86. Memorandum From the Director of the International Cooperation Administration (Hollister) to the Under Secretary of State (Herter)1
SUBJECT
- Australian Protest Over U.S. Surplus Disposal Programs
This is in reply to your memorandum of May 4 on U.S. agricultural surplus disposal to which was attached a memorandum from the Australian Minister of External Affairs, same subject.
We recognize that our foreign policies and our domestic policies may seem to be, and no doubt are, at times contradictory, and that there is little hope of fully reconciling them, in part because much of the difficulty results from Congressional action. Perhaps the Administration should make a more determined effort to assure that the Congress is aware of the foreign policy implications of domestic [Page 232] legislation, particularly agricultural legislation, than it has done at times in the past. Would it be desirable for the Department of State to follow domestic legislative proposals more closely and to request an opportunity to be heard in every instance in which it appears that proposals may have a serious adverse effect on foreign relations?
We suggest also that it would be highly desirable to be clear among ourselves and to make clear to other countries the essential difference between Title I of Public Law 480 and Section 402 of the Mutual Security Act.2 The essential purpose of the former is to dispose of agricultural surpluses on terms which may be concessional but at the same time designed to afford the greatest possible returns to the United States. Except for those few Title I agreements which have been initiated to provide economic aid in lieu of the use of the Mutual Security Act for such purposes and excluding political considerations, the objective has been to make sales which maximize financial returns to the United States and correspondingly minimize loans for economic development.
Since the enactment of PL 480, sales under Title I have constituted a significant proportion of international trade in agricultural products. Such sales may have interfered to some extent with other supplying countries’ sales of such products. Because of the volume of Title I sales and because such sales may be concessional and intended to maximize returns to the United States, and minimize economic assistance to the buying country, it is understandable that other supplying countries would be concerned about interference with their own sales.
In the case of Section 402 of Public Law 665, the criterion is entirely different. The countries to which sales are made are selected upon the basis of judgment on the part of the United States that it is in the U.S. interest to provide them with economic assistance. The provision of this economic assistance, incidentally, is in the interest, in the long-run, of the whole free world and not only of the United States. Since we can provide economic assistance in an amount equal to the minimum earmarking of Section 402 only by the provision of agricultural products, it inevitably follows that this magnitude of economic assistance must be provided in this way or not at all. We should recognize that the provision of economic assistance in this form may interfere with sales which might otherwise be made by a supplying country and which the supplying country may consider normal marketings. We should not attempt to argue, therefore, that economic assistance provided as required by law in the form of [Page 233] agricultural commodities does not upon occasion interfere with normal marketings. We should recognize this fact frankly and at the same time point out the alternative would be the failure to provide such assistance.
In this connection it might be noted that Australia as well as other countries, such as Canada, are furnishing modest amounts of economic assistance under the Colombo Plan or otherwise. So far as we are aware, these countries, including Australia, provide such assistance exclusively from their own production. As it happens, the assistance they provide is usually in the form of products other than agricultural commodities, but the principle is the same. The provision by Australia of tractors to Vietnam or by Canada of a pumping station to India, may interfere with a sale which a United States producer otherwise might make. So far as I am aware we have not objected to this policy. We suggest that it is somewhat less than appropriate for other countries to object to the United States adopting the same policy in respect to only a small portion of the much larger magnitude of economic aid which this country is furnishing under PL 665. I feel, therefore, we should make no apologies in those instances in which provision of economic aid under Section 402 interferes with the potential sale of agricultural products by another supplying country.
The volume of economic aid under PL 665 provided in the form of agricultural products has been steadily declining. Back in the Marshall Plan days it amounted to nearly a billion dollars a year. Two years ago the Congress placed a minimum of $300 million on this form of assistance; last year the minimum was reduced to $250 million and, as you know, we are requesting the Congress again to reduce the minimum for next year to $175 million. We have felt that the provision of economic aid was sufficiently in the U.S. and free world interests to assure that we achieve the minimum required by the Congress to be furnished in the form of agricultural commodities, but we have not advocated programs—as perhaps we could have done and certainly many people feel we should—to substantially exceed these minimums.
Two further comments: First, ICA is fully aware of the sensitiveness of other supplying countries on the matter of surplus agricultural products as we plan our Section 402 programs. We consult continuously with the Department of State and have advised that we have no objections to discussing the general scope and content of these programs in the Interagency Staff Committee on Surplus Disposals. Secondly, insofar as we are aware, only one complaint has been raised about our Section 402 program this fiscal year. This particular complaint involved less than one percent of the [Page 234] entire program. It is suggested, therefore, that we are handling a sensitive problem with a fair amount of judgment and success.
Returning again to PL 480, primary responsibility for the sales agreements rests, as you know, with the Department of Agriculture. I assume, therefore, that you have posed the issues raised by the Australian Aide-mémoire to that Agency. Perhaps improvement in the Title I consultation procedure with other supplying countries can be worked out with that Department. In view of the very large current demands from other countries for PL 480 agreements in relation to the new authority likely to be available—I understand requests on file amount to $2.5 billion whereas the prospective new authority is only $1 billion—perhaps the selection of countries should be based largely, if not exclusively, on the need for economic assistance rather than on financial returns to the United States, and the sales agreements should provide the maximum amount of economic assistance authorized by the law. If this policy were adopted, it would be much more difficult for other supplying countries to claim that PL 480 agreements were interfering with sales which they otherwise could make.
I hope these observations are of some value to you. I shall be most happy to discuss the problem with you personally or to follow up with further discussions between our respective staffs.