Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

443. Memorandum From the Deputy Assistant Secretary of State for Far Eastern Economic Affairs (Peterson) to the Assistant Secretary of State for Far Eastern Affairs (Parsons)¹

Washington, November 9, 1959.

SUBJECT

• Legislation to Increase Taiwan’s and The Philippine Republic’s Quotas in the U.S. Sugar Market

The Problem

CA and SPA respectively believe that the sugar quotas of China (Taiwan) and of the Philippines in the United States market should be increased.

CA has been actively surveying possibilities since last April when the Chinese Embassy raised this matter with us. It is evident that our heavy economic commitment to the GRC could be eased by admitting a certain quantity of Taiwan sugar to the protected and higher priced United States market, thus permitting China to share in the additional income which is now reserved for our “traditional” suppliers. This would reduce Taiwan’s need for U.S. economic assistance.

The United States will be in a difficult position vis-à-vis the Philippine Government unless we are able to induce the Congress to revise the Sugar Act² to permit the Philippines to share in the steadily increasing consumption of sugar in the United States. The Philippines urged such revision in 1956 at the time that a sugar bill was being considered by the United States Congress. The best that FE could accomplish in the closing days of Congressional consideration of the bill was to assure the Filipinos in an aide-mémoire³ “that the United States Government will of course sympathetically review the entire question of Philippine participation in the United States market the next time the sugar legislation is revised” and a similar assurance was given by the President in his press statement of May 29, 1956⁴ announcing the extension of the Act. He said, “I believe, therefore, that when new amendments are being prepared at the conclusion of the present Act, consideration should be given to allowing the Philippines to share in increased consumption, as is now provided for other foreign countries by this bill.” The Philippines considers these assurances as a definite commitment. Ambassador Romulo left an aide-mémoire on December 29, 1958⁵ in which he drew our attention to the President’s assurances and requested assistance in securing a share in the United States’ increasing sugar consumption.

The practical difficulty is that many Latin American sugar exporters exert what pressure they can to maximize their quotas. Further, a few months ago, we were told that the time to reopen this question was not opportune because of the “delicate” Cuban situation. However, we now understand from E that an interagency review of quota arrangements will start in perhaps a couple of weeks and therefore this would be a good time for FE to state its views.

Background

1. China

[Here follows discussion of the desirability of allowing Taiwan to have a share in the U.S. sugar market.]

2. The Philippines

The Philippines as a dependency of the United States enjoyed complete free trade with the United States. When the Philippines became a sovereign nation, its preferential position changed. The United States agreed to spread this change over a period of 28 years so as to give the Philippine economy time to adjust to United States tariffs. The Trade Agreement of 1946 (revised in 1955) was the instrument used to accomplish this purpose. In the Agreement, sugar was given an absolute duty-free annual quota of 952,000 tons⁶ subject to a schedule of increasing duties so that at the end of 28 years Philippine sugar would be “full-duty sugar”.

The 952,000 ton quota was liberal for 1946 in view of the limited production then possible as a result of the destruction of the Philippine industry by the Japanese. However, the Philippine relative share of the United States market has been steadily decreasing from 15.59 percent of the total in 1934–36 to 11.91 percent in 1953–54, 10.6 percent in 1957–58, and 10.4 percent in 1958–59. These reduced percentages under the Sugar Acts are due to the increasing size of the U.S. market in which the Philippines has not been permitted to share.

The Philippine production of sugar for 1958-59 is estimated at 1,467,464 tons as compared with 1,377,847 tons in 1957-58. Its domestic consumption for 1959 is estimated at 320,000 tons and its export quotas of 952,000 tons for the United States and 45,890 tons for the rest of the free world total 997,890 tons. This leaves an estimated exportable surplus of approximately 150,000 tons in excess of quota amounts.

The Philippines is now again in a position to fill a quota established on the basis of normal productive capacity and its historical position. It was slow in restoring its production after World War II, due in part to severe weather conditions and in part to excessive acreage cutbacks resulting from the fear that markets for previous years’ carryover could not be found. The restrictiveness of the quota always constitutes, of course, disincentive to production.

As long as the Philippine position is unchanged, the Filipino politicians and press will exploit the fact that the Philippines is the only important area, foreign or domestic, subject to an absolute quota.⁷ This outcry will increase as the Philippine share of the U.S. market decreases year by year. Since U.S. consumption is expected to increase by about 135,000 tons annually, the Philippine relative share is declining steadily and will decline in time to the point where the position of the United States would be patently indefensible. It would appear easier to amend the Act now when it can be done with little effect on the amounts supplied by other countries than later when the change would be of greater significance.

It appears probable that the Philippine Government would accept without resentment a small increase in its quota for 1961, provided some formula were worked out to give it grounds for feeling it could supply reasonable additional amounts in subsequent years consonant with its competitive position. A sliding scale might be worked out which would not really injure other countries but would eliminate the present situation in which the Philippines is the only major producer which is not permitted to share in increased U.S. sugar consumption.

Recommendation

That you sign the attached memorandum to Mr. Mann⁸ requesting that the Department support a quota of approximately 200,000 tons for Taiwan and in the case of the Philippines an increase of 50,000 tons in the first year to be followed by a sliding scale percentage formula for subsequent years.⁹

1. Source: Department of State, SPA Files: Lot 64 D 523. Confidential. Drafted by Louis Mark and Clyde L. Clark.
2. An Act to Amend and Extend the Sugar Act of 1948 (Public Law 84-545), approved May 29, 1956. (70 Stat. 217)
3. Not found in Department of State files.
4. For text, see Department of State Bulletin, June 18, 1956, pp. 1016–1017.
5. Not found in Department of State files.
6. Various U.S. official figures show this amount as 980,000 tons. The apparent discrepancy is accounted for by a difference in definition of types of sugar. In fact, the 952,000 ton and the 980,000 ton figures refer to the same amount of sugar. [Footnote in the source text.]
7. Strictly speaking Taiwan does share in the expansion of the American market but since its basic share amounts to only about one-twentieth of one percent of our imports, the increase is also infinitesimal—about 50 tons a year. [Footnote in the source text.]
8. Not found attached to the source text.
9. Although the administration wished to make modifications in the existing sugar legislation, Congressman Harold Cooley from North Carolina, Chairman of the House Committee on Agriculture, was opposed to making changes in 1960 because of the volatile situation in Cuba. (Memorandum of conversation by Callanan, March 9, 1960; Department of State, Central Files, 811.235/3–960)