369. Letter From the Under Secretary of State for Economic and Agricultural Affairs (Wallis) to the Under Secretary of Agriculture for International Affairs and Commodity Programs (Amstutz)1
Domestic processors of sugar have announced their intent to forfeit about 260,000 tons on September 30. The disposal of these forfeitures will again pose a vexing problem for the Administration.
We concurred in the recent sale of sugar to China in recognition that all of the options for disposal have serious drawbacks. In hindsight, however, the sale had a much more disruptive impact on the world sugar market than anticipated.2
The trade sources that we have consulted do not attribute the subsequent 20–25% drop in world sugar price to that transaction alone. The depressing effect on prices is considered to be due to a combination of factors: the unexpectedly low price of the sale to China; some speculation that China will re-export part of the sugar imported this year from various suppliers; and the expectation of another U.S. sale of forfeited sugar at distress prices.
We are continuing to receive complaints from sugar exporting countries. The Australians have come in to register a strong plea that the U.S. not dispose of the forfeited sugar in any foreign market. The Latin American and Caribbean sugar exporting countries, in a letter to you copied to us,3 compared U.S. policies to those of the EC. The Thai government has estimated that Thailand would lose $192 million as a result of a lower world price. Fiji, as well, has expressed dismay that the U.S. sale [Page 903] came just as that country was about to negotiate a sale to China, and as a consequence their 50,000 tons of sugar would bring less than 5.5 cents per pound, instead of more than 6 cents previously anticipated.
I recognize that other means available to dispose of the forfeited sugar pose difficulties of their own. Nevertheless, I believe it essential to give careful interagency consideration to all of the alternatives before any decision on disposal of the sugar that may be forfeited this month.
Sincerely,
- Source: Department of State, Executive Secretariat, S/S Files, 1986 Official Office Files, Action/Briefing/Information/Through Memoranda,/Chron Files/Memoranda to the Secretary Handled by (E) Economic Affairs Allen Wallis, Lot 89D156: Action Memoranda, September 1986. Confidential. Drafted by David Stebbing (EB/RDC/OFP/FPD) and Eleanor Kuhn (EB/TDC/OFP/FPD) on September 8; cleared in EB/TDC/OFP, EAP/EP, ARA/ECP, EB/TDC, and ARA. Lamb sent Wallis a copy of the proposed letter under a September 20 memorandum, recommending that Wallis sign the letter to Amstutz. (Ibid.)↩
- In a September 16 memorandum from [name not declassified] the Central Intelligence Agency to Platt, [name not declassified] explained that the August 11 USDA sale of 145,850 metric tons of raw sugar to the PRC at 4.75 cents per pound was manipulated by the Chinese. [text not declassified] within three to four days of the sale, the PRC sold exactly the same amount of sugar in the futures market at the price of 5.7 to 5.8 cents per pound, resulting in a $3 million net profit. The sale, [text not declassified] contributed to lowering world sugar prices. The “Chinese have clearly made a killing from the US sale and would be very anxious to repeat the exercise,” the memorandum concluded. (Reagan Library, Stephen Danzansky Files, International Trade Subject Outline, I (F) General—Identification [Wissman, Matthias])↩
- Not found.↩
- Wallis signed “Allen” above his typed signature.↩