Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 2

411.9631/10–2854

No. 376
Memorandum by Leonard S. Tyson of the Office of Philippine and Southeast Asian Affairs to the Acting Director of That Office (Young)

confidential

Washington, October 28, 1954.

Subject:

• Philippine Trade Agreement Negotiations and Laurel’s talk with the President on November 3¹

Background:

In the attached memorandum from Mr. Langley to Assistant Secretary Robertson,² Mr. Langley notes that the principal point at issue at the present time in the negotiations is the Philippine insistence upon revision of the provisions calling for the imposition of U.S. tariffs on Philippine exports to the United States. The essence of the Philippine position, Mr. Langley believes, is that they wish the tariff provisions revised so as to provide an indirect subsidy. In plain terms the Philippine Delegation wants dollar aid.

Mr. Langley recommends that “there may be a need for some ‘grand gesture’” and suggests that when Senator Laurel calls on President Eisenhower, publicity might be given to a promise of additional United States financial aid.

Mr. Baldwin in commenting to Mr. Robertson on Mr. Langley’s memorandum (see attached memorandum from Mr. Baldwin to Mr. Robertson)³ notes that it would be politically undesirable to interrelate U.S. economic aid with changes in the Trade Agreement. He points out that anti-American elements might argue that the United States is attempting to buy a trade agreement which would prove otherwise unacceptable to the Philippines. As an alternative, Mr. Baldwin suggests that the United States might grant the Philippines an extended period of duty-free access to the American market to be followed by a period of gradually increasing tariffs. At the same the Philippines would be allowed to impose promptly heavier duties than the present agreement provides upon American imports into the Philippines.

Discussion:

PSA should, I believe, fully concur in Mr. Baldwin’s position that there should be no economic aid quid pro quo in exchange for Philippine concessions on the Trade Agreement. The United States legislation (War Damage Act of 1946) granting war damage payments to the Philippines sharply limited payments to private Philippine citizens until the Philippines had approved the Philippine Trade Agreement. This interrelation of U.S. financial aid with the Trade Agreement of 1946 has been a consistent political liability. The Philippines have argued repeatedly that the Trade Agreement was forced upon them in order to qualify for the war damage payments. This mistake should not be repeated.

Mr. Baldwin’s suggestion that the Philippines be granted an additional period of duty-free entry into the U.S. market is in close accord with a recent suggestion made by PSA/E to Mr. Braddock of the U.S. Delegation.⁴ Under this proposal the Philippines would be accorded 5 more years of duty-free entry in return for which the United States would impose full duties on Philippine products 5 years earlier than is now provided for in the existing agreement (1969 rather than 1974). This might be justified to the Congress as sort of a “loan” of 5 years to the Philippines, justifiable on the grounds that it took the Philippines 5 years longer than was anticipated originally to restore its war devastated economy. This proposal is now being considered by the United States Delegation.

The fact that there should be no interrelationship between U.S. economic aid and provisions in the Trade Agreement does not necessarily, however, mean rejection of Mr. Langley’s proposal that some sort of publicity regarding U.S. economic aid might be issued at the time of the Laurel/Eisenhower talks. If in Mr. Langley’s judgement the issuance of some such statement would considerably facilitate the negotiations, it is suggested that the Department might prepare a press release to be issued on that occasion along the following lines:

Senator Laurel and President Eisenhower discussed the economic and political relations between the United States and the Philippines. Senator Laurel explained the great desire and need of the Philippine Government to pursue its program for economic development. President Eisenhower reiterated the intention of the United States to continue to extend economic aid to the Philippines for this purpose. In this connection the President stated that the United States Government was considering a proposal to increase its economic aid program next year to the Philippines by extending long-term loans to further the industrialization and other aspects of the economic development program of the Philippines.

The last mentioned point regarding long-term loans for industrialization has been recommended by our mission in Manila (Tousfo 420)⁵ and has been tentatively approved by FOA/Washington and the Department. Since we plan to go ahead with this program now, it might seem wise to gain some political advantage by having it announced at the time of the Laurel/Eisenhower conversations.

A collateral purpose of such a public announcement would be to provide the President with something which Laurel could point to as an accomplishment flowing from his talk with the President. It is not expected that the President would be in a position at the time of the talk to comment other than in generalities upon the question of the Trade Agreement.

Special care would have to be exercised in the drafting of any press statement to avoid interrelating the Trade Negotiations and the proposed increase in aid.

I have discussed this proposal informally with the FOA and, at the working level at least, they find it acceptable.

Recommendations:

1. That a talking paper be prepared for the President for use in his conversation with Laurel in which the President would:

a. Express general hope for succesful conclusion of the Trade Agreement, and

b. Reply to Laurel’s anticipated comments on the need for economic development by stating that the U.S. plans to increase our aid next year through long-term loans for industrialization and other projects.

2. A press release along the above lines be prepared for issuance after the conversations.⁶

3. FOA continue to urge consideration of a further period of five years’ free entry into the American market for Philippine products in return for accelerating the eventual date for the imposition of full duties by five years.

[Attachment 1]

Memorandum by the Chairman of the United States Delegation to the United States-Philippine Trade Agreement Negotiations (Langley) to the Assistant Secretary of State for Far Eastern Affairs (Robertson)

confidential

Washington, October 25, 1954.

The Philippine Situation

The Philippine Trade Mission came to Washington with two general well-advertised demands—revision of the 1946 Agreement trade provisions and elimination of impingements upon their sovereignty contained therein. Of these they rate the first the more important, privately, and their protests on the second are obviously intended primarily to improve their bargaining position on trade matters.

Their trade demands are not really that, but efforts to obtain, through a rearrangement of tariff provisions, an indirect subsidy. In short, they want financial help in some form, and their privately expressed views to me indicate they are not too particularly about the form, so long as they get the aid.

Senator Tanada has confided that we will have no trouble at all with them about matters like parity if we will only go along with their trade proposals. Senator Laurel, asked by me as to when he might go home, in view of his obvious desire to do so as soon as possible, said: “I can’t go home until I have something to take with me.” Even though he, individually, seems most concerned about matters involving the sovereignty of the Philippines, he goes along with his Delegation in wanting dollar aid in some form or by some device, and says that political liberty will fail without economic support.

In individual talks with me the Philippine leaders, including Governor Cuaderno and Senator Puyat, are quite frank in discussing what they are trying to achieve. They want a trade arrangement which will permit them to recapture tariffs we do not apply to their articles coming into this country, while we start paying tariffs to further swell their national receipts. They even have worked out tentative ways and means of taking advantage of such a situation, including the drafting of bills for presentation to their next Congress.

Our approach, up to this time, has been to treat sympathetically their protests about impingments on their sovereignty, while in the trade area we have tried to conceive arrangements which would even give them some increase in preferences, without a corresponding increase in our own, within general administrative policies.

I still feel that such adjustments in the Trade Agreement are possible and desirable, both politically and economically, but I also feel that there may be need for some “grand gesture” also.

As we negotiate, the Premier of Pakistan comes to Washington, stays a couple of days, and goes home with a promise of quadrupled American economic and military aid. This occurrence was not overlooked by the Filipinos.

The Trade Negotiations Delegation is not in a position to discuss aid with the Philippines. However, a little coordination at this point between the work of this Delegation and top policy officers of the Government might operate to produce a better climate in which to conclude the negotiations on a sane trade and political basis, plus, possibly, negotiating an FCN treaty, so that the overall political picture in the Far East could be definitively improved, not only in the Philippines, but through indirect reactions by other Far Eastern nations.

Senator Laurel is to pay a call upon President Eisenhower on November 2, carrying with him a personal letter from President Magsaysay of the Philippines.⁷ If anything were to be worked out in the way of promises as to aid (such as assurance that the considerable balance of FOA aid originally indicated, but not yet realized, would be given) it would seem that the Eisenhower-Laurel meeting might be the proper occasion and opportunity to tell President Magsaysay and the world about it. Here is a possible opportunity to do something when it could redound to this Government’s credit rather than later in desperation.

In any event, the status of the negotiations would seem to indicate the desirability of immediate policy discussions at a higher level than is provided for by the composition of the negotiating delegation which I head.

[Attachment 2]

Memorandum by the Deputy Assistant Secretary of State for Far Eastern Economic Affairs (Baldwin) to the Assistant Secretary of State for Far Eastern Affairs (Robertson)

confidential

Washington, October 25, 1954.

Philippine Situation

The attached memorandum from Jim Langley⁸ deals with a situation which is potentially very serious. The situation is complicated not only by the difficulties mentioned by Langley but by the fact that the large Philippine delegation contains numerous members of Congress who either are important or consider themselves to be important, all of whom are becoming increasingly restive. I have sent a copy of the Langley memorandum to Tyson, asked him to consider it carefully and express his views. My tentative opinion is as follows:

1. Any official indication at this time, or during the course of the negotiations, that the U.S. intends to increase substantially its direct economic aid to the Philippines might have adverse repercussions as well as being economically undesirable. Anti-American elements in the Philippines and elsewhere could charge that the U.S., unwilling to make outright trade concessions to the Philippines, was attempting to buy, with economic aid, an agreement which would be acceptable in the United States. From a political standpoint, both Magsaysay and ourselves might lose more than we could gain under such circumstances. Moreover, economic aid in lieu of economically sound trade agreement revisions would be highly questionable on economic grounds and would certainly not be economically beneficial to the Philippines.

2. We should express the above opinion very frankly to Laurel and two or three members of his delegation. At the same time, the Philippines should be told that the U.S. representatives understand the problems of the Philippine mission and intend to do everything possible to bring about an agreement which among other things would at least for the time being provide the Philippines with resources for economic development purposes. The policy which the U.S. delegation might follow to bring that about might represent a compromise between the extreme Philippine proposals for selective free trade (completely one-sided to the advantage of the Philippines) and the extreme American view. A formula might be developed which would start with an arrangement which would closely resemble the Philippine selective free trade idea and would be highly weighted in favor of the Philippines with the Philippine margin of advantage decreased progressively for a period of 10, 15, or 20 years, at which time arrangements of greater reciprocity would commence.

I believe that an arrangement along the line of (2) above might be sold to Congress on the grounds that it was the best possible means of assisting the Philippines to gain increasing economic strength and thus be better able to resist Communism. It could be represented as more effective assistance than an increase in direct economic aid which otherwise might be necessary.

Langley felt that because of the importance of this matter, he should bring it to your attention. He would like to have an opportunity to discuss it with you briefly. I shall have some staff work done and report again to you, at which time a conference with Langley might be advisable.

1. The U.S.-Philippine Trade Agreement Negotiations had formally opened on Sept. 20; for text of the opening remarks by Assistant Secretary of State Robertson and Senator Laurel, head of the Philippine Delegation, see Department of State Bulletin, Oct. 11, 1954, p. 542.
2. See attachment 1, below.
3. See attachment 2, below.
4. Daniel M. Braddock was Deputy Chairman of the U.S. Delegation to the trade agreement negotiations. Tyson was in PSA/E.
5. Not printed.
6. Following Senator Laurel’s meeting with President Eisenhower on Nov. 3, a press release along the lines indicated in this memorandum was issued. It did not interrelate the two questions of American aid to the Philippines and changes in the Trade Agreement. For text, see Department of State Bulletin, Nov. 22, 1954, p. 771.
7. Senator Laurel saw President Eisenhower on Nov. 3. The letter is not printed.
8. Attachment 1, above.