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

288. Information Memorandum From Miklos Szabo-Pelsoczi of the Tropical Products Division, Office of International Commodities to the Director of the Office of International Commodities, Bureau of Economic Affairs (Jacobs)¹

Washington, October 22, 1965.

SUBJECT

• The First Session of the 1965 UN Sugar Conference²

1. General

The session got off to a good start: by the end of the first week all major committees were set up and all officers elected. The committees were: Quota and Price, Economic, Administrative, Statistical, and the Officers: Odevall (Sweden) Chairman, Patino (Mexico) First Vice-Chairman, Suma (Japan) Second Vice-Chairman, Jones-Parry (UK) Chairman Quota and Price Committee, Harvey (Canada) Chairman Economic Committee, Sen Gupta (India) Chairman Administrative Committee, and Desbordes (France) Statistical Committee. Baron Kronacker (Belgium), who wanted to be Chairman, and Janton (France), who expected to chair the Economic Committee, were ignored.

The brisk pace of the start was not followed up with comparable action during the rest of the session. Already on the Monday of the second week the conference ran into a major difficulty—the exporters’ request to importers that they give specific and uniform access and minimum price guarantees—an issue which remained a stumbling block for the next two weeks.

The importers in general were taken aback by the vehemence of the exporters’ assault. Although consultations among the major importers (US, UK, Japan, Canada) started immediately, it was not before the Friday of the third week that the importers were in a position to make a common statement concerning the exporters’ request. By that time it was too late to put the exporters under any pressure to tackle the main issue underlying the stabilization of the market, namely export quotas.

Under these conditions the session ended on a low key, without acrimony, but with the realization that none of the old issues (export quotas, especially Cuba’s position in an agreement) came any closer to a solution, and that in addition to them a new issue, namely, the exporters-importers controversy, has been created.

2. The “multilateral approach”—and why it was pressed?

The “multilateral approach”, as it was called and interpreted at the conference, is easy to define. It is mainly contained in Articles 35, 36, and 53/2 of the draft agreement and it essentially consists of an obligation of importers to import yearly specific quantities based on a fixed and uniform arithmetical formula, at a price not below an agreed upon minimum. If the definition of this technique is easy, it is much less clear why the exporters gave so much support to it that every other progress became impossible during the session.

The truth is probably that the “multilateral approach” meant different things to different people, and that it was the sum total of these private reasons, rather than the genuine belief in the overall therapeutic effect of the method, which made it the star performer of the session.

The multilateral approach had a long history in the Sugar Council. It has been an optional feature of the 1958 Agreement, Art. 22 of which reads in toto as follows:

Article 22

• “(1) During the first quota year of this Agreement, the Council shall consider, and make recommendations to interested participating Governments concerning the negotiation of arrangements for multilateral options drawn up in accordance with the provisions of this Article.
• (2) Such arrangements shall be designed to secure that, if the prevailing price moves beyond the highest or lowest price of the range set out in Article 21, the Participating Governments concerned will have the right to exercise options for sale or purchase, as the case may be, in respect of such quantities of sugar as may be prescribed in the arrangements.
• (3) The options shall be exercisable in accordance with such limits as to time and frequency, or otherwise, as may be prescribed in the arrangement.
• (4) The arrangements shall take into account the traditional pattern of trade in sugar.
• (5) The Council may establish such Committees as it deems desirable to assist it in the examination of these questions and to formulate the recommendations provided for in paragraph (1) above.”

These ideas have been briefly discussed at the 1961 Sugar Conference without however undergoing any serious change. (See the Economic Committee’s Report of 1961 Conference C(63)1.)

Nevertheless, between 1961 and 1964 the Secretariat of the Council and the Preparatory Committee established by the 1963 Protocol, apparently in an effort to come up with “new” ideas, inclined to favor more and more the multilateral approach. (See the Preparatory Committee’s Report C(64)4.) Ralph Stedman (Executive Director 1960–64) was of this view. The current Executive Director followed in his footsteps.

What for Sugar Council officials was mainly an interesting academic exercise, for the British became an opportunistic solution. During the years 1962–1965 UK officials expressed repeatedly their interest in lowering the UK Negotiated Price in order to reduce their foreign exchange burden. The prerequisite of this position was the strengthening of the world market. This in itself could be achieved through supply-management alone, but we must assume that the UK government was exposed to heavy pressure from its LDC suppliers (BWI’s, India, etc) not to reduce the Negotiated Price without first making absolutely sure that a minimum world price will be guaranteed under an International Agreement. Until Deputy Secretary R. Wall realistically appraised the program in Geneva, the UK gave cheerful support to the exporters’ request.

The US, although [having?] repeatedly expressed its reservations concerning the wisdom of the multilateral approach (see Deptel 37 (?) of July 1 (?) 1965 to London³), was perhaps counted upon to acquiesce in it, since it does not involve direct US interests. The support of the USSR and of the African countries was certain.

Viewing the situation in this light, it is perhaps not surprising that Brazil, wanting to establish the principle in order to create precedence for other commodity agreements rather then to fight for a realistic sugar agreement on this occasion, came out strongly in favor of the multilateral approach. Mexico and the other OAS countries followed the lead, especially since they might have felt that their pressure is not directed at the US, but at other, non-preferential importers.

Cuba of course needed no encouragement. It is pretty obvious now that Cuba did not want to have an international agreement at this juncture. The multilateral approach served Cuba’s interests well, covering up for a lack of Cuban cooperation which nevertheless became more-and-more apparent as the conference proceeded. Furthermore, the multilateral approach gave an opportunity to Cuba to say that really there is no overproduction in the developing countries since the surplus could be easily absorbed a) if the developed countries, especially the US reduced their own production, and b) if the developed countries subsidized exports of developing countries through a minimum price guarantee and through special sales to low income countries.

But it is exactly at this point where all calculations (UK, Commonwealth, Brazil, OAS, etc) went wrong. Even if there were no practical difficulties with respect to the application of the multilateral approach, the US could not have agreed under the present political circumstances to a system which would entrust the maintenance of the minimum price to importers, while exporters would be more or less free to overproduce. (The whole argument that exporters, by themselves, are unable to restrict exports to the extent necessary for the maintenance of a stable price, implies that exporters will overshoot their production targets regularly and will expect that the developed countries will subsidize their surplus sales to new markets.) This system would reduce the pressure on Cuba to stay within its quota, would weaken the benefits of a stable price to free world exporters and thus would eliminate the justification of US participation in an agreement.

In short, free world countries which supported the multilateral approach gravely miscalculated the US position on the issue. It will be the task of the US to convince its friends during the intersessional period to abandon the multilateral approach.

3. The Outlook of New ISA

The sugar problem will not go away. As prices decline (during the week following the Conference they declined by about .5ȼ lb.) the pressure to do something about it will increase. The ISC will want to have at least one preparatory meeting of exporters and importers before the end of the year, followed up by further meetings in January and February. The Commonwealth sugar producers will start their yearly review session on October 25th, lasting several weeks in London. It would not be surprising if the OAS Sugar Group, which met several times in Washington during the past two years were to get together in the near future. The question is what the US should do during the coming months of preparation and uncertainty?

Publicly, the US probably could not do better than to maintain its current position of active interest in a realistic agreement helpful to our friends. The US should emphasize that such an agreement might emerge from the second session of the Conference only if preparatory work in the Council indicates that all the major issues, namely, the exporters’/importers’ controversy and the separation of the preferential markets from the world market has been solved and virtually agreed upon by all the major participants. The US should resist the calling of the second session without being assured of such virtual agreement.

Privately, the US might want to work very closely with the UK, Japan and Canada on the importers’ side, and with Australia, Peru and Taiwan on the exporters’ side. If these six countries firmly supported the US on the multilateral issue and on the separation of the preferential and non-preferential markets, one of three possibilities might result:

a) The second session will not be called in the foreseeable future;

b) If called, Cuba might be forced into accepting an agreement favorable to US policies;

c) A Cuba-less agreement might emerge.

In view of the urgency of the matter, the US could perhaps get in touch with the Australians in the near future, so that they could influence the Commonwealth Sugar Talks starting before the end of October in the direction desirable from the US point of view.

4. An Agreement without Cuba

Preparations for such an agreement should start now, parallel with the preparations suggested under the previous paragraph. The difficulties of such an agreement should not be underestimated, and the nature of such an agreement should be clearly understood.

With respect to member importers, the same rules of import restrictions from non-members should apply as in a normal agreement. Export quotas to the markets of member importers should be based on historic averages. The technique would be supply-management, and the price probably could be maintained at the Agreement minimum.

With respect to non-member importers, the Agreement should operate essentially as a cartel, or international sugar marketing cooperative, without maintaining an inflexible floor price which would only allow Cuba to undersell it. The Agreement would need to set up a marketing board (as suggested in the US Position Paper re Art. 46) to coordinate the sales of members to the market on which they will have to compete with Cuba and presumably the other Soviet Bloc exporters.

Inasmuch as Agreement members would need to meet Cuban competition, their returns will not necessarily be much better than without joining the Agreement. Nevertheless, there are obvious differences between a duopolistic situation (Cuba and Agreement) and a free market situation (Cuba and 30 exporters), which would argue in favor of an Agreement. Agreement members could help each other to hold the Agreement line (quotas, financially strong members like Australia providing temporary help to weak members, etc.) and would eliminate competition among each other. On the other hand, they would prevent unchecked Cuban expansion, as they would try to meet Cuban competition whenever they could. Cuba, faced with the inability to expand, would be compelled to call off her price war. At this point a sort of co-existence between the duopolistic structures could develop, implying tacit agreement as to prices, and to each other’s markets, and leading eventually back to an international agreement along the lines the US would be willing to support.

It is obvious that the legal, economic and political ramifications of an eventual agreement without Cuba are far-reaching. Therefore, the need for an early and detailed study of the question—possibly in consultation with the Six (UK, Japan, Canada, Australia, Peru, Taiwan)—cannot be overemphasized.

1. Source: Department of State, EB/ICD/TRP Files: Lot 75 D 462, Sugar Conference 1965. No classification marking.
2. For additional commentary on and sources relating to the conference, see American Foreign Policy: Current Documents, 1965, p. 1090, footnote 16.
3. Not further identified.