Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

73. Memorandum From the Under Secretary of State for Economic Affairs (Dillon) to the Chairman of the Council on Foreign Economic Policy (Randall)⁰

July 7, 1958.¹

SUBJECT

• Need for a Commodity Discussion on Lead and Zinc

Since World War II the free world lead and zinc mining industry has experienced several periods of distress as a result of overproduction and abnormally low prices. The industry has again been in difficulty since May 1957 because of excess production and a price decline precipitated by the curtailment in April 1957 of the United States barter program for these metals. Domestic lead prices have declined 28% and domestic zinc prices 26% since that time and prices abroad have declined even more.

Domestic Aspects

United States imports of lead and zinc were negligible prior to 1940 but they have exceeded domestic production for the last five years. Increased competition from foreign producers, the gradual depletion of our higher grade ores, rising costs of exploiting lower grade deposits and the accumulation of large commercial stocks have all contributed to cause a situation of genuine distress in the domestic industry.

In 1950, 1953 and again in 1957 the domestic industry sought protection from the Tariff Commission under the Escape Clause. In 1954 and more recently in 1958 the Commission unanimously found that the domestic industry was being injured by imports and recommended increased protection. Furthermore, various bills have been introduced in Congress to provide for increased protection against imports. Since lead and zinc are mined in some 20 states and are especially important in 7 of them (Montana, Idaho, Utah, Missouri, New York, Tennessee and Colorado), the possibility of increased tariffs or quotas by act of Congress is already an ever-present possibility. Given the competitive advantage which foreign producers of higher grade ores will increasingly have in the future, it is at best doubtful that increased tariffs or quotas for the domestic industry can be postponed indefinitely, in the absence of alternative measures.

International Aspects

But a protectionist policy in regard to lead and zinc will have serious consequences for our relations with Mexico, Peru, Bolivia, Canada and Australia, and to a lesser degree with five others (Belgium, Denmark, Italy, Netherlands and Yugoslavia), all of whom have, in recent months, protested against threatened higher United States tariffs or quotas. In varying degrees additional restrictions on United States imports would create new balance of payments and budgetary problems for them. A decision by the United States Government to limit access to the American market by quotas and/or increased tariffs would be interpreted by many of them as an effort to export our unemployment and to insulate ourselves from the effects of unfavorable world industry conditions, as a design to impede their economic development and increase the disparities in international trade and national productivity which already exist, and as inconsistent with our policy to promote their economic development through United States private investment. In Latin America the issue has emotional overtones to such an extent that the position of American-owned lead and zinc mining companies would be weakened and perhaps made the subject of nationalistic action. Furthermore, the imposition of tariffs or quotas would make it necessary to compensate for the withdrawal of the concession which has been made under GATT or permit retaliatory action to be taken.

It was largely for these reasons that the Minerals Stabilization Plan, as an alternative to increased tariffs or quotas, was supported by the Department of State. However, several features of this program, especially the revisions made in Senate Committee increasing the stabilization price levels and consequently the amount of the payments, raise the question of whether the Plan, as finally approved by Congress, will not restrict imports and adversely affect world prices as much as tariff action. In any case, it is certain that the Plan will not be considered by friendly nations as a satisfactory long-term solution of the problem.

Finally, the achievement of an approximate balance between supply and demand at a price level fair to both producer and consumer in these two commodities—the avoidance of booms and severe slumps in the industry—will contribute to a steady expansion of world trade and to strengthening of free world economic and political ties. Conversely, we shall be at a serious disadvantage in the cold war if we show no interest and make no effort to mitigate the impact of price swings in key commodities of considerable importance to the economies of others. In speaking of the “Special Problem of Primary Products” the recent “Rockefeller Report” on Foreign Economic Policy of the Twentieth Century makes the following statement with which we concur:

“It is not surprising, then, to find an insistent demand on the part of countries . . .² for international agreements designed to mitigate the extreme fluctuations that cause so much human suffering and that introduce so large an element of uncertainty into their economies. Such demands have been increasing, as the recent downturn of the terms of trade for primary products has created balance of payments difficulties which seriously threaten the capacity to preserve economic, and even political, stability.

“Clearly, this is a major problem for the economy of the free world. To be adequate to its responsibilities, the economic structure of the free world must find a way to prevent excessive instability. Its meaning to many of the less developed countries will reside in its ability to discharge this responsibility.”

The Mexican, Peruvian and Australian Governments have already suggested the need for a study of the feasibility of an international commodity arrangement. Similarly, a unit of the United Nations, the Interim Coordinating Committee for International Commodity Arrangements (ICCICA), has recommended to the United Nations Secretariat that a special international meeting be called on lead and zinc and a meeting has been scheduled for September 1958. On the other hand, the attitude of the Canadian Government, whose cooperation would be essential to an effective international approach to the problem, is uncertain.

We are under no illusions concerning the difficulties that would have to be overcome in obtaining an agreement satisfactory to both producers and consumers. On the other hand, a willingness on our part to explore practicable possibilities would be of considerable psychological importance to us and offers the best prospect of substituting multilateral for unilateral action.

It is not proposed that the United States agree to the creation of international buffer stocks or other measures requiring the expenditure of United States funds.

Recommendation

It is recommended that the Department be authorized to:

(1) Participate in international discussions of lead and zinc problems in the United Nations or in other appropriate forums.

(2) Provided such discussions indicate it to be desirable, participate in an international study group on lead and zinc for the purpose of studying trends in supply and demand and considering measures which might be adopted by governments to achieve a state of approximate balance between the two.

(3) Provided such discussions indicate it to be desirable, participate in the drafting of a possible intergovernmental commodity agreement which would be subject to approval by each participating government. Insofar as the United States is concerned, this would require Congressional approval.³

0. Source: Department of State, Central Files, 411.004/7–758. Confidential. Drafted by Mann on July 1 and cleared with ARA, L, EUR, FE, and H. Dulles approved sending the memorandum to Randall. (Memorandum from Dillon to Dulles, July 1; ibid.)
1. The date is handwritten.
2. Ellipsis in the source text.
3. This memorandum was redated July 14 and distributed to the Council on Foreign Economic Policy as CFEP 574/1, July 17; see Document 76. (Washington National Records Center, CFEP Files: FRC 62 A 624, International Lead and Zinc Problems—CFEP 574)