417. Letter From the Assistant Secretary of State for Economic Affairs (Mann) to the Deputy Assistant Secretary of State for Economic Affairs (Beale)1

Dear Tom: Having read the first draft of the memorandum entitled “Action Program for Cuba”,2 perhaps I should make a few comments of a general nature which you are free to ignore or use.

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I

In recent years the most difficult and delicate task in our Latin American policy has been to avoid, on the one hand, encouraging irresponsible acts by anti-United States demagogues and, on the other, using our superior strength in such a way as to injure the inter-American system. Sumner Welles, Rockefeller, Braden and Paul Daniels in turn all had to defend themselves against charges, however unfair, of being too “tough” or too “soft”, or of “breaking hemisphere solidarity”, or of “intervening” in the international affairs of weaker states, or of tolerating an erosion of United States prestige in the area. The result was a bewildering inconsistency in our policies over a period of years which cost us dearly in prestige. Only in the last ten years has this debate subsided to manageable proportions so that we have been able to maintain a consistent posture. The Castro problem may well revive this same fruitless and harmful debate unless we handle ourselves with care. Our job is to devise an action program which will, on the one hand, not re-arouse Latin American fears of United States imperialism and “dollar diplomacy” or involve us in violations of various international agreements and, on the other, demonstrate to all of Latin America that we are not powerless to react—that hostility towards the United States does not pay. Our job is to do this in such a way that we will have enough support in public opinion to enable us to carry through an action program to conclusion.

II.

The present situation suggests two measures which can be taken at this time.

The first is a further reduction in the Cuban sugar quota accompanied by inferences that it may be necessary gradually to continue to reduce our dependence on Cuban sugar. We can do this only by permanently allocating the reduction in the Cuban quota to other claimant countries. To take the quota away from Cuba with the intention of returning it later would make us vulnerable to charges of intervention.

The second is termination of the 1902 and 1934 bilateral trade agreements with Cuba; and, unless there are good reasons for merely amending it, the 1947 agreement as well, so that our tariff relations with Cuba will be governed solely by GATT. (I assume that past Cuban violations of these agreements give us a solid basis for doing this.) After these bilaterals are out of the way, we would be in a position to take whatever action is necessary in GATT to completely do away with the tariff preference.

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These steps do not involve discrimination against Cuba. They can and should be justified solely on economic grounds entirely separated from any U.S. political objective. They minimize the formidable political risks both at home and abroad inherent in any action we take against Cuba. And they hit at Castro where it hurts the most, his pocketbook, without closing the door to a fair compensation settlement in the future and without foreclosing the possibility of Cuba’s economic reconstruction by a decent, future government.

III.

This leaves the question of compensation and the suggestion of the investors that the United States impose an import tax on sugar.

This presents a tactical question: Is it better, even from the investors’ point of view, for us to go now to Castro with our hats in our hands and attempt to get Castro’s agreement to such a tax? Or is it better to apply pressure in the way I suggest and wait for Castro or his successor to come to us in the realization that Cuba’s long-term interests require a settlement with the United States? I believe the latter is preferable for several reasons:

a)
Cuba’s economy is tied to ours and sooner or later Cuba will have to recognize this. Only then will we be in an advantageous bargaining position. The investors lose little by waiting for a reasonable time since the possibility of a satisfactory and immediate settlement is remote.
b)
The creation of a compensation fund derived from U.S. import taxes involves a considerable risk of alienating important segments of Latin American and domestic public opinion—a much greater danger in my opinion than the course which I suggested because (i) opprobrium still attaches in the Latin American mind to enforced collection of debts whether by military or economic means, (ii) we do not have sound economic reasons which we can use to explain action of this kind and (iii) the legality of the proposed compensation fund is open to question. All of these problems may well disappear if we have the patience to wait for Cuba to come to us as a result of the indirect type of pressures which I have suggested.
c)
To suggest, however indirectly, to Castro that he impose an import tax in order to create a compensation fund is less dangerous than a U.S. import tax. But I think even this would be unwise because there is little prospect of Castro agreeing. We would therefore gain nothing except a turn-down and further loss of prestige.
d)
An attempt to make a hasty monetary settlement in the climate which prevails today is likely to lead to another bad debt settlement precedent. The sum of money involved is quite large. There are so many claims on Cuba’s limited income that it might well be politically impossible for any Cuban leader to pay in full in money. Perhaps we ought to be thinking more in terms of a total restoration of industrial properties when another government takes over and (on the assumption that the old system of land tenure will never completely be reestablished) a partial return of land. In this way it might be possible to [Page 727] raise the precentage from the 10 percent we accepted for our Mexican oil claims to 100 percent of value. We need this kind of a precedent not only because the investors are entitled to payment, because of our investment stake in other underdeveloped countries, but because nationalization of the Castro type dries up private investment essential to their progress with all the headaches that this implies for us.
e)
If we go too far too fast with Castro and in consequence he becomes a martyr not only will the possibility of Russia exploiting this by large-scale aid be increased, but his ability to lead or influence left wing elements in other American Republics will be enhanced.

IV.

I question whether we should try to obtain the agreement of any other Latin American Government to any program of action which we may undertake. They will not only understand that part of our dispute with Cuba (e.g., compensation for expropriated properties) is bilateral rather than inter-American in character but they will find it politically difficult openly to support us. Some may view it as a sign of indecision on our part and seek to water down our program in the typical Latin American spirit of compromise.

It is of course important that we inform selected Latin American governments in advance of what we are going to do and the reasons for it. It is equally important to explain to public opinion abroad and at home that our motives are non-political.

V.

Likewise, I do not believe we should now think in terms of arbitration or adjudication. Our chances of recovery from the Castro policies are much better if we ourselves control decisions.

Sincerely,

TCM
  1. Source: Department of State, Central Files, 611.37/1–660. Confidential.
  2. Document 414.