439. Airgram From the Department of State to the Embassy in the Philippines1


Unless Embassy convinced present state US-Philippines relations dictates otherwise, State and Agriculture believe Ambassador should make representations to Serrano for more liberal treatment for imports of tobacco from the United States.

Embassy is aware this subject has long history. In brief, prior to 1950 the Philippines was a large importer of U.S. cigarettes. In an effort to save foreign exchange, imports of cigarettes were practically eliminated in 1950, with the result that imports of unmanufactured tobacco increased steadily until 1956. At that time import controls were imposed and imports of U.S. tobacco reduced from an average (1952-56) of 24 million pounds (valued at $13-14 million) to a low of 48 thousand pounds in 1957. No certificates for imports were issued in 1957. It appears that as soon as the 1956 U.S.-Philippine Agreement2 (in which the U.S. granted the Philippines duty-free quotas for tobacco and cigars at preferential rates) was signed, Government of Philippines began initiating measures to prevent its manufacturers from importing U.S. cigarette tobacco. It is obvious that Philippine manufacturers need U.S. tobacco for blending with the neutral low quality domestic tobacco in order to produce acceptable quality cigarettes. Shortage of acceptable quality cigarettes accentuates the black market especially for cigarettes from U.S. and Hong Kong. It would appear in the best interests of the Philippine Government and the Philippine tobacco industry to admit a reasonable quantity of U.S. tobacco, both to increase [Page 930] the marketability of the Philippine product and to increase government revenues from tobacco taxes while reducing the incentive for black market operations.

At the present time no tobacco can be imported without issuance of a “Certificate of deficiency in domestic production”. The A.A.C.F.A. and now P.V.T.A., both dominated by Philippine tobacco producers, refuse to issue such “Certification” by disregarding the quality deficiencies in domestic production and using only the amount of domestic production as a basis for the determination.

FYI. After stocks of U.S. tobacco in the Philippines became very low in 1958 a direct approach, under unusual circumstances, by an importer to Garcia resulted in the approval of a private barter arrangement to import U.S. tobacco in exchange for Philippine tobacco. However, under provisions of recent legislation (Republic Act 2265) it is illegal to import tobacco into the Philippines under such a barter arrangement.

U.S. tobacco producers and exporters, amongst the strongest supporters of a liberal trade policy, are particularly irritated at the complete closing of the Philippine market. Congressmen interested in maintaining markets for U.S. tobacco are also concerned, and plan to introduce legislation designed to eliminate favorable treatment of Philippine products. They are still smarting over the fact that Garcia gave U.S. tobacco producers and exporter organizations assurances of liberal treatment of imports of tobacco in return for withdrawal of opposition to favorable treatment of Philippine products when the 1956 agreement was being considered. Any legislation affecting Philippine interests during the next session might be affected adversely unless some relief is obtained. End FYI.

It is known that Philippine manufacturers would prefer to include 50 per cent or more U.S. tobacco in their blends. Recognizing the desire to protect the domestic producers and conserve dollars, U.S. tobacco experts estimate that imports of high quality tobacco equivalent to 20 to 30 per cent of total tobacco used in cigarettes would probably meet minimum requirements. It appears that a reasonable request would be that the Philippines agree to certify a minimum deficiency which would permit imports equivalent to at least 20 to 25 per cent of total cigarette tobacco requirements.

During 1956, the latest year for which data are available, it appears that about 59 million pounds of tobacco were used in the manufacture of cigarettes in the Philippines. The data, however, appear inconsistent with the number of cigarettes reported produced, as 40 to 42 million pounds would seem more realistic. Assuming this later [latter] range is more correct, 8 to 10 million pounds of high quality U.S. tobacco valued at 5 to 7 million dollars would be sufficient to provide the minimum quantities needed to improve the quality of [Page 931] Philippine cigarettes. It would also provide some satisfaction to U.S. tobacco interests who feel their complete exclusion from the Philippine market is a completely arbitrary act operating against the best interests of the Philippines.

  1. Source: Department of State, Central Files, 411.9641/9–1859. Confidential. Drafted in the Foreign Agricultural Service, Department of Agriculture; cleared with SPA; and approved by Clarence W. Nichols, Deputy Director of the Office of International Resources, Department of State.
  2. Reference is to the Laurel-Langley Agreement.