K. C. Wu, then Governor of Taiwan Province, and a few foreign advisers made the suggestion to President Chiang Kai-shek that a curb should be placed on sugar production, otherwise the economy of Taiwan would suffer. They were laboring under two misconceptions: First, they thought a surplus sugar production would bring about bankruptcy. For in early 1953, they were unable to foresee the possibility of selling 920,000 tons of sugar in that year. Secondly, they thought as many people in those days did that if we could keep the foreign exchange rate down, the price of commodities would remain low. They did not realize that diminution in the supply of foreign exchange is an important cause of high prices. An unfavorable balance in international payments is something which would adversely affect the national economy. The former governor and his advisers thought the sugar production should not continue to expand in Taiwan but should be curtailed to an agreed minimum. The idea was not entirely adopted by the Government, but the trend was for diminishing production. As a result seven sugar mills were closed down, 5,000 employees discharged and the sugar cane planting area was reduced from 120,000 to 92,000 hectares. The last decision of the Government, however, was made too late in the year to be fully carried out. But it became the target for later sugar cane planting. When the United Nations called the first International Sugar Conference in 1954, we were assigned, on the strength of past sales, a basic export tonnage of 600,000, which did not do justice to our annual production of 880,000 tons. We needed only 100,000 tons for domestic consumption. The balance of 780,000 tons was available for export. But as we had a program at the moment to cut down annual production to 500,000 tons and this was known to the United States and Cuba, both charter members of the Council, they had agreed beforehand to allocate to Taiwan a quota of not more than 600,000 tons.
This stabilized the Taiwan sugar industry, and the Government set the annual production, target at 700,000 tons-600,000 for export and 100,000 for domestic consumption. The production of 750,000 tons of the crop year ending last spring was in accordance with this plan.
But soon the position of the International Sugar Council became difficult. After the withdrawal of Peru, Indonesia and Brazil from the Council, sugar sold by non-member countries amounted to 1,000,000 tons and the Council did not have sufficient power to control the price. For example, with a quota of 200,000 tons, Brazil sold 400,000 ton; last year after her withdrawal.
In our case, with a basic export tonnage of 600,000 tons, we were actually exporting 480,000 tons, when the Council decided on a 20% reduction. However, in the first year 140,000 tons was sold before the Agreement went into effect. Again, we reserved a stock of 40,000 tons. In 1955 we got an extra 60,000 tons from the unfilled quotas allotted to the Soviet Union and several other countries. With all these added together, we still had a stock of 160,000 tons at the end of 1955. By the end of 1956, we are going to have a surplus stock of 300,000 tons. Neither the Taiwan Sugar Corporation nor the Government could afford to have an annual export of only 480,000 tons and keep in stock some 300,000 tons. If we produce every year what our plan calls for, this stock will keep on accumulating. Nor can we afford to do what the Cuban sugar planters do, i.e., let the sugar cane grow on the farm unharvested. For ours are smaller planters, and there are more than 200,000 sugar planters in Taiwan, as against only a few thousand in Cuba. Sugar export constitutes 70% of our total exports, and the proceeds realizable from the sale of 480,000 tens amounting to no more than US$50,000,000 is far from adequate to meet our foreign exchange requirements. Even with American aid, we do not have enough foreign exchange for our needs. Because of this danger, the Government decided to notify the Council of its intention to withdraw. Article 44 of the International Sugar Agreement stipulates that if any participating Government considers its interests to be seriously prejudiced by any member or non-member country, the said country may make such a demand.
It is not a simple matter for a member of an international agreement to withdraw, for he should give consideration to the interests of the other members. In our case, if we should withdraw and Japan did not. Sino-Japanese trade would be adversely affected. For a member country should not import more sugar from a non-member country than what it bought in the past year. Under the present system of discount required of the member countries the 300,000 tons we used to sell to Japan would amount to no more than 240,000. Of our sales to Japan so far 230,000 tons has to be credited to the year 1956. The excess exports of 1955 will be for the account of 1956, and the amount we can sell to Japan would be just about the amount held over from the preceding year. So if we should withdraw from the Sugar Council and Japan did not we can include practically no sugar in our barter agreement with Japan for 1956. I do no see how a barter agreement between the two countries can be concluded without sugar, which is our chief export to Japan.
I was sent to Japan by the Government to talk with the Japanese officials and to see if they would be willing to bring to the attention of the International Sugar Council Japan's requirements and tell them her desire to see our quota in creased. Wean our part would take this matter up with the member countries; and if they would agree to it. China would not have to withdraw from the Council and trade between China and Japan would not be affected. But my talks with the Japanese officials was not fruitful. Though they promised to buy 450,000 tons from us in 1956 they asked that the price be lowered. They showed no intention to ask for an increased quota for us. Instead, they told me to take up the matter directly with the Sugar Council. But we could not possibly bring up the matter again after the failure of last year. This attitude of Japan influenced us to make up our mind to withdraw from the Sugar Council.
The International Sugar Council was sponsored by the United States, Cuba and others. Many people are under the impression that the United States has investments in the Cuban sugar industry and naturally would like to see the sugar price stabilized. Her overriding consideration, however, is her domestic price of beet sugar, which is generally 60-70% higher than the world price. If the world price for sugar falls too low, the discrepancy between domestic and world price would be too far apart. It may cause discontent among the American people. Therefore, the beet sugar interests also wish a stabilized world price.
We deemed it necessary, on the matter of our intention to withdraw, to reach an understanding with the American Government. Furthermore, the chairman of the International Sugar Council Was an American. After I had arrived at Washington. I held several conversations with him. We had frank discussion of various phases of the subject and serious attempts were made to explore the possibility of finding a solution to our difficulties. However, we finally came to the conclusion that in view of the impossibility of increasing the quota, which was agreed upon by various nations, there was no way to solve our difficulties. I then explained to him the economic condition in Taiwan, how we could not hope to raise materially the foreign exchange receipts and the amount of American aid, and how unless we could sell all our sugar in 1956, our national economy would be very much affected. The other possibilities might be the increase of American aid, or for the United States to take 200,000 tons of sugar from our hands, neither of which, however, were feasible. The only thing remaining for us to do was to withdraw from the Council. He said he would give me a reply on the following day. When the next day came, he sincerely regretted that we had to take this step, and he wholly understood and sympathized with our situation. He suggested that I talk with Cuba and the Dominican Republic, the other two major sugar-exporting countries.
I then cabled home to ask for authorization to withdraw from the Council. As it was required to give notice of withdrawal to the Council-14 days before its meeting which was scheduled to be held on November 28. Dr. Tuan Mao-lan, Chinese Minister to France and member of our delegation, had to contact the Executive Director of the Council by trans-Atlantic telephone and give him notice of our withdrawal pending the delivery of the formal notice.
I went on to Cuba. China and Cuba have traditionally been on friendly terms with each other. Both countries are anti-Communist, and in many an international conference. Cuba took China's stand. Therefore. I regarded myself as on a friendly mission to Cuba, the main object of which was to secure the understanding of the Cuban authorities and explain to them that our withdrawal would not adversely affect their interests. I found them very frank. They informed me that they had found a possible solution for our difficulties. They said that as there was no way to revise the constitution of the Council before the end of 1956, there was little that could be done inside the Council. But the members all admitted that the sugar agreement had not been working satisfactorily mainly due to the non-participation of important producing countries. There had been three withdrawals, and if China should withdraw, the Cuban authorities thought that the Council would fall apart. But the constitution did not provide for an early revision of the quotas.
The Cuban authorities then suggested that the United Nations should convene in 1956 a sugar conference for both member and non-member states of the International Sugar Council with a view to revising the sugar agreement. If at this meeting an agreement could be reached to revise the quota to satisfy all parties concerned, nothing could be better. Meanwhile they suggested we could go ahead to sell our sugar. It was unlikely that we could sell all the sugar in the first part of 1956. Before the end of the first half year, this meeting would have been called, so they told me. If by then we were still dissatisfied, it would not be too late to withdraw. I assured them of my appreciation of their efforts to help us and said that I would ask for instruction from my Government.
At the meeting of the Council held at London, our notice of withdrawal was placed at the end of the agenda. Despite the fact that we did not seek for election in the Executive and the Statistical Committees, we were elected to be members in both as before. From this we gathered that the members still wanted us to remain in the Council. When the question regarding our withdrawal was brought up, the delegate of Japan expressed his sympathy. He told the meeting that after the Japanese had raised their domestic production of rice, they did not need to import rice from Taiwan. But they needed the sugar from Taiwan. If China could sell Japan more sugar, then she would be able to buy more of other goods from Japan. He also expressed his regret that the Council had neglected to deal with problems of the Far East and hoped that it would seriously consider China's present request. The delegate of the Philippines also expressed his sympathy and told the meeting that he was sent there by his Government to make observations and that he had instructions to reserve the right to remain or withdraw from the Council.
Immediately the atmosphere in the meeting became tense. The delegate of the United Kingdom said that as an international meeting on sugar was to be called soon, he wished the delegate of China would reconsider his motion for withdrawal pending the calling of the said meeting. The chairman asked if this was a motion. He· answered yes and submitted a full resolution to the above effect. The delegate of Japan seconded the motion. The chairman asked my opinion and I told the meeting that if this resolution were adopted by the meeting, I would recommend it to my Government. The resolution was unanimously adopted by the Council, with the Soviet Union and her satellites abstaining.
I did not regard this as either success or failure of my mission, but I could not help feeling that the question had come to a particular phase, for which much follow-up work needed to be done. To get an idea of what the future international meeting had in store for us, I called on the delegate of Belgium who bad a good deal of experience in the sugar business and had served the. Council as chairman, and the delegate of West Germany, who was to be the vice-chairman for 1956. After I had ex changed views with these gentlemen, I returned home via Japan to call on the Japanese authorities for further consultation.
After having dwelt at some length on our attempt to open up foreign markets for Taiwan sugar, I now wish to deal briefly with the actual condition of the sugar industry at home. Sugar manufacturing was a sort of hothouse industry during the Japanese occupation of Taiwan. Now we have passed that stage. Our production per hectare had passed the record of the Japanese occupation. And we have now shortened the average period of cane growing from 18 to 14 months. We are continuing our experiment with the crossbreeding of ratoon and muddy cane to see if we could further shorten the growing period. The economy of the planters cannot stand a growing period of 18 months, for their profit will be absorbed by the high interest that they have to pay. The present planting time will make sugar cane planting more profitable. Whether the farmers would plant sugar cane or not is mainly guided by the profit motive and not by government persuasion.
At the present time we are using a sort of protective system in which the Taiwan Sugar Corporation will buy the sugar cane grown by the farmers at a price which is pegged at a fixed ratio with the price of the competitive crops. Formerly the Government also undertook to pay the difference between the guar anteed sugar price and the world sugar price. Beginning from 1955, the Taiwan Sugar Corporation undertook to make such payments to the farmers.
The sugar production cost of other countries is usually kept secret. But we have little hesitation in saying that our cost is lower than that of almost all the other countries, because our production per hectare is higher and our labor cost is lower even than that of Cuba. However, there are several factors which make it difficult to figure our cost of production. First there is the question of the guaranteed sugar price. Whether such guarantee should be undertaken by the Government or by the Taiwan Sugar Corporation means the difference of NT$120,000,000 a year. Secondly, there is the question as to whether or not we can sell all the sugar produced. Interest is very high in Taiwan. Whether or not we can sell all our sugar and the length of time it takes us to sell it often mean the difference between profit and loss. Thirdly, the quantity produced has a great deal to do with cost. For most of the expenses are fixed—overhead, taxes, labor etc.; and if production should be lowered, losses can be very heavy. Another factor has to do with the foreign exchange rate. If the exchange certificates given to us are of the same nature as those given to the ordinary traders, our export price could be further lowered without loss to the Sugar Corporation.
Our present development in sugar cane planting takes a course different from what it used to be. Dr. A. J. Mangelsdorf, world authority on sugar industry, was invited to come to China after V-J Day when Taiwan Sugar Corporation took over from the Japanese. After having made a survey of the sugar industry at that time, he thought there was little hope for its full recovery. He was in Taiwan recently after almost ten years and he was surprised to find that there had been so marked an improvement. He advised us to go all-out in introducing new cane varieties, for Taiwan is an island where all sort of parasites exist and it would be impossible to find any species that is more resistant to diseases than others. We have recently invited Dr. E. V. Abbott, U.S. plant pathologist, to make an investigation of the conditions here.
For experimental purposes, we have imported from Hawaii and other parts of the world many new varieties. They are quarantined and planted at Shi-tse near Taipei. If the new varieties should prove worthwhile, they would be transplanted elsewhere. The Taiwan Sugar Experiment Station is breeding new varieties also. Three new varieties are now being extended: 1) 34-1428; 2) H-32-8560 and 3) H-37 1933.
We are continually looking for new methods for the utilization of the by-products of the sugar industry. The bagasse boards are going to have potential foreign markets and are considered a very good building material. Another waste product is alcohol slop, which may also be exported if certain production problems can be solved.
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This is the translation of Mr. Yang Chi-tseng's speech delivered at the press conference held at the Government Information Bureau on December 31, 1955.