U.S. Department of State
FRUS, 1961-63, Vol. IX: Foreign Economic Policy
Office of the Historian

[Section 17 of 18]

Strategic Materials and Commodities Policy

335. National Security Action Memorandum No. 4

//Source: Department of State, S/S-NSC Files: Lot 72 D 316, NSAM 4. Top Secret.

Washington, February 4, 1961.

TO

The Secretary of Defense

SUBJECT

Purchases of Uranium from Foreign Countries

“In the light of discussion at the National Security Council on February 1, 1961,/1/ the President requested the Secretary of Defense to consult with the Atomic Energy Commission about a review of the purchases of uranium from foreign countries. It is accordingly requested that this review be undertaken and that this office be informed whether, in fact, there is any hope of early savings of foreign exchange in this area.

/1/NSC Action No. 2398 - g, taken at the 475th meeting of the National Security Council on February 1, is scheduled for publication in volume VIII

McGeorge Bundy/2/

/2/Printed from a copy that bears this typed signature.12

336. Memorandum of Conversation

//Source: Department of State, Central Files, 800.2553/2 - 1361. Confidential. Drafted by Dozier and cleared by E and NEA.

Washington, February 13, 1961.

SUBJECT

US - UK Bilateral Talks; Oil

PARTICIPANTS UK--Lord Hood, Minister, British Embassy Mr. D.A. Greenhill, Counselor, British Embassy Mr. W.C.C. Ross, Petroleum Attache, British Embassy Mr. D.J. Speares, First Secretary, British Embassy Mr. C.D. Wiggin, First Secretary, British Embassy Mr. M.S. Weir, First Secretary, British Embassy US--Mr. Foy D. Kohler, Assistant Secretary for European Affairs Mr. William C. Burdett, Director, BNA Mr. Clarence W. Nichols, Special Assistant, E Mr. Armin H. Meyer, Director, NE Mr. S.B. Jacques, Director, OR Mr. Kennedy W. Cromwell, III, WE Mr. William B. Dozier, BNA

Lord Hood said that he was not prepared to go into the details or the technicalities of oil, but rather wished to discuss the subject in general terms. Energy was, of course, vital to the UK economy, and of all the energy sources oil was the most important. Moreover, oil's share of the UK energy market was constantly increasing. Not only must the UK import this large amount of oil, but it has a further interest in that earnings from its oil companies were very important to the UK international payments position. A significant aspect of the oil situation was that production, refining, transportation and marketing were largely centralized in seven international oil companies--five US owned, one UK, and the other half UK and half Dutch. Oil was thus largely controlled by Anglo-American firms and is identified as such in the outside world.

Lord Hood felt that it was very important for our two countries to keep in touch with respect to the oil situation, particularly since in their view our difficulties were likely to increase. He said that they thought it necessary for our two governments to provide political guidance to the oil companies and government backing when free world oil was threatened. The principal problem areas were as follows:

1. Oil producing countries demanding an even larger share of earnings and in some cases even ownership;

2. Increasing interference in consuming countries, particularly the trend toward nationalization of refining and distribution operations;

3. Indonesia;

4. Soviet oil exports.

Mr. Kohler said that we could readily agree on problems 1 and 2, but he was not so sure about the question of political guidance to private companies. We have always had difficulty here because of our antitrust laws. The difficulty over the Iranian arrangement was mentioned as a case in point. He added that we probably could not expect any radical change in our policy on this point.

Mr. Nichols said that there was a general appreciation in the US that the historical basis for the orderly distribution and marketing of oil was undergoing change. Our oil companies, however, have a history of doing a fairly good job in adjusting to and managing the changing situation themselves. He said that in Europe there was continuous discussion of energy policy by government bodies. The situation there was complicated by the rivalry between different energy sources, particularly oil and coal, and by the unusual degree of public ownership. We ourselves participated in the NATO oil study group which was now completing a comprehensive report on the problem of Soviet oil in relation to Western interests. It was anticipated that the report, which should prove to be a very useful document, will be turned over to the NATO economic advisers in about five weeks./1/

/1/Not found.

Mr. Kohler said that Ambassador Thompson, in recent talks here, stated that over the next ten years we should be prepared to face greatly increased Soviet capabilities in the economic field. Mr. Kohler added that the West may have to organize to meet the threat of increased economic warfare, perhaps along lines similar to the wartime effort.

Mr. Kohler observed that while he agreed that bilateral discussions should be held, it seemed that much could also be done in the NATO forum. Lord Hood replied that he agreed with this, and pointed to the NATO study as being very useful in pulling all the threads together.

Lord Hood asked if we agreed that our Governments may have to give backing to the oil companies. Mr. Kohler replied in the affirmative. Mr. Meyer asked if the British had anything specific in mind. Lord Hood said that Indonesia was a good example, and possibly even Venezuela and Japan.

Mr. Nichols observed that in some areas there were policy questions which go beyond oil that may have to be settled. He said that, for example, large pipe had been taken off the COCOM list some time ago, and since then imported pipe had been of great use to the U.S.S.R. in building oil pipe lines to the West. This may be a matter for NATO consideration.

Mr. Kohler asked if the UK had had any thoughts on how to bring the Italian concern Mattei back under control. This firm was very useful to the Soviets as a means of breaking into Western oil markets. Lord Hood replied in the negative.

Mr. Meyer, referring to the question of guidance to oil companies, said that we do talk to our oil companies from time to time about their problems around the world, and they are usually cooperative since they consider themselves as being in the same boat. Perhaps the greatest problem is in educating the companies' home offices.

337. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Confidential. Drafted by E on February 25 and approved by S on March 5.

Washington, February 14, 1961.

SUBJECT

Sugar

PARTICIPANTS House of Representatives Speaker Sam Rayburn Congressman Harold D. Cooley Congressman John W. McCormack Congressman W.R. Poage Congressman Charles B. Hoeven

Department of State Secretary Dean Rusk Asst. Secy. for Econ. Affairs Edwin M. Martin

Secretary Rusk opened the conversation by stating that the Administration accepted a 21-month extension of the sugar bill, wanted it enacted as soon as possible, but felt it of great importance that the bill, as submitted by Congressman Cooley,/1/ be amended to give the President discretionary power with respect to that portion of the Cuban quota which might otherwise have to be allocated to the Dominican Republic.

/1/H.R. 3738, 87th Cong., introduced by Representative Harold D. Cooley (D. - N.C.) on February 2

The Secretary based this letter request primarily on the serious potential threat to United States and hemisphere security which is pre- sented by the present situation in Cuba. He indicated that it was essential to take vigorous action to prevent the Castro regime from continuing its efforts to upset peaceful and friendly regimes in Latin America and from becoming a more serious military threat to the United States. A number of steps were under consideration to this end. To be effective it was essential that we have at least understanding and in some cases active cooperation from the other members of the Organization of American States. It was also necessary to have their cooperation and sympathy if we were to succeed in other measures which we wish to take in Latin America in order to establish more firmly regimes in those countries which are friendly to the United States and able to resist Communist infiltration from whatever source it may come.

To many of these Latin American countries, led by Venezuela, the Dominican Republic presents an equally serious threat to their stability. Failure of the United States to see the problem of Trujillo as a threat equally as serious as Castro will deprive us of the support and sympathy which we need. The attempt on the life of the President of Venezuela, which was organized in the Dominican Republic with Trujillo's help, stands out as an illustration to them of his threat.

To these people it is incomprehensible that the United States should be willing to punish Castro by not buying sugar in Cuba and then turn to the Dominican Republic to replace much of it. It is a windfall and a reward when they think only punishment is justified.

From a United States standpoint, we are also concerned about the current political activities of Trujillo. His propaganda machine, which is well financed, is extremely active and a cause of concern to our intelligence agencies. His publicity has become violently anti-American and sympathetic to many Soviet interests. There is evidence that his regime is in contact with Soviet bloc and Castro representatives.

Congressman Cooley inquired whether it wasn't true that the Latin American countries had not supported us in the Organization of American States on action against Cuba and wasn't it desirable that they evidence this support before we take the action they want vis-a-vis the Dominican Republic. The Secretary agreed that we had not gotten all we had asked for, yet it had been a step ahead and had been helpful. We did not think we could go to them for support on the measures we now contemplated taking, much more radical in nature, without having given them in advance evidence of our good faith and intentions with respect to the Dominican Republic. He pointed out that, while the OAS had not adopted resolutions specifically embargoing purchases of goods such as sugar from the Dominican Republic, it had taken a number of concrete measures in the trade field, whose spirit they felt would be abrogated by United States windfall purchases in the Dominican Republic.

Congressmen Cooley, McCormack and Poage pressed a number of questions with respect to what we expected to happen in the Dominican Republic if Trujillo was upset. Their great fear was that this prevented an opportunity for a Castro-sponsored regime to take over. The Secretary replied that our purpose was not to upset Trujillo, though failure to purchase sugar above and beyond the quota may well contribute to this end. If for this and other reasons, and there was evidence of extensive discontent, Trujillo were upset, our best guess was that a military regime would take over for a period. There were a substantial number of citizens who were anti-Trujillo and would cooperate, we thought, in any such regime. However, the brutality and repressions of the dictatorship had prevented these groups from effective organization. We felt there were military leaders who could continue a stable regime and put down any attempt of a Castro-type take-over, though, of course, we could give no guarantee as to the future course of events.

Congressman Cooley indicated that he had been discussing the problem of Dominican Republic sugar with a number of people in recent days, including Messrs. Bowles, Berle, Governor Munos Marin of Puerto Rico and others. The three Congressmen had just returned from lunch at the Venezuelan Embassy during which the Venezuelan and Colombian Ambassadors had expressed strongly their views. Everyone he had talked to had agreed with the Secretary that our Latin American policy would be seriously prejudiced by continued United States purchases of former Cuban quota sugar from the Dominican Republic. He was, therefore, sympathetic to the idea of giving the President discretionary authority. However, he thought it would be desirable in order to secure an orderly transition and prevent a Castro-type take-over if Trujillo could be persuaded that now was a good time for him to retire to some quiet part of the world. He was known to have a substantial fortune abroad. If he stayed on and provoked violent revolution or if he started playing with the Communists, the first target for either group would be himself and his fortune. He could be told that he could not expect to sell sugar beyond the Dominican Republic quota to United States so there were not additional gains to be made in the near future. He should leave, call elections for 60 days hence, and thus provide an orderly transition. Congressman Cooley suggested that he knew some people who were close friends of Trujillo and could carry such a message to him. They would be persuasive and he thought he might listen to them. He thought this should be done before any action was taken on sugar legislation.

The Secretary protested strongly that there was not time to undertake such a step, even if it were a wise thing to do, before enacting sugar legislation. In addition he felt that the persuasiveness of any such approach would be greatly increased if the President had already been given discretionary authority to cut off the Dominican Republic allotment before Trujillo was talked to. Otherwise, he could still hope that his friends in Washington could save the day for him as they had in the past. The Speaker strongly supported the Secretary on this point.

The Secretary went on to say that a similar mission had, he thought, though of an unofficial character, talked to Trujillo not too long ago without success. He did not know if this was a useful or practical idea. He would wish to consult advisers who were better informed than he on the subject of Dominican Republic situations. He could agree to explore it, but that was all.

Congressman Cooley then raised the question of the necessity of having an unallocated sugar quota available to give to a new regime, either in Cuba or the Dominican Republic, in order to provide it support. Such regimes might come into existence before the end of the calendar year and, therefore, he thought it would be desirable to have the sugar allocated on a quarterly basis so that we would always have plenty in reserve. He thought that this presented some problems to the Department of Agriculture. Mr. Martin indicated that he agreed it would pre-sent problems but that he thought if an arrangement, which was otherwise satisfactory, could be worked out, these problems could somehow be resolved.

The Speaker asked Congressman Hoeven his views on the Secretary's request. Congressman Hoeven replied that he personally was glad to support the position presented by Secretary Rusk which seemed to him substantially identical to that which had been held by President Eisenhower previously. He felt the Republican members of the Committee would do the same and also the Republican Policy Committee. Congressman Cooley said that if the Secretary was prepared to explore the possibility of making contact with Trujillo and recommending that he depart now and with an understanding that an arrangement like a quarterly allocation could be worked out to preserve a sugar quota for a new regime, he was ready to support the Secretary's proposal for discretionary power to the President. Congressman Poage agreed.

The Secretary then pointed out that he had said to them many things which he could not say in a public hearing. There were also things which it was awkward to even discuss in public hearings because what you did not say became significant. He, therefore, wondered if it would be possible for the Committee to report out the Bill without a hearing. Congressman Cooley said that this was the way he preferred to handle it. He had talked to several of the Democratic Congressmen and he thought they would go along with him without the necessity of hearings, especially if he could pass on what the Secretary said during their discussion. Congressman Hoeven was not so sure, feeling that it was desirable to provide information to some of the newer members of the Committee on the issues involved. It was left that Congressman Cooley would discuss the need for a hearing with the Committee when it organized but that in any case he would limit the hearing to an executive session, probably with the Secretary only appearing. He expressed the view that it would not be useful for anybody below the Secretary to talk to the Committee. The Secretary said this would be quite agreeable with him.

Congressmen Cooley and Poage pointed out there were also problems on the Senate side and that it would be useful in their judgment if the Secretary could have a quiet talk, similar to the one they had, with two or three of the leading Senators, like Byrd and Ellender. The Secretary agreed to do this.

Congressman McCormack then asked a number of questions about Trujillo's relations with the Soviets. He said if he were to reverse the position he took last year, he would have to have evidence that there had been a change in the situation and that the evidence which would interest him most would relate to the Trujillo relationships with the Soviets. The Secretary agreed to get further information on this point and present it to the Congressman.

The Speaker in closing asked the Secretary to send him a letter with the text of the amendment the Department proposed in the bill./2/ He would then transmit it to Congressman Cooley as Chairman of the Committee. Congressman Cooley agreed to this procedure.

/2/A copy of Secretary Rusk's letter to Rayburn, February 21, is in Department of State, S/S - NSC Files: Lot 72 D 316, NSAM 15.

338. Memorandum From Secretary of Defense McNamara to the President's Special Assistant for National Security Affairs (Bundy)

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSAM 4, Uranium Purchase. Confidential.

Washington, February 21, 1961.

SUBJECT

Purchases of Uranium from Foreign Countries

Attached is a copy of a letter to the President from the Acting Chairman of the Atomic Energy Commission, dated 7 February 1961, which reviews projected U.S. uranium purchases from foreign governments through 1966. I believe the letter adequately covers the points which the President, at the 1 February 1961 NSC meeting, asked me to investigate with the AEC, as indicated in your National Security Action Memorandum No. 4./1/

/1/Document 335.

You will note that most of the uranium purchases, involving a net dollar outlay of $700 million, will be made from Canada and the Union of South Africa, countries now having foreign exchange problems; that the contracts with these countries have recently been renegotiated to obtain the maximum benefit for the U.S.; and that there is no reasonable expectation that further deferment in purchases or payments can be negotiated, although the possibility of bartering surplus commodities for some South African uranium is being explored by the AEC.

Robert S. McNamara

Attachment/2/

/2/No classification marking

Letter From the Acting Chairman of the Atomic Energy Commission (Graham) to President Kennedy

Washington, February 7, 1961.

Dear Mr. President: This is to inform you of the situation with respect to foreign uranium purchases. The Atomic Energy Commission is obligated to purchase approximately 36,000 tons of uranium oxide between July 1, 1961 and December 31, 1966, involving a net dollar outlay of $700 million. Most of these purchases will be made from Canada and the Union of South Africa, countries now having foreign exchange problems. Both contracts have recently been renegotiated to obtain the maximum benefit for the United States. There is no reasonable expectation that further deferment in purchases or payments could be negotiated. Barter of surplus commodities for some South African uranium is a possibility.

As shown on the attached tabulation,/3/ the net payments for Canadian uranium will total $370 million for deliveries under a contract with Eldorado Mining and Refining Limited, a Canadian Government corporation, and $325 million for uranium from the Union of South Africa under a contract with the South African Atomic Energy Board. In each case the Government agency with which AEC has its contract has underlying contracts with private uranium producers. The balance of the uranium (less than one percent, costing about $5 million) will come from small operations in Australia and Portugal.

/3/Not printed.

The Canadian contracts were recently revised to provide for a stretch- out in uranium production and deliveries. Delivery of approximately $140 million worth of uranium which would have been delivered in 1961 and 1962 has been deferred to later years. All deliveries are to be completed by the end of 1966. Had it not been for the stretch-out, Canadian deliveries to the U.S. would have been largely completed at the end of calendar 1962 with only minor deliveries coming in 1963. Prior to the time the stretch-out arrangement was agreed upon, the U.S. had notified the Canadian Government that it did not intend to exercise its options to purchase additional quantities of uranium and proposed that a stretch-out be considered which would involve no additional costs and no increase in the quantity of uranium being purchased. The Commission's decision not to exercise its options, as well as the stretch-out arrangement, posed major economic and political problems for the Canadian Government. Although operations will continue over a longer period, the stretch-out arrangement has cut the Canadian industry roughly in half with many of the mines being closed. Under the circumstances there is no reasonable prospect that further deferrals could be obtained.

South African purchases were formerly made under a joint United States - United Kingdom contract with the South African Atomic Energy Board running through 1966. The U.S. bought two-thirds of the production and the U.K. one-third. This arrangement has also been recently revised to provide for separate AEC-South African and U.K. Atomic Energy Authority- South African contracts, the quantities remaining unchanged. The revised AEC-South African contract provides for a $20 million reduction in total cost and in a minor deferral of deliveries which would have been made in F.Y. 1961 and 1962 totalling $7 million. Under the new arrangement the U.K. will take most of its material after 1966 but, because South Africa also has a foreign exchange problem, will make substantial advances for each pound deferred. No advances are involved in the AEC-South African contract and all deliveries are to be completed by December 31, 1966. The Commission decided not to extend South African deliveries beyond 1966 because of possible problems with domestic producers. Our present domestic uranium program terminates December 31, 1966.

It is unlikely that a further stretch-out of South African deliveries and payments can be negotiated. There is a possibility, however, that some portion of the South African uranium could be paid for with surplus commodities, provided the U.S. is willing, as an incentive, to purchase additional quantities of uranium which it does not need. In prior conversations, Commodity Credit Corporation indicated that the amount of surplus commodities which might be involved in a barter arrangement probably would not exceed $20 million annually. Part of this would go to pay for the additional quantity of uranium which might be involved.

The problems in attempting barter relate, first, to displacement of U.S. cash sales of the commodities and, second, to displacement of sales by friendly governments which also export the commodities involved. The proposed barter program would undoubtedly cause resentment on the part of Canada, particularly if it involved additional uranium purchases-- purchases which we refused to make from Canada. Canada has already raised objections to this country's agricultural barter program. Domestic producers also are likely to raise objections to additional foreign uranium purchases since the domestic program has been cut back.

Notwithstanding the problems, we propose to explore the matter with Commodity Credit Corporation and possibly the South Africans to see what kind of arrangement might be worked out and to better define any problems which may be involved.

Respectfully yours,

John S. Graham/4/

/4/Printed from a copy that indicates Graham signed the original.

339. Editorial Note

On March 31, 1961, President Kennedy approved P.L. 87 - 15 (75 Stat. 40), which amended and extended the Sugar Act of 1948 (P.L. 80 - 388, approved on August 8, 1947; 61 Stat. 922), as amended, to June 30, 1962. The law continued the President's authority to exclude Cuban sugar exports from the U.S. market and authorized him to deny the Dominican Republic the share of the Cuban quota that it would otherwise gain.

For a statement in support of this bill (H.R. 5463, 87th Congress) by Assistant Secretary of State for Economic Affairs Martin before the Senate Finance Committee on March 27, see Department of State Bulletin, April 17, 1961, page 562.

340. Memorandum of Conversation

//Source: Department of State, Secretary's Memoranda of Conversation: Lot 65 D 330. Confidential. Drafted by Kupinsky. A handwritten note on a transmittal slip from Lucius D. Battle (S/S) to Emory C. Swank (S), July 26, attached to the source text, indicates Secretary Rusk approved the memorandum on August 3.

Washington, July 18, 1961.

SUBJECT

The Secretary's Interview with the President of Standard Oil Company of New Jersey

PARTICIPANTS

The Secretary

Mr. Rathbone, Standard Oil Company of New Jersey

Mrs. Ruth H. Kupinsky, Office of European Regional Affairs

Mr. Rathbone reported on his recent trip to the United Kingdom, Norway, Denmark and Sweden where he undertook an on-the-spot appraisal of Soviet exports of oil, both as it exists now and future trends. He said he was quite disturbed by his findings. There is considerable interest in, and pressure for, increased trade with the Soviets, with much of this pressure coming from business interests. In order to expand trade with the Soviets, Western European countries were being pressed to take increasing quantities of Soviet oil, which Mr. Rathbone thought the Soviets were using as a tool in the cold war. Soviet oil is priced to Western European countries considerably below oil from all other sources, making it attractive to many countries. Western oil companies could not compete with Soviet prices, since the latter did not have to be based on economic considerations.

The Secretary said that the United States Government is concerned about the increase in Soviet exports and is consulting closely with our Allies on this problem. He asked for Mr. Rathbone's evaluation of Soviet oil reserves and supplies.

Mr. Rathbone said there was no question but that the Soviets had very large reserves and could produce 5 million barrels of oil a day in the next three years. This compared with current United States production of 7 million barrels a day and a United States potential of 10 million barrels a day. He also felt that internal Soviet consumption would not absorb Russian oil supplies, particularly since the Soviets were developing the use of natural gas for industry and would thus have large supplies of oil available for export. Mr. Rathbone thought the Soviets were very well aware of the usefulness of oil in expanding their trade and the potential mischief this could create in the West. In Sweden, he said, approximately 50 percent of heavy industry depended on Soviet oil. Heavy reliance on Soviet oil was dangerous, since it could lead to an undesirable influence in government decisions affecting policy; it was an unreliable source which the Soviets could manipulate to their advantage; it could endanger the availability of oil from the Middle East, and have serious political and strategic implications for the Middle East. Mr. Rathbone considered it particularly undesirable that close allies of the United States become significantly dependent on the Soviets for their sources of oil.

The Secretary asked Mr. Rathbone to expand on his discussions with the British, particularly his conversation with Selwyn Lloyd. Mr. Rathbone said that he had talked with Maudling, following the latter's return from Moscow, and with Mr. Wood, the Power Minister, who set up an appointment with him with Mr. Lloyd. Although the British have so far resisted taking any significant quantities of Soviet oil, they were under great pressure to import Soviet oil at their recent trade negotiations with the Russians. They were successful in holding off the Russians for another year on oil, telling them that they had a surplus of oil and would be happy to sell some to the Russians. According to both Maudling and Lloyd, however, it appeared unlikely that the British would be able to hold off taking Russian oil beyond this year, since they were under considerable pressure from their business people to expand UK-Soviet trade. The question now appeared to be not whether the British would take Soviet oil in the future, but how they would handle the oil administratively.

Mr. Lloyd had asked Mr. Rathbone what he thought would be the best way to handle imports of Russian oil. Mr. Rathbone indicated he was not in favor of the idea in principle, and there was no really good way of handling it. He saw, however, three ways of distributing Russian oil in the U.K., if this oil were taken: (1) let the companies using the oil and the Soviets work it out directly; (2) have the Government take over the oil and make arrangements for its distribution; and (3) turn the oil over to the oil companies for their allocation to consumers. Of all three approaches, he thought the third one would be most difficult, if not impossible, for American companies due to United States anti-trust laws. He thought the first approach was also bad, since it might result in serious inequities. While the second approach also had difficulties, it would be the least troublesome of the three.

Mr. Rathbone said that if the oil companies undertook to distribute Soviet crude, there would be a great out-cry from the Middle Eastern oil countries. The Secretary asked whether the Middle Eastern countries have made diplomatic approaches to the Western European countries who are taking substantial quantities of Soviet oil. According to Mr. Rathbone, practically nothing has been done by the Middle Eastern countries, since half refuse to recognize the Soviet danger and the others do not know what to do. He said some 25 million tons of Soviet oil were exported to Western Europe last year, the bulk of which came directly out of the Middle Eastern share. The Secretary then suggested that it might be useful to stir up the Middle Eastern countries to make approaches to the Western European countries and to make them aware of the dangers to their own interests in the Soviet oil export trade.

Mr. Rathbone thought the United States ought to take the following three lines of action to counter the Soviet oil export drives: (1) instruct all our posts abroad on United States policy in this field; (2) hold high level conversations with our allies; and (3) exert “moderate pressure" on the less-developed countries taking Soviet oil, in connection with United States aid programs or loans. He understood the United States had taken action along the lines of his first proposal and that discussions were going forward in NATO and the OECD. Mr. Rathbone considered, however, that there was not sufficient high level attention being given to the discussions with our allies. The Secretary noted we were discussing this question on various levels and that it would probably come up for discussion at the December NATO Ministerial Meeting. Mr. Rathbone thought December might be too late and suggested a greater sense of urgency on this problem. The Secretary said that the question was being currently dealt with and that it would be involved in the Department's consultations on Berlin which were going forward on a current basis.

The conversation turned to the subject of prices and the Secretary asked what the influence of Sahara oil would be. Mr. Rathbone said that the Soviets are pricing oil to Western Europe at about $1 a barrel below posted prices from Persian Gulf sources and about 75 cents below discount prices. The oil situation would be complicated by the additional supply from Sahara and, Mr. Rathbone estimated that in a year or so, three-fourths of the French requirements would be supplied by Saharan oil. The Secretary asked Mr. Rathbone if his company were contemplating a change in its price structure. Mr. Rathbone said the company had tried to reduce prices a year ago and that they had been faced with what he characterized “almost a revolution" in the Middle Eastern oil countries. Although the companies wanted to reduce prices, he felt it was not possible to do so.

341. Editorial Note

Executive Order 10952, August 9, 1961 (26 Federal Register 5918; 50 USC App. 2271), transferred major civil defense operating functions from the Office of Civil and Defense Mobilization to the Department of Defense. In consequence, Public Law 87 - 296, approved on September 22, 1961 (75 Stat. 630), changed the name to Office of Emergency Planning.

Executive Order 11051, September 27, 1962 (27 Federal Register 9683; 50 USC App. 2271), prescribed the responsibilities of that office within the Executive Office of the President. Among his activities, the Director of the Office of Emergency Planning determined the kinds and quantities of strategic and critical materials to be acquired and stockpiled under the Strategic and Critical Materials Stock Piling Act of 1946. (P.L. 79 - 520, approved on July 23, 1946; 50 USC 98 - 98h) He investigated commodity imports to determine whether the rate or circumstances of such importation threatened to impair the national security within the terms of the Trade Expansion Act of 1962. (P.L. 87 - 794, approved on October 11, 1962; 76 Stat. 872) He consulted with the heads of procuring agencies to determine whether procurement should be limited to domestic sources in the interest of national defense under the Buy America Act of 1933 (Title III of P.L. 72 - 428, approved March 3, 1933; 47 Stat. 1520; 41 USC 10a et seq.)

342. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Kaysen) to the President's Special Assistant for National Security Affairs (Bundy)

//Source: Kennedy Library, National Security Files, Meetings and Memoranda, Staff Memoranda, Carl Kaysen, 6/61 - 8/61. Secret.

Washington, August 7, 1961.

SUBJECT

Tin

1. I recommend that the President give Congress notice of his intention to dispose of 50,000 tons from the stockpile in the course of the next two years, and request a waiver of notice with respect to 10,000 tons. This should be done in such a way as to excite no public comment during the next ten days.

Your signing the attached memorandum to Mr. Ellis/1/ and sending a copy directly to Mr. Brewton will be enough to get the process in motion. I am sending him a copy of this memorandum.

/1/Not attached and not found.

The only argument against this action is the adverse impact on our relations with Latin America, and Bolivia in particular. We cannot continue to base our good relations on the unrealistic policy of accumulating stockpiles in excess of any sensible need. This is to extend the vices of our domestic agricultural policy abroad, and we will find it simply intolerable, as well as politically impossible to do so. Indeed, to the extent that we are considering entering into commodity agreements, we must make it clear from the outset that we will not accept the task of simply financing other countries' surplus production ad infinitum. On the other side, the interest of American consumers, and the long-run interest of tin producers, both go in the same direction: for disposal. Further, this represents an important opportunity to reduce the costs of holding the stockpile and to make some profit on the sale. The gross profit on the disposal would run in the neighborhood of 8 - 10 million dollars over the average acquisition costs. We would reduce investment in the stockpile by some $150 million.

2. The price of tin has recently reached a new high and as a consequence there has been pressure on the government to dispose of some of our strategic stockpile. The pressure arises from two sources: First, the International Tin Cartel (of which the U.S. is not a member) has sold out its whole buffer stock as required by its statutes when the price reaches $1.10 per pound. It is now $1.16, and it has been as high as $1.20 this year. The second source of pressure is from the consuming industries in the U.S.: the steel industry, and the users of tinplate. In addition to this, there is the pressure of logic: this is an opportunity to diminish our investment in unnecessary stockpiles and to contribute even a small downward push to prices in a period of rising economic activity.

3. The rise in price has been consequent on a gradual decline in production in Bolivia and Indonesia, arising from political disorganization in both countries. This production seems unlikely to be made good in the immediate future, and Malaya, the major producer, is running about at capacity now and cannot readily increase its supply much in the short-run.

4. Present holdings in our strategic stockpile are about 345,000 tons, acquired at an average price of about $1.085 per pound. This compares with annual world production of something like 145,000 tons currently, and U.S. consumption of 55 - 60,000 tons of primary tin. The stockpile objective until May of 1960 was a basic figure of 192,000 tons, and a maximum of 198,000 tons. On June 14, 1960, the objectives were reduced to a basic objective of 150,000 tons and a maximum of 185,000 tons. Thus, we have an excess of at least 160,000 tons over our estimated emergency requirements. In fact, the emergency requirements are still set too high. They are calculated on the basis of three-year use. Given the likelihood that a war serious enough to cut off the sources of supply would become a general war, that would destroy much more of the capacity for using tin than it would the tin stockpile, and the possibility of a substitution of other products for tin, there would seem to be no doubt of the generosity of the three-year figure.

5. The OCDM is considering a recommendation that up to 50,000 tons be sold from the stockpile in the next two years. Any such action requires six months' notice to Congress and Congressional approval. The proposed OCDM recommendation suggests that the President request Congress for the waiver of the six-months' notice with respect to 10,000 tons, and that the President therefore have the authority to dispose of this much immediately. The best estimates that are available suggest that 10,000 tons could be disposed of with little if any effect on the price, and that therefore the stockpile would realize a significant profit (the GSA is now disposing of 4,000 tons which were under the control of the GSA in part of the strategic stockpile, and this is expected to go without any effect on the current price of $1.16). The 50,000 tons, if disposed of in the course of a year, might push the price down to $1.05.

6. Mr. Brewton, the Assistant Director for Resources and Production, OCDM, raises the question of whether the reduction of the stockpile objective made under the last administration is in accordance with the policy of this administration. He desires specific instruction on this point before he is willing to approve the staff recommendation on behalf of the Director. I attach a memorandum of instruction for him on this point./2/

/2/Not attached and not found.

7. Selling from the stockpile raises a problem of foreign policy. Bolivia, in particular, is very sensitive about the disposal of tin. Wymberley Coerr, Deputy Assistant Secretary of State for Inter-American Affairs (ARA), is strongly of the opinion that nothing should be said that would produce any public indication of our intention to sell tin during the course of the Montevideo Conference./3/ He believes any discussion of the subject, even a rumor, will be extremely damaging to our position there. On the longer-run, Coerr says that the Bolivians are irrational about disposal of any sort. Past attempts to convince them that the very high price of tin hurts them in the long-run have not been too successful. Further, at the moment, there is a struggle between Communist and anti-Communist factions among the tin miners, and we will do ourselves no good there by any disposal. Coerr agreed that it might be worth thinking about more effective ways of making the Bolivians conscious of their long-run interests in the price of tin; namely, that generally high prices and short supply encourage substitutions away from tin, which once made, may well be permanent.

/3/Reference possibly is to the special meeting of the Inter-American Economic and Social Council at Punta del Este, Uruguay, August 5 - 17, 1961.

8. The Congressional situation on the request for waiver is as follows: The matter is within the jurisdiction of the Armed Services Committees, chaired in the Senate by Senator Russell, and in the House by Congressman Vinson. The subcommittees that have cognizance are chaired in the Senate by Senator Symington, and in the House by Congressman Philbin. So far as is known, none of these is expected to object to the request for the waiver of notice. It is the estimate of Messrs. Wilson and Manatos that, with no objection from the relevant chairmen, the waiver request would go through readily, and that nothing would be lost by waiting until the end of the Montevideo Conference to raise the issue.

CK

343. Letter From the Deputy Assistant Secretary of State for Economic Affairs (Blumenthal) to the Assistant Secretary of Commerce for International Affairs (Burnstan)

//Source: Washington National Records Center, RG 40, Under Secretary of Commerce Files: FRC 66 A 1971, Tin Agreement and Misc., 1961. Official Use Only.

Washington, September 8, 1961.

Dear Burnie: I have received your memorandum of August 31st including Mr. Foley's memorandum to you of the 30th relating to the International Tin Agreement./1/

/1/Reference is to Burnstan's memorandum to Blumenthal, August 31, enclosing a memorandum from Eugene P. Foley, Deputy Assistant Secretary of Commerce for Domestic Affairs, to Burnstan, August 30. Both memoranda are attached to the source text but not printed. For text of the Second International Tin Agreement, which was signed in London on September 1, 1960, and entered into force provisionally on July 1, 1961, see 403 UNTS 3.

We had a meeting in Mr. Gudeman's office on September 1st at which we reached complete agreement on further procedure./2/ We all felt that it was most advisable to secure authority from the Congress at this session, if possible, to release a maximum of 50,000 tons from the strategic stockpile and to waive the six months waiting requirement for 10,000 tons of this amount. I understand that recommendations to this effect have now gone forward from General Services Administration to the Congress./3/ As a result, there has already been a break in the price and the upward trend may now have been reversed.

/2/A report of the Gudeman - Blumenthal meeting on tin policy, September 1, is in Department of Commerce, Bureau of International Programs, BIP - 848 Report, prepared by Donald Sham, September 2, filed with the source text.

/3/For the General Services Administration announcement of the 50,000- ton disposal plan, September 6, see 26 Federal Register 8425.

We agreed that United States representatives should go to London during the week of September 13 to discuss on a confidential basis and without any commitment whatsoever the terms of possible U.S. accession to the Agreement./4/ After their return we will have a period of at least two to three months during which the Commerce Department will have further discussions with the tin consuming industry. The State Department is quite willing to be present at any such meetings and to assist in explaining the various factors involved in becoming full-fledged members of the Agreement.

/4/In his speech to the special meeting of the Inter-American Economic and Social Council at Punta del Este, Uruguay, on August 7, Secretary of the Treasury Dillon, chairman of the U.S. Delegation, intimated that the United States might be willing to join the International Tin Agreement. (Department of State Bulletin, August 28, 1961, pp. 356 - 360) Blumenthal asked Burnstan in a letter of August 23 (filed with the source text) whether the Department of Commerce objected to proceeding with this matter. At the September 1 meeting with Blumenthal, Gudeman said that he wanted to contact the industry before further discussions, and he wrote a letter to Roger M. Blough, Chairman of U.S. Steel Corporation, September 6 (filed with the source text), for his views.

In any case, if matters proceed smoothly, we would not be in a position to recommend accession to the Congress, and to have this recommendation acted upon, until the second quarter of 1962.

There was also general agreement that the present price of tin is too high and that this presents real threats to the long-run prospects of the tin producing industries throughout the world by stimulating research programs directed toward more economical use of tin and the development of substitute materials. For this and other reasons, we agreed that the U.S. should, at the present time, oppose increases in the price range for tin fixed by the Agreement.

Best regards,

Sincerely yours,

Michael

344. White House Press Release

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Oil Policy. No classification marking.

Washington, December 2, 1961.

STUDY OF PETROLEUM SECURITY OBJECTIVES BY THE OFFICE OF EMERGENCY PLANNING

Proposals of the Secretary of the Interior to amend Proclamation 3279/1/ governing the allocation of oil import quotas have been under consideration for the past several weeks. The President announced today that a comprehensive study of petroleum requirements and supplies in relation to national security objectives will be undertaken under the leadership of the Director of the Office of Emergency Planning, to be completed by mid-1962./2/

/1/Proclamation 3279, “Adjusting Imports of Petroleum Products into the United States," signed by President Eisenhower on March 10, 1959; 73 Stat. c25.

/2/Frank B. Ellis, Director of the Office of Emergency Planning, subsequently announced the appointments to the Petroleum Study Committee, as follows: Edwin M. Martin (State), James A. Reed (Treasury), Paul H. Riley (Defense), Nicholas deB. Katzenbach (Justice), John M. Kelly (Interior), Eugene Foley (Commerce), and W. Willard Wirtz (Labor). (Office of Emergency Planning, Executive Office of the President, Press Release 17, December 21; Kennedy Library, National Security Files, Kaysen Series, Economic Policy, 12/61 - 1/62)

The study will take into account not only the welfare of the domestic petroleum industries, but also the need to promote the Nation's economic growth in the face of rapid technological and world changes. The study group has been asked to make recommendations on alternative means of achieving our security objectives and providing a basis for increasing our strength to compete in the free world.

Since the study will include a review of the mandatory oil import quota program, it will provide a basis for the consideration of any changes in the existing program that may be necessary. In the meantime, allocations of oil import quotas will continue to be made under the existing proclamation.

345. Summary Minutes of Meeting of the Interdepartmental Committee of Under Secretaries on Foreign Economic Policy

//Source: Washington National Records Center, RG 59, E Files: FRC 71 A 6682, ICFEP, December 13, 1961, World Oil Situation. Official Use Only. Presumably drafted by Ruth Donahue, who is identified on the list of participants as Recording Secretary. Regarding the origins of this interdepartmental committee, see Document 5.

Washington, December 13, 1961.

[Here follows a list of participants.]

WORLD OIL SITUATION

Opening remarks were made by Under Secretary of the Interior James K. Carr. This was followed by a detailed presentation of the strategic and foreign policy considerations of oil by Assistant Secretary of Interior John M. Kelly. Interior felt the subject so important that it put together a set of reference documents which were distributed to all members of the group and which Mr. Kelly used as the basis for his presentation. Interior believed these papers would be useful and could be widely distributed./1/

/1/Not printed.

Mr. Martin, Assistant Secretary of State, who was presiding in Under Secretary Ball's absence, asked that the summary paper and the paper on Soviet oil not be made available to anyone outside of the Government until the State Department had checked with its Soviet experts as to the classification.

The papers submitted by the Department of Interior were as follows:

Strategic and Foreign Policy Considerations of Oil (summary paper)

Illustrative Charts

Statistical Data Supplemental Paper 1--Petroleum Refining Capacity of the Free World Supplemental Paper 2--World Tanker Situation Supplemental Paper 3--Oil Import Program Supplemental Paper 4--Petroleum Prices Supplemental Paper 5--Organization of Petroleum Exporting Countries (OPEC) Supplemental Paper 6--Soviet Oil Expansion

Since these readily accessible papers cover the subject-matter so thoroughly and since Mr. Kelly's presentation followed the papers closely, this summary record covers only the discussion.

Discussion

Present import quota system questioned as a defense measure. One of the major points raised and around which a number of questions centered was whether the present oil import controls serve the national security interest as effectively and as cheaply as other arrangements would. If the national security interest requires a large quantity of readily available oil in this country, should not oil be stockpiled? One method would be for the Government to buy up some fields and keep them largely out of production until they were needed. Another method would be to import Middle East oil and store it in old oil wells in the United States, particularly in Pennsylvania. Mr. Kelly said that these measures were possible. He pointed out that only about two-thirds of the oil put into old wells would be recovered because of loss through “wetting." Mr. Kelly thought that curtailment of U.S. production would be unwise, however, because of the changing fuel picture. He said that 50 years ago lots of people wanted the Government to take over the coal areas and hold them for future use, but that the emergence of oil and gas has shown that such a policy would have been unwise. Likewise, conservation measures for oil might turn out later to have been unnecessary. Mr. Rowen inquired whether Mr. Kelly meant by this that we need not worry about oil for defense? Mr. Kelly replied that he thought that enough U.S. oil would be forthcoming if the domestic industry, particularly because of its exploration activities, could be protected from large imports.

The cost of the present import quota system to U.S. oil users was estimated by Mr. Gordon (CEA) at $3 billion per year. (This figure is based on U.S. consumption of 10,000,000 barrels per day at a price $1.25 per barrel above the price of Middle East oil delivered to East Coast refineries, reduced by one-third.) Mr. Kelly replied that this figure assumes that all oil consumed in the United States would be imported from the Middle East at a two-thirds saving of the $1.25 differential. Mr. Gordon questioned this inference stating that he assumed only that the United States domestic price would be governed by the world price. Questions were raised as to whether this cost served effectively to promote the discovery and development of new oil fields in the United States, and whether less costly means could not be found for assuring the availability of adequate oil for defense purposes.

Profits from import controls. There were several questions about who should be allowed to profit from our import controls. Mr. Kelly noted that the import restrictions were a response to the difference in production costs in the U.S. and in the Middle East. Though the price difference was about $1.25 per barrel, not all this difference represented profit for domestic U.S. producers. Importers into the U.S. were able, however, to pocket the difference between the U.S. price and the import cost. Mr. Kelly, in reply to a question as to why we did not tax away this profit on imports, said that this would involve a tariff. He said that a sizable part of the industry would prefer a tariff to quotas, so that they could operate in a freer market, and Interior does not close the door to this approach. He said there would be problems in the use of a tariff, however, because of the different cost conditions between, for example, Venezuela and the Middle East.

The Canadian problem. The U.S. consumer is subsidizing Canadian producers at the rate of about $250,000 per day, Mr. Kelly said, since oil from Canada enters the U.S. without any quota restrictions. Canada could meet its entire market by itself, but finds it more economic to export its oil to our Middle West rather than ship it to the Montreal area, and to supply the Montreal area from imports, largely Venezuelan. Others commented that it is in our national security interest to receive Canadian oil. Mr. Kelly replied that both countries have the same security interests and that we have protected our East Coast security interest by pipelines while Canada has not, though within five years Canada may start taking care of the Montreal complex by pipeline from its West. In the meantime, Canadian oil competes with U.S. oil in our Midwest.

The broad international problem. Mr. Martin noted that not only does the Free World get two-thirds of its oil from the Middle East now but that 50 years from now it will probably be even more dependent on Middle East supplies. From the security standpoint of our longer-term interest in the broadest sense, we must consider what kind of arrangements we can work out to insure Free World access to Middle East oil.

Already we have an irrational situation in the Middle East producing and distributing situation. It is irrational not only economically but politically. The international oil companies within the borders of these countries are in a position to dominate completely the political life of the countries because the companies are the source of the bulk of the Governments' revenues. The companies are earning enormous amounts of money and this is resented. This makes them a likely target for the worst kind of attack on political and economic grounds.

On the other end of the spectrum, the companies themselves are faced with all kinds of problems. They are faced with the surpluses of stocks and capacity, with increasing competition of substitutes, with new oil discoveries which jeopardize their traditional markets, with competition from Soviet oil, with having to use their Middle East profits to cover costs of explorations elsewhere that prove sterile, with the constant demand of the Middle East Governments for a larger share of oil revenue, and with no flexibility on prices. These all add up to a serious state of tension.

As a result our oil companies are handicapped in other less developed countries where the Soviets use cheap oil and oil exploration to penetrate the countries. Shall Western companies try to compete with the Soviets in price? (The French assumed that we put import controls on to get high profits for our international oil companies so that they could sell at cut prices in the less developed countries in order to compete with the Soviets.) The companies are in difficulty on exploratory concessions. They come in and spend lots of money and if they don't find oil, they are faced with the charge that they didn't really want to as it would have cut down on their Middle East profits. Then the less developed countries say they will ask the Soviets to come in.

The companies are scared of OPEC because they don't think the people running it have a sufficient understanding of the economies of oil. They are frightened that the OPEC Governments will put international prorationing into effect.

Then there is the problem of the European countries in connection with the Soviet oil offensive. The average person in Italy gets his oil cheaper because Italy is importing Soviet oil. Industrialists in Europe can produce at less cost because of Soviet oil. It is hard, under those circumstances, to work up resistance to imports of Soviet oil. Our argument has to be the danger of dependence on Soviet oil. We have made some headway on this, Mr. Martin said, as we have agreement (in NATO) that the whole question of Soviet dependence has to be watched very carefully and steps taken if necessary. We also think we have now made a little progress on the oil pipe question.

Mr. Martin stressed the importance of the Administration address-ing itself to these international oil problems.

Joseph D. Coppock/2/

Executive Secretary

/2/Printed from a copy that bears this typed signature.

346. Editorial Note

At his news conference on January 31, 1962, President Kennedy made an announcement about the national stockpiling program. He said that the size of the stockpile, $7.7 billion worth of materials, exceeded emergency needs by nearly $3.4 billion and that his administration had taken steps to halt any new acquisitions. He deplored the secrecy surrounding the program, which he said was “only an invitation to mismanagement." He stated that he had discussed the matter with Senator Stuart Symington (D.-Mo.), chairman of the Senate stockpiling subcommittee, who agreed on the need to explore the program completely. President Kennedy said that he assured Senator Symington that the “executive branch will cooperate fully with any investigation." He noted that he was appointing a commission to review stockpiling policies, programs, and goals. He was “very much aware of the intricate and interrelated problems involved in this area, including the difficulties experienced by certain domestic mineral industries, the impact on world markets, and the heavy reliance of certain countries on producing one or more of these minerals." In this regard he gave assurance that the United States “will take no action which will disrupt commodity prices." (Public Papers of the Presidents of the United States: John F. Kennedy, 1962, page 91)

The Senate Subcommittee on the National Stockpile and Naval Petroleum Reserve held hearings intermittently, beginning March 28, 1962, and ending January 30, 1963. (Inquiry into the Strategic and Critical Material Stockpiles of the United States: Hearings before the National Stockpile and Naval Petroleum Reserves Subcommittee of the Committee on Armed Services, United States Senate, Eighty-seventh Congress, Second Session, (Washington, 1962 - 1963)) On September 25, 1963, Senator Symington made public a draft report critical of waste and mismanagement, alleging improper assistance by certain officials in the Eisenhower administration to some suppliers of raw materials. (Inquiry Into the Strategic and Critical Material Stockpiles of the United States: Draft Report of the National Stockpile and Naval Petroleum Reserves Subcommittee of the Committee on Armed Services, United States Senate, Under the Authority of S. Res. 295 As Amended (87th Cong., 1st Sess.) on the National Stockpile (Committee Print, Washington 1963)) The subcommittee failed to approve the report, but did vote to make it public. On October 31, 1963, Senator Symington introduced a bill (S.2272, 88th Cong.) in line with certain recommendations in the report, revising current stockpile legislation to establish new management and disposal procedures. The Subcommittee held hearings on S.2272, December 3 - 4, 1963, and the Senate Armed Services Committee reported the bill on May 26, 1964 (S. Rept. 1025, May 26, 1964), but the Congress took no further action on this bill.

347. National Security Action Memorandum No. 126

//Source: Department of State, S/S - NSC Files: Lot 72 D 316, NSAM 126. Official Use Only.

Washington, February 7, 1962.

TO

Honorable Edward McDermott

Acting Director, Office of Emergency Planning

(SUBJECT

Review of Principles and Policies Guiding the Stockpiling of Strategic Materials)

To confirm our earlier discussions,/1/ I am designating you to serve as the chairman of a group of department and agency heads to review the principles and policies which should guide our program for the stockpiling of strategic materials. Any stockpiling must obviously be related to our Nation's defense strategy, and must insure that materials necessary to our national defense and security will be available in the event of national emergency.

/1/Not further identified.

I believe your committee should also give attention to specific goals as well as to basic principles, to the acquisition and maintenance of the materiel, and to the disposal of materials now on hand in excess of goals determined to be appropriate. This program is of vital importance to the Nation both in terms of our security and in terms of the Federal investment in these stockpiled goods. In addition, consideration should be given to the problems of our domestic minerals industry and to the international consequences of our programs of acquisition and disposal.

In the past there may have been justification for classifying all or most of the information bearing on this program, but the changes in circumstances from the initiation of the program to the present call for a review of the secret classifications. I expect, therefore, that your committee composed of the heads of those departments and agencies whose responsibilities bear heavily on whether classification is warranted promptly review this question and that you will take the steps necessary to declassify as much information as possible consistent with national security. I am hopeful that your review will be completed by an early date and, in any event, no later than March 19.

Those who will serve on the committee with you are the Secretaries of Defense, State, Interior, Commerce and Labor, the Director of the Central Intelligence Agency, and the Administrator of the General Services Administration./2/

/2/President Kennedy sent copies of NSAM No. 126 to the members of the committee listed in this paragraph, with a covering memorandum, February 7, noting the “importance of this review," the “urgency of prompt action," and the need “to present a strong case" to the Senate Stockpiling Subcommittee. (Washington National Records Center, RG 40, Department of Commerce, Executive Secretariat Files: FRC 69 A 6828, Office of the Secretary, President's Committee on Stockpiling)

John F. Kennedy/3/

/3/Printed from a copy that indicates Kennedy signed the original.

348. Letter From President Kennedy to President Prado

//Source: Department of State, Central Files, 800.235/1 - 2562. No classification marking. Drafted by Paul E. Callanan (OR/CSD) and Richard A. Poole (ARA/WST) on January 19 and cleared by Edwin M. Martin (E), Milton Barall (ARA), Jean H. Mulliken (REA), and Taylor G. Belcher (WST). A covering memorandum of January 25 from Battle (signed by Melvin M. Manfull) to McGeorge Bundy transmitted the letter of December 29, 1961, from Prado to President Kennedy and the suggested reply.

Washington, February 26, 1962.

Dear Mr. President: I appreciate your letter of December 29, 1961,/1/ in which you refer to studies now being made by certain United States Government agencies preparatory to the prospective revision of United States sugar legislation by the Congress./2/ Your Excellency reminds me of the great importance to the Peruvian economy and to the Peruvian Government's development programs of revenues resulting from the exportation of sugar. You therefore request that any decision reached by the United States take into account the serious repercussions for Peru that would result from any reduction in the price of imported sugar.

/1/See the source note above.

/2/The President's budget message of January 18 stated that the administration would recommend legislation to retain the difference between the domestic and world price of sugar currently received by foreign suppliers of sugar for an estimated increase of $180 million in 1963 budget receipts. The administration would recommend that a global quota replace individual country quotas. Regarding inquiries about this development, the Department of State instructed Embassies to point out to their respective governments that Latin American countries other than Cuba supplied only a small part of the U.S. market and that the total premium was only $12.8 million. Embassies could also state that the administration was considering asking Congress to make funds collected on sugar from Latin America available for Latin American economic development. (Circular telegram 1288 to posts in the American Republics except Chile and Venezuela, January 19; Department of State, Central Files, 800.235/1 - 1962)

I had delayed until now answering your letter in the expectation that the thinking of the Executive Branch on this subject would have reached a point where it might have been possible to explain more precisely the prospective recommendations to be made by the Administration to the Congress. The matter continues to be under active study within the Executive Branch, however, and the proposals of which your Ambassador has informed you thus do not yet represent the Administration's position. I have, meanwhile, asked the Department of State to keep your Ambassador in Washington informed of principal developments, and, consequently, the Under Secretary of State, Mr. George W. Ball, discussed these matters with your Ambassador on February 1, 1962./3/

/3/No record of this conversation has been found.

I am confident that Your Excellency will appreciate the various considerations my Government must weigh in conducting this study and reaching a final position. Please be assured that we, for our part, are fully aware of the importance of this problem to Peru and to other friendly countries and that we sincerely trust the solution we achieve will in the long run prove beneficial. I should also emphasize, of course, that the final decision on United States sugar policies rests with the United States Congress.

I very much appreciate your remark about the closely linked interests of our two countries, and should like to add that we in this country value most highly this close relationship with Peru.

With cordial regards and renewed assurances of my highest esteem.

Sincerely,

John F. Kennedy/4/

/4/Kennedy's signature appears in an unidentified hand, indicating Kennedy signed the original.

349. Report of the Executive Stockpile Committee to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials. For Official Use Only. For the dissent of the Department of State to this report, see Document 350. The dissent of the Department of the Interior, March 21, urged that the Departments of the Interior and State retain authority to approve or disapprove disposals of surpluses. (Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials) Regarding the CIA dissent, see footnote 8 below.

Washington, March 19, 1962.

The Executive Stockpile Committee, consisting of the Secretaries of State, Defense, Interior, Commerce, and Labor, the Director of the Central Intelligence Agency, the Administrator of the General Services Administration, and chaired by the Acting Director of the Office of Emergency Planning, was established by your memorandum of February 7, 1962,/1/ to review the principles and policies which guide our national stockpile of strategic materials and its relationship to our national defense and security. The Committee has examined specifically the policies governing the program, the acquisition and maintenance of the inventories in the stockpile, the disposal of excess materials, and the classification of information bearing on this program. No examination could be made on the specific goals or objectives because of limited time and lack of new requirements information. This examination will be expedited in the coming months.

/1/Document 347.

On March 2, 1962, this Committee recommended to you that information pertaining to the current objectives and inventories of the Strategic and Critical Materials Stockpile should be declassified./2/

/2/The Executive Stockpile Committee's recommendation of March 2 has not been found.

The other recommendations of the Committee are presented herewith for your approval. A substantial number of these recommendations can be put into effect by administrative actions. New legislation will be necessary to implement the others.

The United States Government, as of December 31, 1961, held raw materials inventories with a market value of $7,723 million. Within this total, the inventory valuations are: National Stockpile, $5,729 million; Defense Production Act, $921 million; Commodity Credit Corporation Barter and Supplemental Stockpiles, $1,070 million; and Federal Facilities Corporation, $3 million. Current maximum objectives in the National Stockpile are valued at $4,332 million, and excess materials at $3,391 million. Net storage, rotation and disposal, and administrative expenses approximate $21 - $22 million annually.

PRINCIPLES AND POLICIES

General policies for strategic and critical materials stockpiling set forth in Defense Mobilization Order V - 7, dated December 10, 1959,/3/ govern all executive operations of the stockpile.

/3/Not found.

Scope of Stockpile Objectives

In its examination of the scope of stockpile objectives, the Committee has considered the following points:

1. Current policy provides that the strategic stockpile objectives shall be adequate to cover material deficits for limited or general nuclear war (including reconstruction), whichever is greater. The planning assumptions now used by the Office of Emergency Planning and other Government departments and agencies engaged in defense mobilization activities are consonant with this policy. However, no definitive scope has been established for general nuclear war, nor has the extent of the reconstruction period been clearly defined.

2. No material is now included in the stockpile objectives for allocation to our allies other than normal wartime exports.

3. At present there is no reserve in strategic and critical materials stockpile objectives to guard against long term materials deficits in the United States projected a decade or more. The time and amounts of deficits would be almost impossible to determine. Discovery of new sources of supply, availability of substitute materials, and many other things could eliminate the need for inventories in the stockpile. It is believed that the initiative and ingenuity of a healthy and dynamic free economy will help make the necessary adjustments in supply and demand in the long run.

4. Defense Mobilization Order V - 7 provides that stockpile objectives shall consist of (1) a “basic objective" which assumes reliance on sources of supply factored to reflect estimated supply risks, and (2) a “maximum objective" which includes an additional allowance to take into account the complete discounting of sources of supply beyond North America and comparably accessible areas. Since 1958 new cash procurement for the stockpile has been limited to minimum objectives. Maximum objectives were to be attained by barter and other methods. With the exception of five materials, inventories on hand now exceed or closely approximate the maximum objectives of all items in the stockpile. Current procurement is limited to three of these materials because of uncertainty of the future requirements for the other two. Establishment of a single objective would simplify the determination of objectives and would eliminate considerable paper work in the management functions of the stockpile.

The Committee recommends the following:

1. The requirements of limited war shall continue to be the objectives of the stockpile, and a study shall be made of the proper scope of stockpile objectives for general nuclear war and the extent of stockpile necessary for the reconstruction period.

2. A study be made of the propriety of inclusion of a reserve for allied war production in the strategic and critical materials stockpile.

3. The strategic and critical materials stockpile shall not provide insurance for projected long-range deficits of raw materials in the United States.

4. A study should be made of the future necessity of establishing two stockpile objectives. New criteria should be established by this study.

5. Pending the calculation of new objectives under criteria established in 4. above, the present maximum objectives should be used for establishing excesses available for disposal.

Supply

Supply information for the establishment of stockpile objectives is currently received from the Departments of Commerce, Interior, State, and Agriculture, the General Services Administration, and the Tariff Commission. The Office of Emergency Planning receives data from the Joint Chiefs of Staff and the Department of State which enables it to discount supply sources as to military accessibility and internal Government dependability in wartime. In addition, the National Resources Evaluation Center provides data which permits an evaluation of the survival probability in nuclear war of production and consumption plants in the United States.

The Committee believes that the supply information received by the Office of Emergency Planning is adequate, and its system of discounting is sound.

Requirements

The current stockpile objectives are limited to meeting the estimated shortages of materials for a three-year emergency. This planning period cannot be determined with mathematical accuracy. At best, it is an expert judgment based on considerations of a multitude of contingencies.

Some of the points that should be considered are:

1. Military judgments regarding the length of a possible war.

2. Non-military judgments in relationship to non-military requirements which may be generated during the same war period or other emergency planning periods.

3. The possibility of multiple consecutive small-scale wars.

4. The possibility that in a mobilization situation short of war, sources of raw materials may be denied to us.

Additional time will be required to consider all of these points and this matter will receive the further attention of the Committee.

The planning period for nuclear war is indeterminate because of lack of supply-requirements estimates and criteria defining the extent of coverage. The studies suggested under Scope of Objectives should provide a sound basis for these studies.

Present regulations require that the supply-requirements balance for any material that is now or may become important to defense shall be kept under surveillance and shall be given a full-scale review at any time that a change is believed to be taking place which would have a significant bearing on the United States wartime readiness position. All stockpile objectives are examined at least once a year to ascertain the need for a full-scale review. However, these examinations have shown no significant changes in the past three or four years, due principally to relative stability of military requirements in this period.

The Committee recommends that:

1. The three-year planning period be retained until the completion of a thorough study of the various factors which would determine the length of the period.

2. The departments and agencies having responsibilities for supply- requirements studies begin immediately such studies for both limited and nuclear war (including reconstruction). Further, annual reviews of the supply-demand situation should be made.

ACQUISITION, MAINTENANCE AND DISPOSAL OF STOCKPILE MATERIALS

Effective management of the stockpile of the Office of Emergency Planning and the General Services Administration requires considerable flexibility in acquisition and disposal of materials. Sufficient flexibility has been available in the acquisition of materials, but this phase of stockpiling is largely completed. Disposal activity, however, is controlled by legislation and executive policies.

One of the executive controls applicable to disposals is the provision written into Defense Mobilization Order V - 7 in 1959 which states in part that “except when (surplus) materials are channeled to other agencies for their direct use, (the Director of the Office of Emergency Planning) must obtain the approval of the Departments of the Interior, Commerce, State, Agriculture, and Defense, and other Governmental agencies con- cerned. . . ."

Legislation has been drafted by the Office of Emergency Planning and General Services Administration, but not yet cleared by the Executive Branch, which would modify considerably the Strategic and Critical Materials Stock Piling Act of 1946. The proposed legislation would provide for changes in stockpile management by permitting the General Services Administration to consolidate materials inventories acquired under the provisions of the Strategic and Critical Materials Stock Piling Act, the Defense Production Act, and transferred to the Supplemental Stockpile from barter or other programs into two inventories: (a) the national stockpile, composed of materials required to meet objectives, and (b) the materials reserve inventory, composed of all other materials.

The proposed legislation would authorize transfer, without cost or reimbursement, of: (a) materials not required for objectives from the national stockpile to the materials reserve inventory, (b) materials required for objectives from the materials reserve inventory to the national stockpile, and (c) exchange of materials to improve the quality or change the location of materials in the national stockpile.

The legislation would allow equivalent materials in the two inventories to be commingled, and also would permit materials in the materials reserve inventory to be used for payment for conversion costs and rotation costs (to prevent deterioration or to change the location) for similar materials.

The consolidation of inventories would permit more economical and effective use of storage space, since like materials could be commingled, and it would avoid the necessity for physical segregation and identification in storage. It would provide for more economical dispersal of materials charged against the strategic and critical materials stockpile by permitting an exchange for materials in other inventories more safely located. It would further considerably simplify property accounting and reporting.

The proposal would provide greater flexibility for disposal of excess stockpile materials by (a) reducing the waiting period from six months to sixty days, (b) eliminating the requirements for the express approval of the Congress, and (c) making the waiting period applicable only if the quantity to be sold during the first or last six months of the calendar year exceeds three percent of the estimated annual United States consumption of the material.

The proposal would continue the present provisions that, in disposing of materials, due regard be given to the protection of the United States against avoidable loss and the protection of producers, processors, and consumers against avoidable disruption of their usual markets.

A provision would be added to provide that due regard be given to the foreign relations of the United States in the disposal of materials, to the effect of disposals on employment or unemployment in the United States, and to provide for consultation with departments and agencies specified by the Director, Office of Emergency Planning.

The proposal would subject disposals of materials acquired under the Defense Production Act/4/ to the waiting period, when applicable.

/4/P.L. 81 - 774, approved on September 8, 1950; 64 Stat. 798; 50 USC App. 2061, et seq. Disposals

Stockpile materials significantly in excess of objectives should be disposed of on a long-term affirmative basis. Individual disposals should be considered in terms of the effect on commodity markets and international relations.

To accomplish the above effectively, Section 14 of Defense Mobilization Order V - 7 should be modified as follows (new language underlined, deletions in parenthesis):

“Disposals. The Director of the Office of Emergency Planning will authorize the disposal of excess materials whenever possible under the following conditions: (a) avoidance of serious disruption of the usual markets of producers, processors and consumers, (b) avoidance of adverse effects on the international interests of the United States, (c) due regard to the protection of the United States against avoidable loss, (d) avoidance of adverse effects upon domestic employment and labor disputes, and (e) except when materials are channeled to other agencies for their direct use, (approval) consultation with/5/ the Departments of the Interior, Commerce, State, Agriculture, Defense, Labor and other governmental agencies concerned, and consultation as appropriate with the industries concerned.

/5/Departments of State and Interior strongly dissent. [Footnote in the source text.]

“In making such disposals preference shall be given to materials in the DPA inventories.

“Disposals of materials that deteriorate, that are likely to become obsolete, that do not meet quality standards, or that do not have stockpile objectives, are to be expedited.

“The Administrator of General Services shall be responsible for conducting negotiations for the sale of materials and will consult with and advise the agencies concerned."

Barter

There was considerable discussion by the Committee of the implications of adopting a disposal program prior to a determination of the future course of the barter program of the Department of Agriculture. The Committee feels that a thorough examination of the relationship of these programs should be undertaken immediately.

Upgrading of Inventories

The policy of upgrading raw materials in the stockpile to higher use forms is an integral part of the overall stockpiling policy. It represents a stockpiling of time, labor, power and transportation, in addition to materials. Upgrading is not undertaken when the processing cost exceeds the amount for which the upgraded product can be obtained in the open market (DMO V - 7).

An upgrading program has been under way for some time, and a majority of the materials for which upgrading could be undertaken have been upgraded or are under contract. In many instances upgrading has resulted in an increased value of the stockpile.

Proposals have been made to upgrade some of the inventories to finished products such as aluminum sheets and building materials, steel sheets, I-beams and rails. These finished products would be stockpiled for survival and continuity of industry in event of nuclear attack on this country. However, considerable study is necessary before recommendations can be made on this type of stockpiling.

Rotation and Storage of Stockpile Materials

Full responsibility for the rotation and storage of stockpile materials is lodged in the General Services Administration.

Materials of a perishable nature are rotated under a rigidly enforced program, and losses in this program have been kept to a minimum. However, the decline in capacity of certain United States industries, such as the rope industry, which in the past have absorbed the quantities rotated out of the stockpile may necessitate changes in our rotation policies if we are to avoid heavy losses.

A revision of Storage Policies for Stockpile Materials was issued in April 1961./6/ Included in those policies was a complete nuclear attack hazard evaluation of each storage site. As a result of this study, provision was made in the proposed FY 1963 budget for the General Services Administration for $465,000 to relocate miscellaneous materials. No further dispersal would appear to be necessary at this time.

/6/Not found.

The Committee recommends that:

1. Legislation be processed for clearance by the Executive departments and sent to the Congress to amend the Strategic and Critical Materials Stock Piling Act of 1946.

2. A group of interested agencies, including the Department of Agriculture, give immediate attention to the relationships of the Strategic and Critical Materials Stockpile and the Department of Agriculture barter program for strategic materials.

3. The Office of Emergency Planning and the General Services Administration, in consultation with other interested agencies, prepare a long-range disposal program for excess materials in the stockpile consistent with the previously stated criteria.

4. Congressional approval be sought and public announcement be made of disposal actions on a commodity basis in order to minimize disruptive effects on commodity markets.

Respectfully submitted,

George W. Ball/7/ Department of State

/7/Printed from a copy that indicates that all the officials signed the original.

Roswell Gilpatric Department of Defense

James K. Carr Department of the Interior

Luther H. Hodges Department of Commerce

Arthur J. Goldberg Department of Labor

John A. McCone/8/ Central Intelligence Agency

/8/The following typed note appears in the margin to the left of McCone's signature block: “With respect to Section 14 of Defense Mobilization Order V - 7, I believe that the restrictions on authorizations for disposal of excess material (p. 7) should apply with equal strength to expressions of intent to sell; such expressions of intent could have almost as serious effects as actual sales."

Bernard L. BoutinGeneral Services Administration

Edward A. McDermottOffice of Emergency Planning, Chairman

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[END OF SECTION 17]

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