95. Memorandum From the Deputy Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Secretary of State1
SUBJECT
- Public Law 480
Since the enactment of Public Law 480 on July 10, 1954, surplus agricultural commodities have been disposed of in the following amounts: under Title I (sale for foreign currencies), some $2 billion ($3 billion at CCC cost); under Title II (primarily for relief purposes), [Page 247] $320 million; and under Title III (for numerous relief purposes and barter), $279 million.
From the standpoint of foreign relations P.L. 480 has its good and bad sides. On the favorable side it is to be noted that shipments for relief have gained good will in recipient countries without arousing resentment on the part of other exporting countries. Not only are agricultural commodities supplied recipient countries, but the local currencies generated are put to many uses serving U.S. foreign policy objectives.
Title I transactions have contributed to the basic food supply of numerous countries permitting them to use their own currencies for the purchases. This has enabled them to combat inflation and temporarily to balance their international accounts. Local currencies have been used with a few exceptions on a loan basis to promote economic development, and on a grant basis to bolster the defense capabilities of our allies. These currencies have also been used to pay U.S. obligations and to finance various U.S. programs. Good will has been gained in many recipient countries and the commercial market for U.S. agricultural products may possibly have been broadened.
On the unfavorable side the following points should be noted.
- 1.
- Some countries such as Pakistan, Spain, and Turkey have used Title I programs to escape from the consequences of poor economic policies. Thus they have avoided taking measures they otherwise would have had to undertake in order to set their economies in order.
- 2.
- There is a danger that programs can be developed beyond the capacity of recipient countries to carry forward with their own resources, especially over any protracted period of time. After the commodities are consumed the debt remains. The burden should not be beyond the capacity of a country to repay, or to make it dependent on U.S. charity due to a temporary program.
- 3.
- The program involves state trading, dumping and export subsidies on a large scale and violates the principles of trade we urge on other countries.
- 4.
- Sales under Title I and barter under Title III have displaced commercial sales of the U.S. and of friendly competing countries and have placed a serious strain on our relations with some of our best friends and staunchest supporters such as Canada. Most other nations which export agricultural products are dependent upon such exports for the bulk of their foreign exchange earnings and cannot compete with concessional sales from the U.S. They have, however, been patient because they regard P.L. 480 as a temporary expedient.
- 5.
- The Soviet Union has made political capital of our rice disposal program by buying rice in Asia where we have competed with Asian suppliers.
From the standpoint of foreign relations the disadvantages of P.L. 480 substantially outweigh the advantages. That is why we have opposed all efforts at making it a permanent institution. Over the [Page 248] long-run concessional sales of this type are bound to generate retaliation. Our disposal program was one of the election issues in the recent Canadian political upset.2