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This matter was immediately referred to the Joint Chiefs of Staff 68 with the statement that in the Department's opinion the appeal of the Prime Minister should be granted if it should be found to be at all feasible to do so in keeping with the over-all demands of the war situation.

A reply dated May 29, 1944 67 has now been received from the Joint Chiefs of Staff in which it is stated that they are unable on military grounds to consent to the diversion of shipping necessary to meet the Prime Minister's request, because of the adverse effect such diversion would have upon military operations already undertaken or in prospect. A copy of this reply is enclosed.

In accordance with the directive contained in the memorandum of April 30, 1944, there is also enclosed for your consideration a draft of a reply to the Prime Minister.

C[ORDELL] H[ULL]

[Annex)

Draft Telegram I refer to your telegram No. 665 of April 29, 1944 in which you set forth the urgent need for additional shipping in order that greater quantities of wheat than now contemplated may be imported within the year into India from Australia.

Upon receipt of your telegram I immediately directed that the matter be taken under urgent consideration by the appropriate authorities of this Government. The appeal has my utmost sympathy and you may be sure that there is full realization of the military, political and humanitarian factors involved. The American Joint Chiefs of Staff have reported, however, that they are unable on military grounds to consent to the diversion of shipping necessary to meet the request because of the adverse effect such a diversion would have upon military operations already undertaken or in prospect.

Needless to say, I regret exceedingly the necessity of giving to you this unfavorable reply.

845.5018/7-2044
The British Minister (Campbell) to the Secretary of State

WASHINGTON, 20 July, 1944. DEAR MR. SECRETARY: With reference to Lord Halifax's 68 letter to you of May 1,87 enclosing a copy of a message from the Prime Min

* In a memorandum by the Secretary of State, May 2, not printed. 67 Not printed. « British Ambassador in the United States.

ister to the President, I write to let you know that we have now received a further telegram from London about the food situation in India.

You will no doubt have seen the Viceroy's announcement that His Majesty's Government have made arrangements to ship 400,000 tons of wheat (a larger figure than had been previously promised) to Indian ports before the end of September 1944, in addition to 400,000 tons arranged since October 1943. You may like to know how this has been achieved.

In his reply to the Prime Minister of June 1,69 the President said that he regretted exceedingly the necessity of giving Mr. Churchill an unfavourable reply to his request. Meanwhile the Viceroy's demands were increased by the poor wheat harvest and he emphasised more strongly than ever that without the imports he asked for he could not feed the fighting services and feared a breakdown in civil supplies for the provinces. Further careful consideration in London made it abundantly clear that no British controlled shipping could be made available unless corresponding reductions were made in military programmes. The matter was accordingly considered afresh by the military authorities who accepted the great strategic importance of the provision of wheat for India, drawing attention to the military consequence of a second famine, both on the morale of the Indian Army and on the security of India as a base. No other source of supply being available they agreed to cancel sailings on military maintenance programs for all theatres over the next three months, so as to provide ships for another 200,000 tons of wheat to India in the third quarter of the year, and advised further consideration in August and again in November.

Mr. Eden 70 wishes me to explain the above for your confidential information. The amount of shipping which it is hoped will be released in this way is still much less than was asked for by the Viceroy but the latter's announcement by taking into account all that we have sent to India since last October puts the most favourable possible complexion on the situation with the object of promoting confidence and so preventing wheat prices from soaring and hoarding from developing Yours very sincerely,

RONALD I. CAMPBELL

69

10

See draft telegram, supra.
Anthony Eden, British Secretary of State for Foreign Affairs.

REPRESENTATIONS BY THE GOVERNMENT OF INDIA REGARDING THE EFFECT OF THE UNITED STATES SURPLUS COTTON EXPORT PROGRAM ON INDIA'S TRADE

600.458/12-444

The Agency General for India to the Department of State

MEMORANDUM ON THE RELATIVE POSITIONS OF THE UNITED STATES AND

INDIA IN COTTON EXPORT MARKETS AND THE EFFECT OF THE PRESENT UNITED STATES POLICY OF ASSISTING THE EXPORT OF COTTON BY SUBSIDY

1. (a) The United States is the world's largest cotton producer. India is second.

(b) Over the six years 1933–34 to 1934–39 inclusive, U. S. exports averaged 5,490,000 bales (500 lbs) compared with crops averaging 12,768,000 bales (500 lbs) i.e., 42.9% of the crops while, over the same years, India's exports averaged 3,398,766 bales (400 lbs) compared with crops averaging 6,148,166 bales (400 lbs), i.e. 55% of the crops. Details are shown in statement "A"attached.71

(c) Both countries carry a cotton surplus; the United States about 101/2 million bales (500 lbs), India, 4 million bales (400 lbs).

(d) Indian markets have always been "free" in the sense that supply and demand have been the major influences on prices and the flow of pre-war exports was steadily maintained. The increase in the Indian surplus from 1,062,000 bales (400 lbs) on August 31, 1939 to 4,000,000 bales (400 lbs) on August 31, 1944 (both figures exclude mill stocks) was caused directly by war closing the export markets.

(e) The Indian surplus would have been greater had not the Indian Government taken steps:

(i) To increase, with the cooperation of the Textile Industry, domestic cotton consumption from 2,999,609 bales (400 lbs) in 1937–38 to 4,200,000 bales in 1943-44.

(ii) To switch over acreage from unwanted cotton to wanted food. The 1944-45 crop is estimated at 4,250,000 bales (400 lbs), no more than is required for domestic consumption.

2. It was anticipated that the post-war reopening of export markets would restore balance to cotton statistics and the cotton trade but, instead, India is faced with a position in which the United States subsidy policy 72 of 4¢ a pound on cotton exports, combined with the

72

11 Not printed.

Authorized by the Surplus Property Act of October 3, 1944 (58 Stat. 765), and promulgated by the War Food Administration, of the Commodity Credit Corporation, on November 11.

sharp market discounts already ruling for lower grades and shorter staples, reduces the prices for such qualities below world levels as measured by India, the second largest producer.

3. Attachment "B" 78 shows that Americans f.o.b. Houston as on November 20, 1944 were 3 to 31/2 cents a pound cheaper than equivalent Indians f.o.b. Karachi. Specimen calculations are given in attachment “C”.73

4. The American Seed Indians selected for comparison are not only export cottons with American equivalents but of the 1944–45 crop of 4,200,000 bales (400 lbs), 1,668,000 bales are American Seed descriptions. The breakdown in bales (400 lbs) is 289F, Punjab 317,000, Sind 450,000; L.S.S., Punjab 470,000, Sind 10,000; 4F Punjab 414,000, Sind 7,000.

5. Furthermore, it is acknowledged in the world's cotton markets that qualities which bear little or no similarity to higher descriptions are, nevertheless, affected on grounds of sentiment, by the prices of higher descriptions; from which it follows that the adverse effect of the United States policy of assisting exports by subsidy will extend even to those lower Indian descriptions in which there is no quality overlap with Americans.

6. The Indian cultivator has only a limited number of cash crops, of which cotton is the most important, a fact which tended even to prejudice the switchover to food cultivation. It will be realised,

. therefore, that by bringing the prices of lower grade and shorter stapled Americans below world levels as measured by Indians, the present United States policy will disturb the economic balance of India, essentially an agricultural country, by its serious effects on the incomes of Indian farmers, whose return from their produce is already little above a bare subsistence level.

7. The immediate effect in India of the announcement of the United States subsidy policy was a decline in the Jarilla hedge contract price from Rs.425 per candy to Rs.392, equivalent to 1.27 cents per pound at exchange 30.37 cents per rupee. That the decline was not greater was accountable to the nearness of several descriptions to the minimum prices at which Government buys, a fact which cushioned pressure. In the normal swing of markets there has since been a partial recovery but, in the minds of Indian traders, the threat to their export markets remains.

8. In examining the position it may be stressed that:

(a) India did not take advantage of the United States price raising policy over the last ten years by increasing her cotton production.

(6) The Government of India realises the futility of cotton production in excess of domestic and export requirements, as shown by the short-term policy of reducing the 1944-45 crop to an estimated 4,250,000 bales (400 Ibs) when food was needed and not cotton. The crop in prospect is no more than is required for domestic consumption, leaving no provision for export.

73 Not printed.

(6) The Government of India is prepared at all times to take a realistic and rational view of the cotton problem.

9. In the light of the facts contained in this memorandum and the assurance given by the Government of the United States in the announcement dated Washington, November 11, 1944 that the United States “has no intention of precipitating mutually injurious price competition in world wheat and cotton markets", the Government of India requests that the Government of the United States may see its way to reduce the export subsidy of 4 cents per pound so far as that subsidy applies to qualities Middling 78'' staple and lower.

WASHINGTON, December 4, 1944.

76

600.118/12–1544 Memorandum of Conversation, by Mr. James H. Lewis of the Division

of Commercial Policy

[WASHINGTON,] December 15, 1944. Participants: Mr. S. D. Chard, Cotton Adviser to the Government of

India
Mr. Norris, United States Department of Agriculture
Mr. Corse,74 CP
Mr. Ross,75 CP
Colonel Cook," SR
Mr. Evans," CD
Mr. Phillips,18 CD
Mr. Linville,79 SR

Mr. Lewis, CP Mr. Chard called with reference to the memorandum which the Agent General for India handed to Mr. Acheson 80 on December 4, 1944, in which reference was made to the relative positions of the United States and India in cotton export markets and the effects of the United States cotton subsidy program on India's trade.

Mr. Corse explained to Mr. Chard the background of the subsidy program, mentioning the legislative authority and the WFA 81 an

78

74

75

70

Carl D. Corse, Assistant Chief of the Division of Commercial Policy. James A. Ross, Jr., Assistant Chief of the Division of Commercial Policy. Everett R. Cook, adviser, Supply and Resources Division. 77 James G. Evans of the Commodities Division. 8 William T. Phillips of the Commodities Division. 19 Francis A. Linville of the Supply and Resources Division. So Dean Acheson, Assistant Secretary of State. 81 War Food Administration.

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