270. Memorandum from the Executive Secretary of the Department of State (Eliot) to the President’s Assistant for National Security Affairs (Kissinger)1 2
- Dominican Republic Sugar Quota
In your memorandum of July 22, 1969, you asked for background information and the Department’s views concerning Dominican Republic President Balaguer’s request for a permanent sugar quota of 700,000 tons.
Essence of Problem
Under the existing Sugar Act the basic Dominican quota is established at 7.56% of sugar imported into the United States from foreign countries other than the Philippines. (Brazil has the same quota, and Mexico’s is slightly larger.) The actual shipping entitlement which this quota represents depends on the overall total level at which the U.S. Department of Agriculture estimates U.S. consumption needs for the calendar year. In 1968 the Dominican Republic actually shipped 707,030 tons (227,324 under its basic quota, 244,777 as its legislatively assigned share of the Cuban quota, and 234,929 tons as its share of deficit reallocations, including a special allocation).
What the Dominicans are asking for, in essence, is guaranteed access to the U.S. market at about the 1968 level. This would be impossible without Congressional amendment of [Page 2] the Sugar Act which is not slated for revision until 1971.
Importance of Sugar to Dominican Economy
The Dominican Republic’s economy is over-dependent on sugar. Its production has averaged some 850,000 tons since 1960, and exports of this one product account for 60% of its foreign exchange receipts. The industry is highly centralized. Twelve state-owned sugar mills account for 60% of the production. One mill, Central Romana, which accounts for about 32% of the production, is owned by U.S. interests. The remaining 8% is privately owned by a single Dominican firm. Combined, these mills employ approximately 10% of the entire Dominican labor force. The state-owned mills, in particular, have been relatively inefficient, high-cost producers, dependent on access to the sheltered U.S. market to cover their costs. Understandably, Dominican access to the U.S. market has become the most important aspect of U.S.-Dominican political relations.
Current U.S. Policy
Our policy in affording access to this market for Dominican sugar has been to provide a large enough market to assure economic and political stability, but to encourage diversification of agriculture and industry and thus reduce the country’s dependence on a single product which is subject to wide price fluctuations in the world market. Nor do we believe it is in the Dominican Republic’s best interests, nor in the best interest of our relations with that country, for the Dominican Republic to be so dependent on export of this single product to the U.S. Starting in 1966, in the aftermath of the civil war and in view of the extraordinary need for rehabilitation resources, we have, during each year since, recommended that “special deficit allocations” be given to the Dominican Republic, under the President’s discretionary authority under the Sugar Act to depart from the statutory formula for reallocation of deficits. We have, however, reduced the amount of the special allocation each year, in an [Page 3] effort to wean the country away from over-reliance on sugar—and on the U.S. market. We have also reached an understanding with the Dominican Government each year that a share of the proceeds of the special allocation will be utilized for rationalizing the government-owned sugar complex, to make it competitive on world markets. The first special allocation, in 1966, was for 123,000 tons, with the objective of providing a market here for about 600,000 tons. The special allocation has been reduced in each succeeding year, with this objective in mind. The 600,000 ton goal was substantially exceeded in 1968 (and has been again in 1969) because a large deficit in domestic beet production in 1968 and the unforeseen growth in the size of the Puerto Rican deficit resulted in larger deficit allocations to all Western Hemisphere suppliers, including the Dominican Republic, than had been anticipated.
Future Quota Problems
The Dominican basic quota amounts to only about one-third of its recent marketings in the U.S. Two-thirds of its allocations are thus on a contingent basis. If Cuba were again to become eligible, the Dominican Republic would, under the terms of the present Act, lose one-third; if the Puerto Rican deficit should be sharply reduced, or should be reassigned to other domestic suppliers, another third would disappear. While resumption of relations with Cuba may be remote, there is a real danger that when the Sugar Act comes up for renewal, domestic beet and cane growers will request that domestic deficits (Puerto Rico) be assigned to domestic producers—as was the case prior to the Act of 1965. The Florida cane growers have been under acreage restrictions for two years and are carrying large surplus stocks. Beet acreage was increased sharply this year, and the cut-back on wheat acreage for 1970 will bring renewed pressure for authorization to plant more sugar beets. If domestic interests should be successful in having the deficit provisions revised in their favor, following the present quota pattern would yield the Dominican [Page 4] Republic a total entitlement of only about 500,000 tons, and there would remain the possibility of a further reduction on resumption of relations with Cuba. The Dominican economy would have great difficulty in adjusting to a cut of this magnitude until the price of sugar on the world market rises well above the present level of 3.25 cents a pound (compared with 6.5 cents net for sales in the U.S.).
Our Embassy in Santo Domingo has strongly recommended a 700,000 ton permanent “quota” (see enclosure). During the 1969 country review of the Dominican Republic the subcommittee of the Inter-American Committee for the Alliance for Progress (CIAP), while indicating awareness of the interests of other Latin American sugar-producing members, recommended that the U.S. import from the Dominican Republic not less than it did in 1968, i.e., 700,000 tons.
The Dominican sugar issue should be broken down into two periods, 1970 and 1971 during the life of the existing Sugar Act, and 1972 and beyond under the new Act. In addition, the interrelationships between the two periods, i.e., the effect of the first on the second, should be considered.
In 1970 and 1971, in accordance with a decision this spring of the Interdepartmental Group (IG) and depending on the political situation in the Dominican Republic, the Department plans to request modest but declining special allocations (from deficits) for the Dominican Republic. It is, of course, difficult to predict total Dominican Republic entitlements during these two years in view of the imponderables of shortfalls in other countries and U.S. market conditions.[Page 5]
When the Act comes up for revision in 1971, we believe it most unlikely that the new Act that would emerge would result in a Dominican Republic total entitlement in excess of approximately 600,000 tons per annum, in the context of total U.S. consumption requirements reasonable to project over the life of the new Sugar Act. This figure would have to emerge as the result of three factors, i.e., the Dominican Republic’s basic quota, its share of any quota earmarked for Cuba in the new Act, and its share in any deficit reallocation. At this point, it is much too early to be able to anticipate how these basic factors would be treated in the new Act. It should be borne in mind that any increase in the Dominican Republic’s basic percentage quota will, of necessity, be at the expense of other suppliers, including Latin American countries as well as the English-speaking Caribbean. There are already many requests for increased quotas from other Latin American countries as well as from friendly countries in other parts of the world. When the Congress—which jealously guards what it considers its prerogative of assigning sugar quotas—sits down to work out the new Sugar Act, we can anticipate a swarm of lobbyists representing just about every friendly sugar producer in the world descending upon the Congress and also upon the Executive in search of favored treatment for their clients.
For all of the reasons noted, we believe it would not be desirable to encourage the Dominicans in their aspirations for a total entitlement which would imply sugar exports to the United States in excess of 600,000 tons per annum, which was roughly the level of exports in 1966 and 1967. Their objective should, rather, be further diversification of their economy, and increased efforts to improve the efficiency of existing plantations.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 783, Country Files, Latin America, Dominican Republic, Vol. I. Confidential. Attached as an enclosure and published is a memorandum detailing the issues raised by Balaguer during meetings with Governor Nelson Rockefeller. Eliot’s memorandum was written in response to a July 22 memorandum from Kissinger to Walsh. (Ibid.)↩
- During Governor Rockefeller’s June visit to the Dominican Republic, President Balaguer requested that the United States provide his country with an increased permanent sugar quota. Eliot indicated that the Dominicans should not be encouraged to pursue such an increase. Instead, the Department of State suggested that the Dominicans work to diversify their economy while increasing efficiency on existing plantations.↩