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

[Section 18 of 18]

350. Memorandum From the Under Secretary of State (Ball) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials. Official Use Only.

Washington, March 28, 1962.

SUBJECT

Stockpile Disposal Policy

The report of the Executive Stockpile Committee, submitted to you on March 19, 1962,/1/ noted agreement of all the agencies concerned except on one point.

/1/Document 349.

Under existing procedures the Director of the Office of Emergency Planning (formerly OCDM) is required to obtain the approval of the Department of State, among other agencies, before he authorizes the disposal of excess stockpile materials. The majority of the Committee has recommended that the Director be permitted to act after consultation with the State Department and other agencies; it has recommended the elimination of the requirement that the State Department approve stockpile reductions.

I fully recognize the need for disposing of excess stockpile materials as rapidly as possible. However, it is essential that this be done without disrupting world commodity markets, which are in many cases extremely sensitive to any move on our part to reduce stockpiles.

A fall in commodity prices can, of course, be disastrous to less developed countries dependent for their foreign exchange earnings on one or two commodities. The reactions with regard to recent programs for the disposal of rubber and tin have clearly shown that the business of reducing stockpiles can have serious foreign policy repercussions. I therefore feel that we should retain the requirement that the approval of the State Department be obtained prior to the disposal of surpluses. In view of the extreme sensitivity of many of these markets the mere act of eliminating this widely known requirement would be likely to create dismay and confusion.

At the same time, I am sympathetic with the desirability of reducing the delay which has sometimes occurred in obtaining the necessary approval for disposal plans. The regulations might provide an appropriate time limit. For our part we would be willing to agree with the other agencies that if we do not object to a proposed disposal plan within thirty days of its receipt our approval could be assumed./2/

/2/A memorandum from Acting Secretary of the Interior John M. Kelly to President Kennedy, April 2, accepted Under Secretary Ball's suggestion for a 30-day limit on agency review as consistent with the Department of the Interior's position set forth in that Department's letter of March 21 to President Kennedy, urging that the Departments of State and Interior retain authority for approving or disapproving stockpile disposals affecting their programs and objectives. (Filed with the source text)

George W. Ball

351. Letter From Secretary of Commerce Hodges to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials. Administratively Restricted.

Washington, April 6, 1962.

Dear Mr. President: The report of the Executive Stockpile Committee sent to you on March 19, 1962,/1/ recommended the establishment of a long- term affirmative disposal program for stockpile materials significantly in excess of objectives. At the same time it proposed a change in Defense Mobilization Order V - 7 which would require consultation with instead of approval by the agencies concerned in regard to disposal plans. In effect, this would eliminate the right of individual agencies to veto any disposal program proposed by the Office of Emergency Planning and the General Services Administration. The Department of Interior and the Department of State strongly dissented from this proposed change.

/1/Document 349.

In the course of our participation in the preparation of Executive Stockpile Committee report we expressed strong views about the need for a continuing, effective disposal program and pointed out how the exercise of individual veto powers of the several agencies based on their special interests could interfere substantially with an overall sales program. Further, we believed that final responsibility for determining the national interest in the matter should rest with the Director of OEP. These views were reflected in the Report, but we consider them of such importance that we have prepared a more detailed position paper regarding them. We submit this paper herewith in the hope you will find it useful in making your determinations regarding the stockpile operation./2/

/2/Not printed. This 5-page paper, dated March 19, expanded on the position taken in Hodges' letter. (Department of Commerce Executive Secretariat Abstract of Secretarial Correspondence, April 6; 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)

Respectfully yours,

Luther H. Hodges

352. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Kaysen) and the President's Assistant Special Counsel (White) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials. Official Use Only.

Washington, April 9, 1962.

SUBJECT

Report of the Executive Stockpile Committee/1/ under NSAM 126/2/

/1/Document 349.

/2/Document 347.

You now have in your hands the report of the Stockpile Committee dated 19 March. (Tab D) There are two kinds of major recommendations--for further studies and for immediate action.

1. The further studies recommended include re-examination of stockpile objectives and requirements, and also of the program of acquisitions through barter now undertaken in conjunction with the Department of Agriculture.

2. The major action recommendation is that the disposal process be simplified and speeded up by amendment of both defense mobilization orders and legislation. The purpose of these changes would be to reduce the period of notice to Congress from six months to sixty days, to eliminate it entirely for sales below certain levels, and to eliminate the need for express approval by Congress. These changes would be accomplished by legislation. The proposed amendment of the defense mobilization order would eliminate the requirement that OEP secure the approval of the Departments of the Interior, Commerce, Labor and Agriculture for proposed disposals, and substitute merely the requirement that it consult these and other interested agencies. State and Interior both dissent from this last proposal and each insists that it retain its power of approval or disapproval. Commerce, on the other hand, strongly urges the proposal and further urges that there be long- run disposal programs which involve a minimum annual sale of heavy surplus material with additional sale to be conditioned on circumstances. Letters to you from Under Secretary Ball,/3/ Secretary Hodges,/4/ Secretary Udall/5/ and Assistant Secretary Kelly/6/ are attached as Tab A. Tab B contains a memorandum from the Department of Commerce/7/ arguing the desirability of a program which involves some minimum continuing level of disposal of every important item every year.

/3/Document 350.

/4/Document 351.

/5/Reference is to Secretary of the Interior Udall's March 21 letter; see the source note, Document 349.

/6/Reference is to Acting Secretary of the Interior Kelly's April 2 memorandum; see footnote 2, Document 350.

/7/Reference is to the March 19 Department of Commerce position paper; see footnote 2, Document 351.

After discussion with the Departments of State, Interior and Commerce and OEP, we would suggest that the points made by Ball, Udall, and Hodges can be met by adding language along the following lines to page 7 of the report under the heading of “Disposals."

“The Director of the OEP shall give notice to the above-mentioned departments of any proposed disposal and invite their views. If within thirty days either the Department of State or the Department of the Interior indicates an objection to the proposed plan which, after discussion, the Director does not support, he shall so notify the President and pre-sent the issue to him for decision. To the extent possible disposals should be made in accordance with long-run disposal plans which have been worked out in consultation with the interested departments and which take into account probable trends in supply and price both at home and abroad."

This change puts on the two departments the burden of justifying to you their disapproval of a proposed disposal plan.

We recommend that you approve the report and its action recommendations with the modification proposed above. The attached letters to the Director of the Office of Emergency Planning and the Director of the Bureau of the Budget will give effect to these recommendations. (Tab C)/8/

/8/Not found

Carl KaysenLee White/9/

/9/Printed from a copy that bears Kaysen's handwritten and White's typed signatures.

353. National Security Action Memorandum No. 142

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSAM 142, Stockpile Rpt. Official Use Only. Copies were sent to the Secretaries of State, Defense, Interior, Commerce, and Labor; the Director of Central Intelligence; and the Administrator of the General Services Administration.

Washington, April 10, 1962. TO

Honorable Edward McDermott

Director, Office of Emergency Planning

Honorable David E. Bell

Director, Bureau of the Budget

1. I have received and read a report of your Stockpile Committee organized under NSAM 126./1/ I think it is a careful and thoughtful study, and I commend you and the Committee on it. I accept its recommendations with one modification.

/1/Document 349.

2. In view of the dissents of the State/2/ and Interior Departments/3/ and the comments of the Department of Commerce,/4/ I am directing that the amendment to Section 14 of Defense Mobilization Order V - 7/5/ which you recommended incorporate additional language as follows:

/2/Document 350.

/3/See the source note, Document 349, and footnote 2, Document 351.

/4/See Document 351.

/5/Not found.

“The Director of the OEP shall give notice to the above-mentioned departments of any proposed disposal and invite their views. If within thirty days either the Department of State or the Department of the Interior indicates an objection to the proposed plan which, after discussion, the Director does not support, he shall so notify the President and pre-sent the issue to him for decision. To the extent possible disposals should be made in accordance with long-run disposal plans which have been worked out in consultation with the interested departments and which take into account probable trends in supply and price both at home and abroad."

3. The OEP is requested to prepare draft legislation required to embody the recommendations of the Committee, in consultation with the interested executive departments; to examine the problems of the barter program in consultation with the Department of Agriculture and other interested agencies; to continue its studies of stockpile objectives and requirements in accordance with the recommendations of the report; and to prepare in consultation with the General Services Administration and other interested agencies long-range disposal programs for excess materials in the stockpile.

4. I request the Bureau of the Budget to amend Defense Mobilization Order V - 7 in accordance with the recommendations of the report and this memorandum.

John F. Kennedy/6/

/6/Printed from a copy that indicates Kennedy signed the original.

354. Telegram From the Embassy in Iran to the Department of State

//Source: Department of State, Central Files, 800.2553/7 - 262. Confidential. Repeated to Baghdad, Benghazi, Caracas, Djakarta, Jidda, Kuwait, London, and Tripoli. The source text bears the handwritten notation: “File. No Action. 7/9/62" by William Van Dusen (FSD).

Tehran, July 2, 1962, 4 p.m.

8. Baghdad for Special Office. Prime Minister called me to his office July 1 to inform me of resolutions adopted by Fourth Conference of Organization of Petroleum Exporting Countries (OPEC) which being given to press today./1/ Amini stated he wished to reassure me that GOI's support resolutions in no way implied attack on oil consortium or suggestion oil agreement/2/ should be modified. He said relations between GOI and consortium were very good and Iran in fact had exercised moderating influence in OPEC councils in preparation of resolutions.

/1/Reference is to the resolutions (IV-30 - IV-36) adopted at the Fourth Conference of the Organization of Petroleum Exporting Countries in Geneva, June 4, made public on July 2. The texts are in enclosure 1 to airgram A - 10 from Caracas, July 3. (Ibid., 800.2553/7 - 362)

/2/An agreement, effective October 29, 1954, between a consortium of eight U.S., Netherlands, British, and French international companies and the Government of Iran, which resolved the longstanding Iranian oil controversy, and signed by the Shah. See Foreign Relations, 1952 - 1954, vol. X, p. 1049, footnote 3, and p. 1053, footnote 1.

Prime Minister mentioned that Iran and Saudi Arabia had been designated to negotiate with oil companies to give effect to resolutions. He regarded this as favorable factor ensuring moderate approach. He pointed out this connection that negotiations need not be completed within specified time and that they would be conducted in unhurried and friendly spirit. Prime Minister also mentioned that Page/3/ of Esso had been previously apprised of content of resolutions in New York.

/3/Howard W. Page, Vice President of Standard Oil Company of New Jersey.

Essential points of resolutions call for (1) initiation “forthwith" of negotiations with oil companies to ensure that oil produced in member countries shall be paid for on basis of posted price no lower than that prior to August 1960; (2) development of formula whereunder oil royalty payments shall be fixed at “uniform rate" and shall not be treated as credit against income tax liability; (3) elimination by member countries of any contribution to the marketing expenses of the companies concerned.

While Amini's statement sincere and is encouraging insofar as GOI relations with oil consortium are concerned, it is clear that fundamental and far-reaching character of resolutions will have sharp impact on member companies of oil consortium as well as other segments of international oil industry.

Full text resolutions and press release follow by pouch.

Holmes

355. Memorandum of Conversation

//Source: Department of State, Central Files, 800.2553/7 - 2062. Confidential. Drafted by M. Hollis Kannenberg (E/OR/FSE).

Washington, July 20, 1962.

SUBJECT

OPEC Resolutions; U.S. Oil Imports

PARTICIPANTS

Mr. Leroy D. Stinebower, Treasurer, Standard Oil of New Jersey Mr. George Pearcy, Exec. Asst. to the Pres., SONJ

Department of State: E--Mr. G. Griffith Johnson E--Mr. Nichols E/ES--Mr. Jospeh Coppock FSE--Mr. Kannenberg

Following general remarks on the world oil situation, in particular worldwide surplus productive capacity, the conversation was steered to the recent OPEC resolutions./1/ At Mr. Johnson's request the visitors gave what they asked be clearly understood as preliminary impressions.

/1/See footnote 2, Document 354.

Mr. Stinebower said two things occurred to him: first, it was understandable that the OPEC member countries should be seriously preoccupied with their own “take" and their related concern with the price question; second, that the companies obviously have no objection to higher prices but this is unrealistic in view of the world oil surplus.

Mr. Pearcy said it was obvious that the August 1960 reduction in posted prices, in which his company took the lead, was the critical action leading to OPEC. Looking back, it was a questionable step politically, but seemed fully warranted at the time if posted prices were to bear any close relationship to the market. He added that the price cut was only a step in the direction of reality and reflected only a part of the discounts then prevailing. He then alluded to the inequities resulting from the present freeze in posted prices. Kuwait, with low gravity (low value) crude enjoys a better relative price as compared with Saudi Arabian higher gravity (higher value) crude which finds itself at a price disadvantage. On the restoration of prices to the pre-August 1960 level (the cut averages 8# per barrel throughout the OPEC countries), he said this was patently impossible from a commercial viewpoint; also the companies cannot talk price with OPEC because it is: 1) bad business, and 2) prohibited by anti-trust restraints. He cited the dissatisfaction of Western European governments that most of the oil profit is taken in the producing countries and leaves a narrow margin of profit (in some cases no margin) as a tax base for European refining and marketing operations.

Between them, Messrs. Stinebower and Pearcy made the point that the OPEC resolutions on royalty are so vague that they preclude any judgment now. Perhaps preliminary talks between OPEC and company spokesmen will better define their real objectives. Mr. Pearcy thought the resolution on elimination of marketing expenses presents “no great problem".

In response to Mr. Johnson's question as to whether OPEC “had teeth in it", Mr. Pearcy replied that it will certainly have to be taken seriously and speaking for himself (not for his directors) he felt some accommodation could be reached but it would take a lot of time, a lot of talking and a great deal of patience on the part of the companies and the OPEC negotiators. Hopefully, he said, these talks might lead to a durable, mutually tolerable regime. He added that we should not overlook the fact that Venezuela would stand to gain a great deal in relative competitiveness should either of the major resolutions be implemented. He suggested that this may be clearer to the Venezuelans than to the Persian Gulf countries.

Mr. Johnson asked if the visitors thought we (the U.S. Government) should have plans to counter the OPEC thrust. Mr. Stinebower said he did not personally feel that the Middle East agreements were so sacrosanct that the companies should not be willing to discuss them. He revised the history of the Iranian nationalization and the extent of U.S. Government involvement which had led to a solution. He felt that any U.S. Government initiative, if it should in time prove necessary, would have to first await the developments resulting from company - OPEC talks. (As a historical footnote he referred to the December 1958 increase in the Venezuelan income tax, adding that while this step was unassailable legally and technically, it was now evident that this made Venezuelan oil less competitive and made Venezuela much less attractive for large scale investment. He hoped this point would not be lost on the OPEC members.) Mr. Pearcy, in speculating on what the companies might settle for, said it was his own view that the companies in general would like to reach a “peaceful plateau" if this were a durable and financially tolerable solution. The present system is so bound up in rigidities that something has to give in some direction. In response to Mr. Johnson's question as to the negotiating strength of the companies, Mr. Stinebower replied that it was great. The greatest danger, to the companies and to the Western world, in his mind was a suicidal wave of expropriation to which there is no rational counterforce.

On the question of an international oil agreement, Mr. Nichols said this presented a dilemma. On the one hand, it is clear that we lack an overall coordinating mechanism; but on the other hand, could this be done by governments in a workable and generally beneficial form. He was inclined to think it probably could not. Mr. Stinebower said that the history of international commodity agreements was pretty sad; even those that had worked, had done so very lamely. Mr. Johnson added that where they had worked one important producer had had to be willing to accept a residual market position.

The conversation turned to U.S. oil imports. Mr. Kannenberg mentioned that the issue of more or less imports (or perhaps the same level) was likely to be up for decision soon. Mr. Pearcy said Jersey of course thought residual fuel oil should be decontrolled. The crude oil question was more difficult because of Humble's leading position in the domestic market, but that Jersey would not publicly support any more restrictive program than now exists.

At the conclusion of the meeting Mr. Johnson said the talks had been most helpful to him and he hoped we could continue them. He said we should follow the OPEC developments with much care. Mr. Stinebower agreed and said he (or his associates who are following this very closely) were available on a moment's notice and would keep the Department informed.

356. Memorandum From the Department of State Executive Secretary (Brubeck) to the President's Special Assistant for National Security Affairs (Bundy)

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials. Confidential.

Washington, August 23, 1962.

SUBJECT

Tin

In recent weeks Departmental officers have engaged in consultations regarding tin, first with the International Tin Council,/1/ which failed to reach agreement (enclosures 2 and 3)/2/ and second, on Malayan initiative, with a group of representatives of tin producing countries. The latter, however, declined to express satisfaction with a United States proposal that a maximum of 200 tons weekly be disposed of for an initial six months period (enclosure 4). An exchange of telegrams (enclosures 5 and 6) has resulted in acceptance by Malaya of a disposal program of 200 tons weekly for the remainder of 1962. Malaya earlier had made vigorous repeated representations seeking a limit of 100 tons and the accept-ance of the higher figure can be viewed as a real achievement in gaining opportunity to start with a test of the market's absorptive capacity in some reasonable relationship to the presently estimated shortfall.

/1/Regarding the U.S. consultations with the International Tin Council July 23 - 26, see Department of State Bulletin, August 13, 1962, pp. 255 - 256.

/2/Enclosures 2 - 6 are not printed.

In both consultations an offer was made, with approval of the representatives of OEP, GSA, Commerce, and Interior that the United States would seek concurrence of interested U.S. agencies in limiting disposals of 200 tons weekly and it does not seem realistic to try to hold to the initially contemplated figure of 250 tons at this stage when Malaya has acquiesced in the ad referendum offer of 200, and may even try to induce a sympathetic reaction among other producers, aside from Bolivia.

During the most recent interview with the Malayan Ambassador, when it was agreed to delay an announcement relative to tin disposals in order to see if any change could be made to meet producer interests, the Ambassador was assured that he would have 24 hours notice of the text of the U.S. government's release. Accordingly if the draft at enclosure 1 obtains concurrence it will require transmittal to U.S. Missions in tin producing countries and a day's notice to the Malayan Embassy prior to release.

HF/3/

/3/Deputy Executive Secretary Howard Furnas initialed for Brubeck above Brubeck's typed signature.

Enclosure 1

DRAFT TEXT OF RELEASE REGARDING TIN/4/

/4/The Department of State issued a revised text of this statement on August 24. For text, see Department of State Bulletin, September 10, 1962, p. 386.

The United States Government, having had consultations with the International Tin Council, held further consultations with the Governments of the major tin producing countries--Malaya, Bolivia, Indonesia, Thailand, Nigeria, and the Republic of the Congo, Leopoldville--on the proposed disposal of surplus tin during the remainder of calendar year 1962.

Desiring to take into account the problem of the producing countries, and to conform as nearly as feasible to the suggestions advanced by their Governments, the United States Government has decided to reduce the quantity of tin to be disposed of to a maximum of 200 tons per week. Of this, an average of approximately 30 tons per week is expected to be used in the foreign aid programs, and approximately 10 tons per week for direct use by United States Government agencies. The quantity actually sold in commercial markets will be reduced accordingly./5/ A separate statement being issued by the General Services Administration gives the detailed procedures of offerings and disposals./6/

/5/At this point in the statement released on August 24 is sentence: “The weekly limitation will not be cumulative as far as commercial sales are concerned." (Ibid.)

/6/At this point in the statement released on August 24 are the following sentences: “The General Services Administration will accept only those bids which are reasonably consistent with prevailing market prices. It will reduce or temporarily suspend the sales if it should appear that they are exerting substantial downward pressure on prices."

The United States Government is interested in protecting the long-term stability and prosperity of the tin producing countries and therefore assumes the responsibility to observe the market situation closely, and to reduce or suspend sales below the maximum offering if necessary to avoid a significant adverse impact on the market. No bids will be accepted which are not reasonably consistent with prevailing market prices. The United States Government intends to consult with the Governments of the major producing countries if a significant adverse impact should at any time develop. In addition, it intends to consult with those Governments and with the International Tin Council before the end of 1962, concerning the rate and conditions of future disposals. The United States Government intends to make no substantial change in the rate and conditions of disposal without prior consultations with the substantially interested Governments and the International Tin Council.

357. Memorandum From the Chairman of the Petroleum Study Committee (McDermott) to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Oil Policy. No classification marking. A September 5 covering memorandum from McDermott to Kaysen transmitted the report and noted with appreciation Kaysen's contribution to the study.

Washington, September 4, 1962.

I am pleased to submit a Report based upon a comprehensive study of petroleum requirements and supplies in relation to national security objectives, undertaken in accordance with your directive issued December 2, 1961./1/

/1/Document 344.

The Conclusions and Recommendations of the attached Report are the result of extensive study by the Committee and its Task Force group and the report has been signed on behalf of all participating departments.

At the request of the Department of Interior, I have been asked to report to you their opinion that the conclusions relating to costs and benefits are potentially misleading. Interior contends that “while estimates purportedly covering costs to the economy are included in the report, the counter-balancing benefits which flow from the maintenance of the petroleum industry in its present state of health were not reduced to comparable terms." The Interior member also states “that existing legislation and delegations vest the Director of the Office of Emergency Planning with adequate authority to deal with the security aspects of the petroleum problem and that, in consequence, the recommendation in the report dealing with coordination of interagency activities is unnecessary and could lead to future difficulty in assessing responsibility for development and coordination of petroleum policy within the Executive Branch."

Except for this comment by the Department of Interior, the attached Report has the unanimous support of all participating departmental members, the Committee's advisers and observers.

Respectfully,

Edward A. McDermott

Attachment/2/

/2/For Official Use Only.

Report by the Petroleum Study Committee to President Kennedy

Washington, September 4, 1962.

INTRODUCTION

To the President:

On December 2, 1961, in connection with proposals to amend Proclamation 3279, governing the allocation of oil import quotas, by press release (Tab A, attached) you announced

“. . . 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."

This assignment was organized as an inter-agency study under the Chairmanship of the Director of the Office of Emergency Planning, with equal participation by the Departments of State, Treasury, Defense, Justice, Interior, Commerce, and Labor. Representatives of the Bureau of the Budget and the Council of Economic Advisers, and the Deputy Special Assistant to the President for National Security Affairs served as advisers, and Representatives of the Central Intelligence Agency and the Federal Power Commission participated as observers.

In the course of this study, public hearings were not held. A press release, issued on February 16, 1962 (Tab B, attached)/3/ advised industry and the public of the scope of the projected study, its objectives, and of the opportunity to submit written position papers. Further notification to this effect was published in the Federal Register on February 24, 1962./4/ In response to these public announcements, thirty-two (32) written submissions were received by the Office of Emergency Planning from various segments of the petroleum industry. Each of these documents received full and careful consideration by the Committee and its Task Force group, and a large volume of intra-Governmental information relating to the questions involved, and materials submitted in connection with other petroleum studies, were considered.

This assigned study has now been completed and we submit the following conclusions and recommendations./3/

/3/Not printed.

/4/27 Federal Register 1779.

Respectfully,

Edward A. McDermott Chairman Petroleum Study Committee

Philip H. Trezise Department of State

James A. Reed Department of the Treasury

Paul H. Riley Department of Defense

Nicholas deB. Katzenbach Department of Justice

John A. Carver, Jr. Department of the Interior

William B. Dale Department of Commerce

W. Willard Wirtz Department of Labor

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

//Source: Kennedy Library, National Security Files, Meetings and Memoranda Series, NSAM 187. Official Use Only.

Washington, September 19, 1962.

1. Attached is the report of the Executive Stockpile Committee on the Barter Program. The nine recommendations, pages 4 through 6, go to the objective of limiting the use of barter to those occasions where surplus agricultural commodities can be usefully exchanged for items that are clearly needed. Recommendation 6 provides for a list of exceptions to the general rule that barter should not be used to acquire strategic and critical materials in excess of national stockpile objectives.

2. These exceptions are appropriate and, aside from two, well-defined. These two (6 b. and 6 d.) raise some problems. Six d. provides for using barter instead of cash purchases when this can be done in such a way as to save dollar payments abroad. This is clearly a desirable objective. The recommendation would be improved, however, if it provided for consultation with the Treasury Department so that Treasury's judgment as to whether in fact there was a real saving in our balance of payments would be available.

3. Recommendation 6 b. raises more difficult questions. This provides for barter to acquire raw materials for processing in the U.S. which would help in maintaining the materials processing mobilization base and relieve areas of unemployment. Both these goals are extremely broad, and the recommendation provides no procedure for determining whether they will be achieved in any particular instance. We have alternative and usually more efficient methods for assisting areas of substantial unemployment. There is no defined standard for the materials processing mobilization base and in the absence of a defined standard, this paragraph could be used to justify almost any barter transaction.

4. The objections to these two provisions were shared by the Bureau of the Budget and the Council of Economic Advisers. Ed McDermott, the Director of Office of Emergency Planning, would be perfectly agreeable to your making the suggested change in Recommendation 6 d. and reserving approval on 6 b. until further study. It is his judgment that such a directive would be sufficient to lead to the withdrawal of 6 b. by the other members of the Committee. Accordingly, I suggest that you send the attached memorandum to Mr. McDermott and the other members of the Executive Stockpile Committee./1/

/1/See Document 359.

Carl

Attachment/2/

/2/No classification marking.

Memorandum From the Director of the Office of Emergency Planning (McDermott) to President Kennedy

Washington, August 23, 1962.

I am pleased to submit a report on “The Barter Program" that has been prepared in response to your request made in NSAM No. 142 of April 10, 1962./3/ It reflects the general consensus of the Executive Stockpile Committee, and of the Department of Agriculture whose representative was added to the Committee for the purposes of this review.

/3/Document 353.

The diverse opinions of the different Federal agencies about the barter program have been carefully and exhaustively explored during the preparation of this Report. At the time this review was initiated early in May, the Department of Agriculture had almost completed proposals for a revised barter program which had been developed following consultations with a non-governmental task force and with other Federal agencies. Recommendation No. 9 of the attached Report proposes that:

“The Basic Principles and Rules of Application of the proposed Revised Barter Program (Tab A) prepared by the Department of Agriculture should be revised to reflect the foregoing recommendations, and should be adopted as thus revised."

I believe it is important that the recommended revision be made and adopted by the Department of Agriculture as soon as possible, and without further detailed or prolonged consultations that may be merely a repetition of the process that has just been completed by the Executive Stockpile Committee.

Although the attached Report has been approved by the signatory departments, there are individual views which I wish to call to your attention:

Although the Department of the Treasury is not a member of the Executive Stockpile Committee and is not a signatory to this Report, its representatives participated fully in the staff and Committee discussions which resulted in the Report. The Department particularly feels that careful consideration must be given to the general effects of barter transactions on the balance-of-payments position of the United States and that, in this connection, appropriate attention should be given to the extent to which barter transactions might displace cash sales or are in addition to such cash sales, and to their competitive relation to other methods of procuring goods and services. The Department of Defense and other members share this view.

The Department of Commerce limits its approval to the Recommendations of the attached Report and specifically opposes any barter transaction carried out while a disposal program involving the same materials is in operation, as well as any multilateral barter transaction.

The Committee is continuing its study of other phases of the stockpile problem.

Respectfully,

Edward A. McDermott

Attachment/4/

/4/No classification marking.

Report on the Barter Program by the Executive Stockpile Committee to President Kennedy

[Here follow 3 pages of comments and considerations on the barter program.]

RECOMMENDATIONS

In light of the foregoing comments and its considerations of the barter program, as briefly reviewed in the following pages, the Committee recommends that:

1. Due regard must be given to foreign policy considerations and balance-of-payment problems in carrying out the barter program. The Secretary of Agriculture should consult with the Secretary of State and the Secretary of the Treasury, respectively, concerning the general impact which the barter program has on these considerations.

2. Greater emphasis than in the past should be given to the use of barter transactions for the procurement of non-strategic-materials items (including, but not limited to, offshore procurement) which meet approved program requirements of U.S. Government agencies within funds currently available or within procurement authority which extends over a period of years and for which dollars would normally be spent abroad.

3. The Department of Agriculture should review with appropriate Federal agencies the opportunities for the enlargement of the use of barter in support of currently budgeted programs or programs which have procurement authority extending over a period of years. The Department of Defense and the Agency for International Development should cooperate with the Department of Agriculture by effecting offshore procurement, using qualified barter arrangements to the greatest practicable extent when dollars would otherwise be spent abroad for the items being procured. In carrying out such procurement, the Department of Agriculture should absorb any increased cost incurred by the procuring agency above that which would have been incurred had dollar procurement been utilized. Off-shore military procurement by barter should not be effected in West Germany or any other country in which the United States has arrangements for payments to offset U.S. military expenditures in that country, except with the concurrence of the Secretary of the Treasury.

4. In addition to the foregoing, the Department of Defense and the Agency for International Development should continue to cooperate with the Department of Agriculture to convert to barter arrangements dollar contracts for foreign-produced items.

5. Barter should continue to be used to acquire strategic and critical materials within established maximum objectives.

6. With the exceptions indicated below, barter should not be used to acquire strategic and critical materials that are in excess of National Stockpile objectives. The exceptions are those cases where:

a. In the judgment of the Secretary of Agriculture, after consultation with the Secretary of State, and after consultation with the Secretary of the Treasury regarding U.S. foreign currency holdings, and consistent with disposal policies, it would be more advantageous to the U.S. to take a useful material in a barter transaction than to acquire additional foreign currencies;

b. The barter acquisition of foreign materials would involve in some cases domestic processing and thus help in either maintaining the domestic materials processing mobilization base or assisting areas of substantial unemployment;

c. In the judgment of the Secretary of Agriculture and with the concurrence of the Secretary of State, the barter transaction would further the international economic or foreign policy interests of the United States, including help for weaker independent states to resist economic overtures and pressures from unfriendly powers; and

d. An existing contract for a cash purchase can be converted to a barter arrangement on terms serving the best interests of the United States, thus relieving the United States of dollar payments.

7. Pending a decision on new legislation relating to the various inventories of strategic and critical materials, the materials acquired under Recommendation No. 6 should be transferred to the Supplemental Stockpile.

8. The Supplemental Stockpile Advisory Committee on Barter should continue to be used by the Secretary of Agriculture for advice and consultation regarding the barter program and the stockpile materials eligible for barter acquisition.

9. The Basic Principles and Rules of Application of the proposed “Revised Barter Program" (Tab A)/5/ prepared by the Department of Agriculture should be revised to reflect the foregoing recommendations, and should be adopted as thus revised.

/5/Not printed.

[Here follow the final 10 pages of the report with sections on Disposal of Agricultural Surpluses Through the Barter Program, Uses of Barter, Future Bartering for Strategic Materials, and Barter's Effect on Cash Sales and Balance of Payments. Also omitted are the signatures of George Ball, Roswell Gilpatric (Department of Defense), John M. Kelly (Department of the Interior), Orville L. Freeman (Department of Agriculture), Luther H. Hodges (Department of Commerce), Arthur J. Goldberg (Department of Labor), Ray S. Cline (Central Intelligence Agency), Bernard L. Boutin (General Services Administration), and Edward A. McDermott, Chairman (Office of Emergency Planning).]

359. National Security Action Memorandum No. 187

//Source: National Security Files, Meetings and Memoranda Series, NSAM 187. Official Use Only. Copies were sent to the Secretaries of State, Defense, Interior, Commerce, Labor, and Treasury; the Director of Central Intelligence; the Director of the Bureau of the Budget; and the Administrator of the General Services Administration.

Washington, September 20, 1962.

TO

Honorable Edward McDermott

Director, Office of Emergency Planning

SUBJECT

The Barter Program

1. I have received the report and recommendations of the Executive Stockpile Committee on the Barter Program./1/ I approve the recommendations, numbers 1 through 9, with the exception of 6 b. and d.

/1/Attachment to Document 358.

2. Recommendation 6 b. seems to me to raise a question as to whether it provides a definite enough standard, both substantive and procedural, to guide the agencies involved. Accordingly, I request the committee to consider this recommendation further with a view to examining how important maintaining the materials processing mobilization base is, and how this method of assisting areas of unemployment compares with other methods available to the government./2/

/2/A proposed revised text of recommendation 6b is contained in a letter from McDermott to Rusk, November 2, with a request for Rusk's comments. (Department of State, Central Files, 411.0041/11 - 262) No further revision of this text has been found in Department of State files.

3. Recommendation 6 d. should be clarified by adding a provision that any department proposing to substitute a barter arrangement for a cash purchase consult the Secretary of the Treasury to get his opinion as to whether the result would be a true improvement in our balance of payments./3/

/3/Printed from an unsigned copy. Another copy filed with the source text, however, bears the handwritten initials of President Kennedy. On September 25, the White House announced President Kennedy's approval of the recommendations on the barter program submitted to him by the Executive Stockpile Committee with the exception of minor points to be studied further. (Department of State Bulletin, October 15, 1962, pp. 564 - 565)

360. Editorial Note

The U.N. Coffee Conference, consisting of representatives of 56 countries (including the United States), met in New York July - September 1962, and formulated the Coffee Agreement, 1962 (14 UST 1911). The objective of the agreement was to assure that coffee prices in general did not decline below the 1962 level. The agreement relied on an export quota system negotiated among coffee-exporting countries to achieve price stability with quarterly adjustments according to changes in consumption estimates. W. Michael Blumenthal signed for the United States. The agreement entered into force on December 27, 1963.

The Department of State instructed Embassies in coffee-exporting countries to emphasize that the U.S. delegation “did not intercede in quota negotiations for any country." Since U.S. Department of Agriculture figures were used as a basis for negotiation, the Department of State wanted to forestall the possibility that some countries might blame the United States for their failure to secure an adequate quota on grounds of an incorrect estimate. The agreement principally obliged coffee-importing countries like the United States to restrict imports from nonparticipants to the average quantity imported during the 3-year base period to prevent nonparticipants from sharing increases in consumption. Voting in the Council, situated in London, was based on quantity of exports and imports, giving the United States and Brazil a virtual veto on major Council decisions. (Circular telegram 342 to 29 Embassies and USUN, August 27; Department of State, Central Files, 398.2333/8 - 2762)

361. Circular Airgram From the Department of State to the Mission to the European Communities

//Source: Department of State, Central Files, 800.2553/11 - 1462. Limited Official Use. Drafted by George H. Alexander (OR/FSE) on November 8, cleared by Barbara Fagan (EUR/RPE) and Howard R. Cottam (NEA), and approved by Claus R. Ruser (FSE). Repeated to the EC Mission in Luxembourg and USRO in Paris.

Washington, November 14, 1962, 3:18 p.m.

CA - 5291. Subject: Contacts between EEC and OPEC. Ref: Mission's tel Ecbus 257 (rptd info Paris Ecbus 101, Luxembourg Luxco 80)./1/

/1/Dated September 7. (Ibid., 886.2553/9 - 762)

Dept prefers to avoid adding to OPEC's international prestige or position. Accordingly Dept wld prefer contacts between OPEC and other organizations, including EEC, be avoided or minimized.

As a non-member of EEC, however, Dept is not prepared to push this position to extent of attempting officially to persuade EEC or its members to avoid contact with OPEC.

Officers of the Mission, if called upon to express an opinion, may suggest that it wld be logical for members of EEC to adopt the same position on contacts between EEC and OPEC that they adopted when contacts between OECD and OPEC were discussed recently in a meeting of the OECD Special Oil Committee. (See Paris tel Cedto 411, Oct 23, 1962, pouched Brussels and Luxembourg.)/2/

/2/Not printed. (Ibid., 374.82553/10 - 2362)

Rusk

362. Letter From President Kennedy to Secretary of the Interior Udall

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Oil Policy. No classification marking. A cover memorandum to Kaysen, et al., from Kenneth R. Hansen, Assistant Director of the Bureau of the Budget, November 16, states that this is a revised proposed letter to be sent to Udall on November 19 and that it will not be published. Hansen asked for comments by close of business, November 16.

Washington, November 19, 1962.

Dear Mr. Secretary: My review of the interagency study of petroleum supplies and requirements in relation to national security objectives has now been completed./1/ I request that you take the following actions:

/1/The interagency study has not been further identified.

1. Initiate discussions immediately with the Interstate Oil Compact Commission, looking toward the formation of a working group to consider objectively the problems involved in updating the state laws and regulations as they apply to the production of petroleum. It has become apparent that elements of state regulatory systems are seriously out of date, and have served to retard the progress of the petroleum industry. I am informed that the Commission has already begun discussions of some of the weaknesses of these systems. It is appropriate that the Federal Government join in these discussions which have a significant potential for improving the fundamental strength of our economy.

2. Provide assistance to the Secretary of State in discussing with the Government of Canada the coordination of United States and Canadian petroleum policy in relation to North American security objectives.

3. Develop and submit to me by no later than November 23, appropriate changes to Proclamation 3279 of March 10, 1959,/2/ which would accomplish the following:

/2/Reference is to the proclamation by President Eisenhower, “Adjusting Imports of Petroleum and Petroleum Products into the United States," and through licenses issued by the Secretary of the Interior. (73 Stat. c26)

Assure that the level of imports from all areas into Districts I - IV, of crude oil, unfinished oils, and products other than residual fuel oil to be used as fuel, will bear the same relationship to domestic production of liquid hydrocarbons as that which existed in 1961. This maximum level will include overland exempt imports.

Continue the gradual phasing out of allocations based on historical imports of crude and unfinished oils in Districts I - IV and permit, as appropriate, the more rapid phasing out of historical allocations granted on the basis of imports now governed by the overland exemption.

Provide that the sliding scale for determining allocations to refiners on the “input" basis include special provision for small business.

The present method of establishing allocations for District V and Puerto Rico should remain unchanged but, in addition to your other responsibilities for petroleum policy within the Executive Branch, I request that you make a special effort to encourage the use of domestic production, including production from Districts I - IV, in District V.

Sincerely yours,

John F. Kennedy/3/

/3/Printed from a copy that bears this typed signature.

363. Memorandum From the Director of the Office of Emergency Planning (McDermott) to President Kennedy

//Source: 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. No classification marking. McDermott was the Chairman of the Executive Stockpile Committee.

Washington, November 29, 1962.

I am pleased to reply to NSAM No. 187, dated September 20, 1962,/1/ in which you suggested further consideration of recommendation 6b and clarification of recommendation 6d of the report of the Executive Stockpile Committee on the Barter Program.

/1/Document 359.

After reviewing a special task force report on recommendation 6b concerning the use of barter to maintain the processing mobilization base or relieve unemployment,/2/ the weight of Committee opinion is that the recommendation should be withdrawn. The Committee feels, however, that no restraints should be placed on any department or agency's sponsoring a barter transaction which would accomplish one or both of the objectives described. Such recommendations should be presented to you through the Secretary of Agriculture for consideration on a case-by- case basis as an exception to the principle that barter shall not be used to acquire strategic and critical materials that would be excess to National Stockpile needs.

/2/A copy of the Report of the Special Task Force to Review Recommendation 6b of the Report to the President on the Barter Program is attached to a letter from McDermott to Rusk, November 2, requesting Rusk's comments on a rephrased Recommendation 6b. (Department of State, Central Files, 411.0041/11 - 262)

The following amplification of recommendation 6d is submitted for your approval:/3/

/3/No record of President Kennedy's approval or disapproval of this recommendation has been found.

“Any existing contract for cash purchases may be converted to a barter arrangement on terms and conditions serving the best interests of the United States if the Secretary of the Treasury has found that such conversions would result in an improvement in our balance of payments".

Respectfully,

Edward A. McDermott/4/

/4/Printed from a copy that bears this stamped signature.

364. Report by the Executive Stockpile Committee to President Kennedy

//Source: Kennedy Library, National Security Files, Kaysen Series, Economic Policy, Stockpiling of Strategic Materials, SM 63. No classification marking. A January 16 transmittal letter from McDermott as Chairman of the Executive Stockpile Committee to President Kennedy, not printed, submitted the report for his review and consideration. An attached covering memorandum from McDermott to Kaysen, February 15, states that the President approved the public release of the report.

Washington, January 16, 1963.

REPORT ON DISPOSING OF EXCESS STOCKPILE MATERIALS

This report is in response to your request for the development of recommendations regarding long-range disposal programs for excess stockpile materials./1/

/1/Document 347.

Scope of Disposal Problem

As of September 30, 1962, the market value of Government inventories of strategic and critical materials in excess of present maximum objectives was $3,336,303,000.

Of this total, $3,100,702,000 represented inventories of specification- grade materials. The balance, $235,601,000, represented materials which do not meet specifications or for which there are no stockpile objectives.

About seventy-nine per cent of the excess of specification-grade materials, i.e., $2,438,000,000, is invested in inventories of only twelve materials. The remaining twenty-one per cent of such excess, i.e., $662,702,000, is contained in inventories of forty-nine materials.

Net recurring storage costs applicable to surplus inventories amount to approximately $4 million annually.

Some Issues Involved

The Committee concluded that long-range stockpile disposal programs can best be developed after decisions are reached about several important matters.

The issues involved are:

(1) The need for a stockpile public information program.

(2) The propriety of developing disposal plans for surplus materials before new and up-to-date stockpile objectives are calculated.

(3) The need for retaining materials to meet some non-war requirements for strategic materials, e.g., cold war potential needs.

(4) The preference to be given various methods of disposal.

(5) The adoption and proclamation of criteria and procedures for developing disposal plans.

(6) The need for additional legislation to promote efficient stockpile management and facilitate disposals of surplus materials.

Recommendations

As a result of its studies and discussions of these issues, the Committee makes the following recommendations:

No. 1.

A program should be developed to provide appropriate information to the general public, producers, processors, and consumers, both domestic and foreign, about the facts relative to stockpile surpluses, and the plans and programs which the Government may have or develop regarding them.

No. 2.

The Committee reaffirms the recommendation in its report of March 19, 1962,/2/ that present maximum objectives should be used to determine the surplus of each material for which disposal plans should be developed. A careful review of present objectives should be undertaken and different interim objectives adopted where appropriate.

/2/Document 349.

No. 3.

In formulating disposal plans, disposals of stockpile surpluses should be deferred in those instances where this may be considered necessary to meet contingencies short of war or national emergency arising because of the unanticipated consequences of economic or political activities in foreign countries which might result in a cut-off of critical supplies essential to day-to-day operations of the economy. Deferral of disposals on this basis should be confined to those cases where the United States is dependent for the bulk of its requirements on a limited number of foreign countries, where adequate substitute materials are unavailable, and where a cut-off of supplies would cause a serious disruption in a broad sector of commercial or industrial activity.

No. 4.

Preference should be given to disposal of surpluses by direct cash sales through regular commercial channels.

No. 5.

No legislation should be requested to provide price differentials to small businesses purchasing surpluses. Attention should be given, however, to the use of set-asides and the provision of terms and conditions which can be met by small businesses with regard to packaging, quantities, payments, and delivery. Full use should be made of the certification of competence procedure provided by section 8(b)(7) of the Small Business Act of 1958./3/

/3/Reference is to section 8(b)(7) of P.L. 85 - 536, approved July 18, 1958, under which small business government contractors could participate in procurement and disposal contracts without any other requirements with respect to capacity and credit. (72 Stat. 391; 15 USC 637(b)(7))

No. 6.

Surplus disposals should be on a non-exclusive, non-discriminatory basis to all potential buyers, except where special circumstances might justify limiting disposals to a particular group, e.g., producers or sales agents.

No. 7.

Federal agencies should continue to purchase their direct needs for surplus stockpile materials from the General Services Administration.

No. 8.

Opportunities for disposals of surpluses through their use in the manufacture of articles being procured by the Government, i.e., indirect Government use, should be thoroughly investigated. This method of disposal should be used only when it is expected that disposals cannot otherwise be made. It should, however, be looked upon as an important tool for the implementation of surplus disposals.

No. 9.

Disposals which involve the use of surpluses to pay for all or part of the cost of Government procurement, i.e., barter, should be made only when it is expected that the disposal could not be satisfactorily made by other methods, and only when there are assurances that the materials will not be directly resold on the market. Such disposals, however, should be looked upon as an important tool for the implementation of surplus disposals./4/

/4/In a letter of January 3 to McDermott, Acting Secretary of Commerce Edward Gudeman expressed reservations about recommendations 9 and 10 because “the Department of Commerce continues to be seriously concerned about the disruption of markets through noncommercial channels." (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)

No. 10.

Permanent authority for the use of Defense Production Act/5/ inventories to pay for the cost of upgrading materials needed for the National Stockpile should be provided by law.

/5/P.L. 81 - 774, approved September 8, 1950; 64 Stat. 798, 50 USC App. 2061, et seq.

No. 11.

Regardless of which of the methods discussed in recommendations Nos. 4 through 10 is used, the amount disposed of should be within the overall amount authorized by an approved long-term disposal program for the material involved.

No. 12.

(a) An interdepartmental committee chaired by the Office of Emergency Planning should be designated to conduct preliminary investigations of all aspects of the proposed disposal of any material, including selective consultation with industry. This committee should recommend relevant factors, policy decisions, and criteria for determining the ultimate maximum and minimum amounts of disposal and the average rate of disposal to be incorporated in each long-range disposal program to be approved by OEP.

(b) Criteria for the development of disposal programs (Attachment A)/6/ should be approved and published.

/6/Not printed.

No. 13.

Necessary stockpile legislation should be provided to expedite and facilitate the disposal of stockpile surpluses.

No. 14.

Disposal programs should be developed for all surpluses under the Defense Production Act and the Strategic and Critical Materials Stock Piling Act. Disposal programs for surpluses in the Supplemental Stockpile should also be developed if and when legislation is provided to facilitate disposals from that stockpile.

[Here follow 20 pages of “Discussion of Recommendations." Also omitted are the signatures of Edward A. McDermott (Chairman), G. Griffith Johnson (Department of State), Roswell Gilpatric (Department of Defense), John M. Kelly (Department of the Interior), Edward Gudeman (Department of Commerce), John F. Henning (Department of Labor), Huntington D. Sheldon (Central Intelligence Agency), and Bernard L. Boutin (General Services Administration).]

365. Memorandum From President Kennedy to the Director of the Office of Emergency Planning (McDermott)

//Source: 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. No classification marking. Transmitted with a February 6 covering letter from McDermott to Secretary of Commerce Luther H. Hodges.

Washington, January 30, 1963.

I have reviewed the report of the Executive Stockpile Committee on “Disposing of Excess Stockpile Materials,"/1/ and I approve Recommendations Nos. 1 through 14.

/1/Document 364.

Although we should maintain an adequate stockpile of strategic materials, we should dispose of the materials that are in excess of our needs. Such disposals should be made in the light of our national interest and our desire to avoid any serious disruption of the markets. The development of long-range disposal policies and plans should proceed in anticipation of enabling legislation.

John Kennedy

(###)

[End of Section 18]

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