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

64. Memorandum From the Secretary of State to the President¹

Washington, May 15, 1956.

SUBJECT

• Section 203 of HR 10875 as reported by the Senate Committee

This section, if enacted into law, could seriously injure the economies of Mexico, Brazil, Turkey, Pakistan, Peru, Egypt and other countries, and hence would jeopardize our relations with them.

Section 203 would require the sale of upland cotton in world markets at prices no higher than those offered by other exporting countries for comparable quality. In no event could prices be higher than they had been under the one-million bale program completed earlier this year.

The stated objective is to re-gain a fair share of the world cotton market. The result, however, would almost surely be a progressive and severe decline in world prices for cotton. Other exporting countries are unable to hold stocks. They would be obliged to dispose of their current production at almost any price. The United States would be required by law to follow prices downward.

The U.S.S.R. exports only a small amount of cotton which ordinarily does not affect world market prices. Section 203, however, would create a situation in which the U.S.S.R. could determine the world price. Small lots of Russian cotton sold at price reductions in Liverpool, for example, could force the United States to meet the Russian price. Other countries perforce would have to follow the United States lead. Thus the cotton exporting countries of the free world would be at the mercy of the Communists. Their resentment, however, with considerable logic, could be directed toward the United States policy of meeting every reduction in price, as specified in the proposed bill.

Any attempt by other countries to escape the downward spiral by resorting to bilateral agreements, conducted without regard to market prices, would set back our hopes for a multilateral trading system—the only system which offers increasing opportunities for private trade and the exporting of a wide range of United States products.

This section would make the prices under the one-million bale program a ceiling, even though substantial quantities of United States cotton are already being sold for export on a bid basis at considerably higher prices under the present program. Some 224,000 bales have been sold on bids received last week at prices several cents per pound higher than the ceiling which this section would arbitrarily impose.

The new farm bill is encumbered with other provisions which are objectionable from a foreign relations standpoint. Notable among these is Section 202, which would further restrict our import quota on extra-long staple cotton and subsidize the export of such cotton—a type which the United States does not normally export. Peru particularly would be hurt by this provision, with the probability of wide repercussions in other parts of Latin America.

In view of the circumstances I have outlined above, the Department of State has no other recourse than to vigorously protest against Sections 202 and 203.²

John Foster Dulles

1. Source: Eisenhower Library, Whitman Files, Dulles–Herter Series. Drafted by Nichols.
2. President Eisenhower saw this memorandum on May 16. He nevertheless signed the bill into law on May 28 as the Agricultural Act of 1956 (Public Law 540); for text, see 70 Stat. 188. In his message at the signing of the bill the President expressed the hope that Congress would repair the shortcomings in Sections 202, 203, and 204. For text of the message, see Department of State Bulletin, June 11, 1956, p. 982.