Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

811.054/6–153

Report Prepared by the National Security Council Planning Board¹

secret

[Washington,] June 1, 1953.

Effect on National Security Interests in Latin America of Possible Anti-Trust Proceedings

problem

1. To determine the national security interest involved in the proposed anti-trust action against the United Fruit Company, with a view to recommending the action to be taken.

analysis

2. The Department of Justice has completed an investigation disclosing evidence of violations of United States anti-trust laws by the United Fruit Company, which is engaged in widespread business activities in Central America and parts of South America. In the absence of foreign policy and national security considerations, the Department of Justice would proceed to file a civil complaint charging the Company with such violations and asking broad remedies, including divestiture by the Company of certain of its overseas assets.

3. The Department of Justice, as long ago as 1908, commenced an investigation of the activities of the United Fruit Company in relation to the anti-trust laws. In 1913, a staff recommendation in the Anti-Trust Division called for civil and criminal action against the United Fruit Company; however, no action was taken. Again in 1937, a staff recommendation called for the institution of proceedings against the Company, but no action was taken. In 1946, following a Federal Trade Commission investigation, the Justice Department investigation was renewed, but action was again postponed. The present investigation, renewed in 1951, has now been completed, and a civil suit against the United Fruit Company is ready to be instituted. The Justice Department states that the violations of law by the Company are pervasive, including price-fixing, allocation of domestic markets, dumping in order to decrease prices to injure competitors, and reservation of unused shipping space by the Company in order that competitors may not transport their bananas. The remedies sought would be broad, including divestiture by the Company of certain of its assets abroad.

4. The institution of anti-trust action against the United Fruit Company at this time, regardless of the merits of the action under U.S. law, would adversely affect our national security interests in the following respects:

a. It would tend substantially to consolidate the position of the Communist-dominated Arbenz government of Guatemala, a major center of anti-U.S. influence in Latin America. The Arbenz government within the past year has seized three quarters of the Company’s land under the guise of agrarian reform, and has made its struggle against the Company the central point in its appeal to the people. For the U.S. Government to brand the Company as an offender against U.S. law would, under these circumstances, appear to justify Arbenz’ position completely, and would thus greatly strengthen his hand.

b. Elsewhere in Central America, institution of the action would greatly stimulate movements to nationalize the properties of the Company. Such nationalization is now threatened to some degree in all countries in which the Company operates, particularly in Costa Rica through the possible accession to the presidency of Jose Figueres, who is not a Communist but is openly speaking of nationalization. To the extent such nationalization is achieved, it would not only affect a private company, but would have direct and far-reaching repercussions on our strategic position. Among these must be counted:

(1) Loss of United States control of the largest communications and transport network in the area, represented by the United Fruit Company’s freight and passenger ships, ownership and management of ports, docking facilities and warehouses; its 43 percent participation in the International Railways of Central America, the only railroad system in these countries; and its direct ownership of the Tropical Radio Company, the only commercial wireless communication service. These essential facilities, in friendly American hands, constitute a strategic interest in time of war which, if lost to the United States through withdrawal of this American enterprise, could not be counted on with the same security as in the direct control of American citizens.

(2) Jeopardy to that part of our supply of abaca (a strategic cordage commonly known as Manila hemp) now grown by the United Fruit Company under contract with the Reconstruction Finance Corporation. Loss of Far Eastern sources of supply would make the United States almost completely dependent on Central America as a source of supply to supplement our strategic stock pile. The United Fruit Company is the only concern which has in existence the organization and facilities for supplying our needs.

(3) ….

c. Institution of the action would provide a propaganda weapon generally to Communists and leftists in Central America. Moreover, to the degree that it would promote governmental seizure, it would assure the placement of extremists in charge of the former Company properties, and would thus increase the power of elements opposed to the United States in Central America, possibly including Panama, and make uncertain the cooperation of the governments of the area with the United States. Finally, it might contribute to the spread of the Guatemalan example and to the eventual overthrow of four Central American governments now friendly to the United States, which would transform our present security in the Caribbean into a dangerous threat at our backdoor.

d. In Latin America generally, nationalization of the United Fruit Company properties would further stimulate the already serious movement for similar action against the U.S. companies, which have properties with an established value of $5 billion in Latin America, including strategic industries in the fields of mining and petroleum. This effect would be increased to the extent that the Guatemalan and other governments were able to avoid the payment of just compensation to the Company. Action by one branch of the U.S. Government against one private company, as a monopoly, would make most difficult the successful defense of that company’s legitimate interests by the Department of State, and weaken very seriously the ability of that Department to oppose the tide of nationalization of other American properties in the entire area and elsewhere. Increased nationalization of U.S. properties would not only deprive the United States and U.S. nationals of a degree of control of strategic resources, but would be contrary to the policy decared in NSC 144,² of encouraging Latin American countries to take measures to attract private investment.

conclusion

5. In view of these circumstances, the filing of an anti-trust suit at this time would affect adversely the national security, particularly the conduct of the foreign relations of the United States.

alternative courses of action

6. Two courses of action which are feasible in view of these circumstances are:

a. Postponement of the anti-trust suit until the political and strategic situation in the central and northern South American area is improved to a point where the bringing of an action would not jeopardize the broader national interest.

b. Postponement of the suit for the present, because of the political and strategic situation in the area, with a review by the National Security Council after six months. The Department of Justice during that period will endeavor to negotiate with the Company for elimination of practices deemed to be inconsistent with the anti-trust laws.

7. Because following Course a. would probably mean an indefinite postponement of the suit, Course b. is preferable.

recommendations

8. The proposed anti-trust proceedings against the United Fruit Company should be postponed without prejudice for the present, and the situation should be reviewed by the National Security Council within six months.

9. During this six-months postponement, the Department of Justice should negotiate with the Company for elimination of practices deemed to be inconsistent with U.S. anti-trust laws.

1. Transmitted to the National Security Council under cover of a memorandum by Mr. Lay, dated June 1, 1953, not printed.

   This report was based on a Department of State draft, dated May 29, 1953, not printed. The NSC Planning Board reviewed the Department’s draft at its meeting on May 29, where representatives from the Department of Justice participated in the discussion, and referred it to the NSC Staff Assistants for revision. At its meeting of June 1, the Planning Board considered the subsequent revised draft, dated June 1, and approved its submission, as amended, to the NSC for consideration. Records of the NSC Planning Board meetings are contained in the S/P–NSC files, lot 62 D 1. For documentation concerning the establishment of the NSC Planning Board, see volume ii .

   In a memorandum to Mr. Cabot, dated June 1, 1953, Raymond G. Leddy stated in part that the final version of the report on the anti-trust suit “is fully consonant with our own estimate of the effects of the suit, and it also adopts ARA’s recommendation that filing of the suit be postponed in order that the Department of Justice negotiate with the United Fruit Company toward the elimination of any unlawful practices charged against it.” (811.054/6–153)

2. NSC 144, titled “United States Objectives and Courses of Action With Respect to Latin America,” dated Mar. 4, 1953, is not printed, but see footnote 2, p. 2.