342. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Kaysen) to the President’s Special Assistant for National Security Affairs (Bundy)0
I recommend that the President give Congress notice of his intention to dispose of 50,000 tons from the stockpile in the course of the next [Page 766]two years, and request a waiver of notice with respect to 10,000 tons. This should be done in such a way as to excite no public comment during the next ten days.
Your signing the attached memorandum to Mr. Ellis1 and sending a copy directly to Mr. Brewton will be enough to get the process in motion. I am sending him a copy of this memorandum.
The only argument against this action is the adverse impact on our relations with Latin America, and Bolivia in particular. We cannot continue to base our good relations on the unrealistic policy of accumulating stockpiles in excess of any sensible need. This is to extend the vices of our domestic agricultural policy abroad, and we will find it simply intolerable, as well as politically impossible to do so. Indeed, to the extent that we are considering entering into commodity agreements, we must make it clear from the outset that we will not accept the task of simply financing other countries’ surplus production ad infinitum. On the other side, the interest of American consumers, and the long-run interest of tin producers, both go in the same direction: for disposal. Further, this represents an important opportunity to reduce the costs of holding the stockpile and to make some profit on the sale. The gross profit on the disposal would run in the neighborhood of 8-10 million dollars over the average acquisition costs. We would reduce investment in the stockpile by some $150 million.
- The price of tin has recently reached a new high and as a consequence there has been pressure on the government to dispose of some of our strategic stockpile. The pressure arises from two sources: First, the International Tin Cartel (of which the U.S. is not a member) has sold out its whole buffer stock as required by its statutes when the price reaches $1.10 per pound. It is now $1.16, and it has been as high as $1.20 this year. The second source of pressure is from the consuming industries in the U.S.: the steel industry, and the users of tinplate. In addition to this, there is the pressure of logic: this is an opportunity to diminish our investment in unnecessary stockpiles and to contribute even a small downward push to prices in a period of rising economic activity.
- The rise in price has been consequent on a gradual decline in production in Bolivia and Indonesia, arising from political disorganization in both countries. This production seems unlikely to be made good in the immediate future, and Malaya, the major producer, is running about at capacity now and cannot readily increase its supply much in the short-run.
- Present holdings in our strategic stockpile are about 345,000 tons, acquired at an average price of about $1.085 per pound. This [Page 767]compares with annual world production of something like 145,000 tons currently, and U.S. consumption of 55-60,000 tons of primary tin. The stockpile objective until May of 1960 was a basic figure of 192,000 tons, and a maximum of 198,000 tons. On June 14, 1960, the objectives were reduced to a basic objective of 150,000 tons and a maximum of 185,000 tons. Thus, we have an excess of at least 160,000 tons over our estimated emergency requirements. In fact, the emergency requirements are still set too high. They are calculated on the basis of three-year use. Given the likelihood that a war serious enough to cut off the sources of supply would become a general war, that would destroy much more of the capacity for using tin than it would the tin stockpile, and the possibility of a substitution of other products for tin, there would seem to be no doubt of the generosity of the three-year figure.
- The OCDM is considering a recommendation that up to 50,000 tons be sold from the stockpile in the next two years. Any such action requires six months’ notice to Congress and Congressional approval. The proposed OCDM recommendation suggests that the President request Congress for the waiver of the six-months’ notice with respect to 10,000 tons, and that the President therefore have the authority to dispose of this much immediately. The best estimates that are available suggest that 10,000 tons could be disposed of with little if any effect on the price, and that therefore the stockpile would realize a significant profit (the GSA is now disposing of 4,000 tons which were under the control of the GSA in part of the strategic stockpile, and this is expected to go without any effect on the current price of $1.16). The 50,000 tons, if disposed of in the course of a year, might push the price down to $1.05.
- Mr. Brewton, the Assistant Director for Resources and Production,OCDM, raises the question of whether the reduction of the stockpile objective made under the last administration is in accordance with the policy of this administration. He desires specific instruction on this point before he is willing to approve the staff recommendation on behalf of the Director. I attach a memorandum of instruction for him on this point.2
- Selling from the stockpile raises a problem of foreign policy. Bolivia, in particular, is very sensitive about the disposal of tin. Wymberley Coerr, Deputy Assistant Secretary of State for Inter-American Affairs (ARA), is strongly of the opinion that nothing should be said that would produce any public indication of our intention to sell tin during the course of the Montevideo Conference.3 He believes any discussion of the subject, even a rumor, will be extremely damaging to our position there. On the longer-run, Coerr says that the Bolivians are irrational about disposal [Page 768]of any sort. Past attempts to convince them that the very high price of tin hurts them in the long-run have not been too successful. Further, at the moment, there is a struggle between Communist and anti-Communist factions among the tin miners, and we will do ourselves no good there by any disposal. Coerr agreed that it might be worth thinking about more effective ways of making the Bolivians conscious of their long-run interests in the price of tin; namely, that generally high prices and short supply encourage substitutions away from tin, which once made, may well be permanent.
- The Congressional situation on the request for waiver is as follows: The matter is within the jurisdiction of the Armed Services Committees, chaired in the Senate by Senator Russell, and in the House by Congressman Vinson. The subcommittees that have cognizance are chaired in the Senate by Senator Symington, and in the House by Congressman Philbin. So far as is known, none of these is expected to object to the request for the waiver of notice. It is the estimate of Messrs. Wilson and Manatos that, with no objection from the relevant chairmen, the waiver request would go through readily, and that nothing would be lost by waiting until the end of the Montevideo Conference to raise the issue.
- Source: Kennedy Library, National Security Files, Meetings and Memoranda, Staff Memoranda, Carl Kaysen, 6/61-8/61. Secret.↩
- Not attached and not found.↩
- Not attached and not found.↩
- Reference possibly is to the special meeting of the Inter-American Economic and Social Council at Punta del Este, Uruguay, August 5-17, 1961.↩