Foreign Relations of the United States, 1955–1957, Foreign Economic Policy; Foreign Information Program, Volume IX

51. Memorandum From the Deputy Under Secretary of State for Economic Affairs (Prochnow) to the Under Secretary of State (Hoover)¹

Washington, December 5, 1955.

SUBJECT

• Discussion in Council on Foreign Economic Policy on an Export Subsidy for Cotton

Discussion

The Agriculture Department has reopened the question of a cotton export policy for the 1955–56 cotton marketing year ending July 31 and is proposing a policy for a three-year period. A proposal by Agriculture will be discussed at the meeting of the CFEP on December 6 (Tab A).²

The Agriculture proposal³ involves a competitive bid program for export of up to 4 million bales of cotton annually for each of the next three years beginning January 1. The Agriculture proposal would also call for measures, not specified in the proposal, to protect the domestic textile industry from imports based on lower-priced cotton abroad and to subsidize the raw cotton content of textile exports. Assistant Secretary Butz has said that the Commodity Credit Corporation would administer the program in such a way as not to depress the present world price of cotton seriously and that Agriculture would envisage exports of only about 3 million bales rather than the 4-million bale ceiling that would be announced. Mr. Butz believes that unless the Administration takes action to try to increase our cotton exports, Congress will pass legislation, such as S. 2702, at its next session which will force the Administration to subsidize our exports of cotton without much discretion as to possible adverse effects on other countries.

Agriculture and State, at the staff level, together with the CFEP staff have analyzed the Agriculture proposal, indicated positive and negative considerations regarding it, and have suggested possible alternatives to Agriculture’s recommendation (Tab B).⁴

Recommendations

1. In view of the previous criticism of the State Department with regard to Agriculture’s surplus disposal operations, it is hoped that other Council representatives will take the lead in commenting on the Agriculture proposal. It is recommended, therefore, that you not take the initiative in the discussion of the Agriculture proposal except as you deem necessary.

2. You might wish to point out that the Agriculture proposal does not get to the heart of the problem with regard to a long term solution to the cotton situation. Considering the disclaimers by Agriculture that the program will not be administered in such a way as to seriously reduce world cotton prices, it is questionable whether the 500,000 bales in increased exports which might possibly result from the program is warranted. The questioning of the Agriculture proposal on its merits is enhanced by the many foreign relations difficulties which the Department sees in the Agriculture proposal. Furthermore, the Department does not agree that the Agriculture proposal has any significant advantage to the Administration over proposed Congressional legislation such as S.2702, which the Secretary has opposed.

3. If it is felt that some action must be taken by the Administration at this time to assist Agriculture in the cotton export situation before any fundamental change is made in the present price support program, it is recommended that you suggest that the fourth alternative on page 4 of Tab B be given serious consideration by the Council. This alternative would allow export prices for all cotton held by CCC to be reduced on January 1, 1956 to the extent of the reduction in the domestic support prices which Secretary Benson will announce shortly for the new cotton year beginning August 1, 1956. In supporting this alternative you might wish to point out that this would permit treating domestic and export price equally and perhaps provide some incentive to reduce domestic support prices to the 75 per cent of parity permitted in the law.

1. Source: Department of State, E–CFEP Files: Lot 61 D 282A, Disposal of CCC-Owned Cotton—CFEP–529. Secret. Drafted by Stanley Nehmer of the International Resources Division, Office of Trade and Resources.
2. Not printed.
3. First presented to the Department of State on November 28. (Thibodeaux to Prochnow, November 30; Department of State, E–CFEP Files: Lot 61 D 282A, Disposal of CCC-Owned Cotton—CFEP 529)
4. Not printed.