Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

203. Action Memorandum From the Assistant Secretary of State for Economic Affairs (Johnson) to Secretary of State Rusk¹

Washington, March 17, 1964.

SUBJECT

• Sugar Legislation

We must shortly decide on new sugar legislation. The foreign provisions of the 1961 Sugar Act expire December 31 and domestic producers expect to enlarge the domestic quota at the expense of foreign suppliers.

There are four principal points to the Department’s sugar program:

1. Existing statutory quotas would be maintained.

2. The present “global” quota—the “Cuban” quota—of 1.7 million tons would be temporarily shelved and be converted into temporary statutory quotas. These temporary quotas would be returned to Cuba when she rejoined the free world.

3. We would continue the progressive “recapture” by the U.S. Treasury of the premium, if any, between the U.S. price and the normally lower world price for sugar. The 1962 Act provided that the premium allowed statutory quota holders should be diminished by 10 per cent per annum. In 1964 30 per cent of the premium will be recaptured. All the premium would be recaptured on the “temporary” statutory quota. (The recapture provision will have meaning only if world prices fall sharply.)

4. Foreign producers would have an incentive to supply us with sugar even in a tight market because they will receive a guaranteed price for sugar sold here of something around 4.15 cents per pound. This covers the cost of production of efficient producers; and is a guarantee that should be attractive. As a counterpart, they will be penalized if they fail to fill quotas at something near the target price provided in the act of nearly 7ȼ a pound. They will also lose pound-for-pound of their quota to the extent they fail to fill quota within the 7ȼ figure.

The Department of Agriculture generally agrees that this program should assure us of sugar at a reasonable price.

The Bone of Contention:

Domestic producers want to take over permanently 1 million tons of the 1.7 million tons global quota which we propose to convert into temporary quotas. USDA is less immodest, proposing that only 500,000 tons of this be permanently reassigned. USDA argues that:

1. We should rely more heavily on domestic production in order to assure ourselves of sugar at responsible prices.

2. Domestic beet producers were permitted to plant about 500,000 tons more than their marketing quotas. They should be permitted to market this sugar.

3. There are many underpriviledged—poverty stricken—farmers in the United States that should be favored over foreign producers of sugar.

The USDA position would cause foreign producers to lose a minimum of $50 million annually in sales of sugar to the U.S. (assuming an average net price to them of 5 cents per pound). Most of the loss would be suffered by Latin America and by countries that have limited opportunities to produce alternative crops. These countries are customers for America’s goods and recipients of U.S. aid.

A cutback of foreign access to this market would be particularly bad coming at this time. We are seeking, first, to hold our foreign markets and then to increase them by sharing in their growth. This is what we’ve done for Australia and New Zealand in the Meat Agreements. Indeed, USDA is the foremost proponent of this philosophy. On the other hand, for sugar—on the eve of the Kennedy Round and the UNCTAD—Agriculture wishes to cut back foreign suppliers.

If the domestic quota is increased, we will have to reconsider our position on “premium recapture”. To offset the loss of income in this market, we might have to permit foreign producers to enjoy a “premium” on their sales here. But this would be likely to harm their long run position here. So long as a premium is paid to a farmer overseas, opposition to reliance on foreign suppliers will be formidable. It harms our balance of payments. Moreover, many Senators feel that the premium might just as well be paid in the form of a subsidy to the American farmer.

Foreign sugar can best hold the market by being available at a lower price than paid for U.S. sugar. This means that premiums should be turned over to the U.S. Treasury as is now provided under law.

Tactics

Under Secretary Murphy indicates that there is no compromise on the question of the domestic quota. He intends for the President to settle the matter. As a first step in this direction, an inter-agency committee is preparing an “issues” paper setting forth agreements and disagreements. The paper will indicate that the Bureau of the Budget and the Council of Economic Advisers have positions fairly close to ours. USDA will be isolated. The paper may go to the President within a week or ten days.

Recommended Action

Under Secretary Murphy or Secretary Freeman may raise the quota question with the President sooner. It may be prudent for you also to mention the matter to the President soon so that he is not caught unawares by USDA.

1. Source: Department of State, EB/ICD/TRP Files: Lot 75 D 462, Sugar, New Legislation. Limited Official Use. Drafted by Jerome J. Jacobson (E) and cleared by Dutton (H) in substance.