland proposes the elimination of the tariff preference as politically desirable while a third moderate quota reduction is described as “trying to strike at Castro”. What is the political difference between eliminating entirely a tariff preference and taking a third moderate bite in the Cuban quota?

IV

Question: Should we recommend that the Executive be authorized to buy cheap sugar in the world market and sell it for a large profit in the domestic market?

Comment: It seems to me clear that we should oppose this on several grounds: a) it gets the United States Government deep into the sugar business contrary to what I understand is Administration policy; b) this would have the same economic effect as a tariff or an excise tax, namely, the profits would go to the U.S. Treasury instead of to underdeveloped economies which produce sugar; and c) if such a provision were included in the Sugar Act, it would tend to relate the problems of compensation and quota. The question of a tax should be considered separately and subsequently to whatever action we take on quotas and tariffs. They should not be related even in point of time.

V

Question: Is it accurate to say that a third moderate reduction in Cuba’s preference will destroy or even seriously injure the “source of Cuba’s livelihood”?

Comment: This is an exaggeration if the reduction is limited, for the present time to a) provision that Cuba will have only a contingency rather than a certainty of supplying the Puerto Rican deficit; b) a substantial reduction in Cuba’s share of the future growth in the United States market; and c) a moderate reduction in its present level of exports to this market. The actual economic impact would be small compared to any accepted standard of Cuba’s income which one might care to use.

If in the future we should wish to aid another government in a reconstruction program—something which is not certain at this time—why couldn’t we accomplish this in the usual way? Cuba is much wealthier than most other Latin American governments which are also claimants in regard to our sugar market.

It is popular these days to separate Castro completely from the people who supported him, which includes the upper class. Is it really practicable to carry this line of reasoning to the point where we are not free to protect our own national interests? What can we say if by doing so we encourage upper classes in other countries to support other anti-American demagogues in the vain hope they will be so occupied in attacking the United States that they will forget to take measures to bring about a more equitable distribution of national income? The people of Cuba put Castro in power with full knowledge of his plans. Is it too much to expect that they pay at least a part of the bill while we continue to subsidize their economy by keeping Cuban sugar in the place of first preference?

1. Source: Department of State, Rubottom–Mann Files: Lot 62 D 418, Cuba (Sept.–Dec.) 1959. Confidential. Drafted by Mann and initialed for him by Acting Assistant Secretary Wilson T.M. Beale.
2. Not counting that Cuba could not sell more sugar on the world market without seriously disrupting prices, the quota preference alone (difference between world and U.S. prices) amounts to about 100 million dollars annually. [Footnote in the source text.]
3. See footnote 3, Document 397.
4. Document 406.