Foreign Relations of the United States, 1977–1980, Volume XXIX, Panama

164. Action Memorandum From the Assistant Secretary for Inter-American Affairs (Todman), the Assistant Secretary for East Asian and Pacific Affairs (Holbrooke) and the Assistant Secretary for Economic and Business Affairs (Katz) to the Deputy Secretary of State (Christopher)¹

Washington, March 29, 1978

SUBJECT

• GSP—Sugar Benefits for Panama and a Few Others

ISSUE FOR DECISION

Whether to seek to assist Panama economically by redesignating it, and consequentially a few other countries, as beneficiaries under our Generalized System of Preferences for sugar.²

ESSENTIAL FACTORS

We are entering a difficult and critical month in our relations with Panama. There are a few immediate and tangible benefits we can give to improve the atmosphere. Redesignating Panamanian sugar for GSP would have an immediate and substantial favorable effect on Panama at little cost. Panama is legally eligible; the President need only sign a proclamation.

Panama originally was a GSP-sugar beneficiary, but lost eligibility in 1976, because high world sugar prices caused its shipments in 1975 to exceed the “competitive need” value limitation contained in our law. It became eligible again on the basis of 1976 shipments and remains so.

It is not feasible for domestic and international political reasons to single out Panama for special treatment. Panama, however, is one of a group of six countries (also Guyana, Jamaica, Colombia, Thailand, and Taiwan) which, having lost GSP on sugar for competitive need reasons in 1976, were not redesignated for 1977 nor again for 1978 although they were eligible in both years. Within this group, moreover, Panama would be the most benefited—even without GSP last year its $22 million of sugar exports to the U.S. amounted to 45% of the six-country total.

The question of whether to redesignate any of the newly eligible countries was considered by the interagency, STR-chaired Trade Policy Staff Committee (TPSC) last month. Because sugar imports were deemed to be a sensitive political matter, given the demands for higher domestic sugar prices, the TPSC decided not to redesignate any of the eligible countries.

ARA considers it highly unlikely that redesignation of the six minor-supplier countries would engender any adverse fallout on our GSP program, Congressional approval of the International Sugar Agreement or any other national interest. These nations provide us with less than five percent of our sugar imports and less than two percent of our annual sugar supply. Domestic sugar prices would be unaffected by the action—a 2.8 cents a pound tariff on 300 thousand tons of imports would be lost to the Treasury. The “competitive need” provision of our law would prevent these countries from becoming long-term, large-scale suppliers of sugar to us. What is insignificant to us, however, can be important for all small countries. Sugar is a major foreign exchange earner and source of employment for the Latin American eligibles.

The NSC also favors the redesignation of sugar for GSP for Panama and the five other countries. Agencies other than State represented on the TPSC (STR, Agriculture, Treasury, Commerce and Labor), are less concerned about the international relations aspect of not making any new designations, and consider it better not to risk any adverse domestic interest group reactions. Therefore, a Presidential decision will be required on the basis of divided advice.

EB, on the other hand, cannot support the redesignation of additional countries for GSP at this time. Continuing low world sugar prices and the fact that U.S. domestic price support programs expire with the 1976 crop have created an ultra-sensitive atmosphere in the Congress regarding the problems of sugar. Farm interests have pressed hard for tighter import controls including quotas. Hawaiian cane growers and the corn industry have both joined in support of the continuation of import restrictions.

GSP for sugar is viewed by many Congressmen as a loophole in the domestic price support program. Many see it as allowing cheap foreign sugar to enter the U.S. at a time when the U.S. Government is loaning hundreds of millions of dollars to U.S. farmers to support the price of sugar. The sugar/GSP program is not insignificant either. Already 13% of U.S. sugar imports enter under GSP. Inclusion of the countries proposed for redesignation would add at least another 5%.

Senator Dole has already circulated a letter among his colleagues calling for the removal of GSP for sugar. Within the next month or two, the Administration will have to submit legislation implementing the International Sugar Agreement. This legislation could provide a ready catalyst for these anti-GSP sentiments.

EB thus believes that redesignation of additional countries could jeopardize the entire sugar/GSP program. This program has existing and important benefits for ten Latin American countries including Bolivia and Costa Rica as well as for six African nations such as Mozambique, Malawi, and Swaziland. Delaying redesignations until the International Sugar Agreement succeeds in raising world sugar prices would preserve these benefits for those countries that now have them and allow us to add more countries when the domestic pressure on sugar GSP is less intense.

OPTIONS

1. Seek GSP-sugar designation for six eligible countries: Panama, Jamaica, Guyana, Colombia, Thailand and Taiwan starting with the Trade Policy Review Group (TPRG, senior to the TPSC).

2. Take no action; explain to these countries that our domestic political³ situation will not presently⁴ allow it,⁵ [and] that we will continue to monitor Congressional attitudes and will [unclear] the situation when appropriate.

RECOMMENDATIONS

ARA recommends approval of Option 1. EA has a strong interest in assuring that if you approve Option 1, Thailand and Taiwan are included along with the four small Latin American suppliers.

EB recommends approval of Option 2.⁶

Attachment:

Table: 1977 U.S. Sugar Supply⁷

1. Source: National Archives, RG 59, Central Foreign Policy File, P780067–1578. Confidential. Sent for Action. Drafted by Joseph E. O’Mahony (ARA/ECP), John Bushnell (ARA), Anthony Geber (EA), Marc Baas (EB), and D. Burns (EB), and cleared in H and S/P. Spiegel wrote and circled on the memorandum: “Modified in D.”
2. On February 28, Lewis sent Vance a letter requesting that raw sugar from Panama be redesignated as eligible for duty-free treatment under the GSP for the period beginning March 1. (Department of State, Principal and S/S Memoranda for 1978, Lot 80D90, Box 1, S/S Memorandum—1978, January thru March) Deputy Assistant Secretary of State for Economic and Business Affairs, William G. Barraclough, responded in a March 13 letter that such a redesignation would not be possible. (Ibid.) Tarnoff wrote Katz that Barraclough’s response warranted high-level attention before being dispatched. (Ibid.)
3. Spiegel inserted above the sentence: “political.”
4. Spiegel inserted above the sentence: “presently.”
5. Spiegel added: “, + that we will continue to monitor Congressional attitudes and will [unclear] the situation when appropriate.”
6. Spiegel initialed Christopher’s approval of this option on April 12 and wrote “(as modified see page 3)” below the approval line.
7. Confidential. Attached but not printed.