Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

305. Memorandum From the Assistant Secretary of State for Economic Affairs (Solomon) to the President’s Special Assistant (Califano)¹

Washington, December 6, 1965.

SUBJECT

• Recommendations on Stockpile Disposal Items (Your memorandum to Under Secretary Mann dated December 2, 1965)²

The following are our views on the various stockpile disposal items of significant interest to the Department of State. In recognition of the overall problem faced by the Administration, we have modified some of our previously held positions. We have done this despite the fact that virtually all the proposals to increase the disposal rate will, if adopted, have an impact on our relations with the affected producing countries.

Moreover, on the assumption that our recommendations are accepted, we would require a minimum of three weeks for consultations with interested governments to acquaint them with and explain to them the reasons for the revised disposal program.

I have gone over the following recommendations with Under Secretary Mann and he concurs.

Bauxite

Recommendation: We agree with the General Services Administration’s proposal to dispose of 400,000 long dry tons of bauxite during the remainder of fiscal year 1966, and will consult on this basis provided it is clear that the aluminum companies will buy this amount and that we have knowledge of the disposal plan for bauxite for the remainder of the year 1966.

Discussion: We have consulted with Jamaica and Surinam, our principal suppliers, on a rate of 400,000 tons for the calendar year 1966. Jamaica reluctantly accepted this rate but Surinam did not object. The increased annual rate would, of course, arouse complaints. Surinam bauxite, which is of a quality that is more widely saleable, requires Congressional authorization, whereas Jamaican bauxite is available from DPA stocks.

Chromite

Recommendation: We agree with the General Services Administration’s proposal for the disposal of 100,000 short dry tons in fiscal year 1966.

Discussion: The only important free world suppliers are Turkey and Rhodesia. The material is in generally short supply and may be in shorter supply due to the political situation in Rhodesia. Authorization for disposals from the National Stockpile are required either from the Congress, or by the President on the basis of the common defense.

Cobalt

Recommendation: We are reluctant to approve the disposal of 1,000,000 lbs. for fiscal year 1966 because the impact is entirely on the Congo to whom we are currently giving balance of payments assistance through the acquisition of diamonds.

Discussion: We believe the sale from the stockpile will probably replace Congo sales and this action together with other disposal actions affecting the Congo would have serious political consequences. Producers’ stocks of cobalt, which is a by-product of the Congo copper output, are already high.

Columbite

Recommendation: We are prepared to approve an initial disposal of 200,000 lbs. of columbite (columbium content) with the understanding that subsequent disposals in fiscal year 1966 and for the balance of calendar year 1966 would be made only after the result of the initial offering had been ascertained.

Discussion: The 600,000 lb. disposal represents about one-half of Nigerian exports to the U.S. We have consulted on this rate with the Nigerian Government through our Embassy in Lagos and there was a strong adverse reaction to this amount.

Copper

Recommendation: While we concur in the General Services Administration’s recommendation for an additional sale of copper, we think such sale should be deferred beyond the suggested February 1966 date.

Discussion: In our opinion the sale of additional copper should be considered very carefully from the standpoint of our overall national policy. Approximately one-fourth of the world production of copper is threatened with serious interruption. If such interruption took place, consumption might have to be curtailed and redistribution of available supplies will in all likehood take place. The sale of such a large proportion of our remaining stockpile would thus involve a considerable risk. Therefore, we would recommend that the date of sale be postponed until the effect of the Rhodesian UDI on the copper supply becomes clearer.

Diamonds (bort)

Recommendation: We are reluctant to agree to the disposal of 2,000,000 carats of diamond bort at a time when the diamond-uranium barter deal is about to be announced.

Discussion: Any disposal of diamond bort would have a direct balance of payments effect on the Congo as well as upon the barter deal. The barter transaction was entered upon for balance of payments reasons and will replace dollar expenditures required by the AEC contract for uranium from South Africa and give balance of payments aid to the Congo. A disposal of bort at this time might be embarrassing to the Administration, which has sponsored the barter.

Diamonds (stones)

Recommendation: We agree with the General Services Administration’s proposal for the disposal of 500,000 carats of industrial stones in fiscal year 1966.

Discussion: The major producer is South Africa and industrial stones are generally in short supply.

Mica

Recommendation: We are prepared to agree to a disposal of mica at the rate of 750,000 lbs. for the remainder of fiscal year 1966.

Discussion: We have been discussing with the representatives of the Indian Government a suggestion for a 1,500,000 lb. disposal for the initial year of the program. The Indian representatives have countered with an escalating program beginning with an initial rate of 200,000 lbs. annually. Any increase in our original suggestion will be regarded by India as evidence of bad faith. In view of the small amount of money involved and the minimal effect of this disposal on our fiscal and balance of payments problems, we believe the increase recommended by the GSA would not be worth the consequences on our relations with India.

Rubber

Recommendation: We cannot recommend an increase in the commercial sales part of the existing disposal program; that part of the program involving disposal for government uses could probably be increased—especially if this meant use of natural rubber where synthetic rubber is now being used.

Discussion: United States natural rubber-consumption in 1965 will total about 520,000 tons. Of this 120,000 tons was supplied from government stocks and the balance of 400,000 tons from imports. The stockpile program includes commercial sales of 72,000 tons and government uses estimated at about 40,000 tons annually. The import of natural rubber in the U.S. has been declining during the postwar period and currently represents less than 25% of total rubber consumed. Any increased disposal program would make further inroads on this market and would create virtually intolerable political problems in Southeast Asia and in producing countries in Africa.

1. In response to technological improvements in synthetic rubber, and in the production of synthetic rubber the price of natural rubber is in a long term decline; the average price per pound in 1960 was 38.16 cents, in 1962 28.56 cents, in 1964 25.24 cents, in August 1965 24.73 cents. Further decline is expected. This has the utmost significance for rubber growing countries, especially Malaysia and Indonesia which derive 50–60% of their export earnings from rubber. Any increase in releases from government stocks would put added pressure on the downtrend in prices and would be seized upon by some elements in these countries as the primary reason for the decline.

2. Rubber growing countries—in particular Malaysia—have adopted imaginative, long-range programs to improve the competitive status of natural rubber through increasing the yield, improving and standardizing quality, development of special types of natural rubber. The release of additional U.S. surplus with a corresponding reduction in U.S. imports and accompanying price pressures will be regarded by Malaysia and other rubber-growing countries as countering their own efforts to which we had heretofore given considerable encouragement. The action would undoubtedly be protested by the less-developed countries in various international forums—including UNCTAD.

3. Indonesia has just experienced political shake-up. The U.S. is its largest market for rubber, taking 254,000 tons out of a production of 638,000 tons. Our action would be regarded as a slap at their recent policies and would encourage them to continue and increase their sales to their next largest customer—Mainland China, who would certainly take every propaganda advantage of our action.

4. The most important producer in Africa is Nigeria, a country which would also be affected by other increased disposal programs. Nigeria has heretofore followed U.S. policies in Africa although there are signs of their waivering and our disposal actions would encourage this tendency.

5. Additional disposals would adversely affect the U.S. rubber import trade. A number of U.S. firms deal almost exclusively in rubber imports and they would regard this action as a future threat to their livelihood.

6. We would not object to a greater utilization of stockpile rubber in U.S. Government use programs which in 1965 will consume about 43,000 tons. We estimate that the DOD programs now utilize around 40,000 tons annually of synthetic rubber. We have no data on the use of synthetic rubber by other government agencies. Presumably, however, this is substantial since other agencies have a higher requirement for automotive type tires which normally use synthetic rubber. Government specifications could be changed so as to incorporate more natural rubber in place of this synthetic rubber. This might be done at some inconvenience to the rubber companies but it would avoid the severe impact on our foreign relations.

Tungsten

Recommendation: We believe the tungsten disposal for the balance of fiscal year 1966 should be limited to 1,500,000 lbs.

Discussion: The 1965 program of 1,000,000 lbs. was reluctantly accepted by the producing countries. The supply situation has however tightened and an increase for the year 1966 would seem in order. The General Services Administration’s proposals of 6 million pounds, however, would, in the absence of new demand, displace all our expected imports for the calendar year 1966 in a period of six months. Korea and Bolivia, in particular, are among our principal suppliers. We are committed to consult with the supplying countries before instituting a new disposal program and before consulting we should like some idea of what quantities are envisaged for the full year.

Abaca

Recommendation: We continue to approve the disposal of abaca at a 9–1/2 million pound annual rate.

Discussion: The Philippines strongly objected to a 9–1/2 million lb. rate and carried their objections to the Congress where they succeeded in getting a limitation on abaca to 5–1/2 million lbs. for the first year. If a way can be found around the Congressional limitation, we will live with the Philippine objection to 9–1/2 million lbs.

Aluminum Oxide and Silicon Carbide

Recommendation: We agree with the General Services Administration’s proposal to dispose of 10,000 short tons of aluminum oxide and 10,000 short tons of silicon carbide during the balance of fiscal year 1966.

Discussion: We expect no serious foreign relations problems on this disposal.

Anthony M. Solomon ³

1. Source: Johnson Library, National Security File, National Security Action Memoranda, NSAM 321, Review of Strategic Stockpile Objectives, Box 6. Secret; Eyes Only. Drafted by E.E. Getzin (E/OR/ICD/ISM) on December 6. On the source text is the handwritten notation, “Sent.”
2. Not found.
3. Printed from a copy that indicates Solomon signed the original.