Papers Relating to the Foreign Relations of the United States, 1925, Volume II

841.6176/5

The Rubber Association of America, Inc., to the Department of State⁷⁸

undated

Memorandum Submitted by the Rubber Association of America, Inc., With Reference to the Effect Upon America’s Crude Rubber Supply of the British “Stevenson Scheme” Under Which the Export of Crude Rubber From British Possessions Is Restricted

The so-called “Stevenson Scheme” is a legislative measure under which the amount of rubber exported by the British rubber-growing possessions in the Middle East, is arbitrarily restricted for the purpose of enhancing its price.

The purpose of this memorandum is to explain the history and operation of this scheme, and to point out the critical situation that now confronts the American rubber manufacturing industry as a result of the artificial curtailment of crude rubber supply which its operation has brought about. This situation is such that an early relaxation of the restriction imposed under this scheme is of the utmost importance to the American rubber industry and to the American consuming public.

the british possessions in the middle east are the controlling factor in the crude rubber market

Due primarily to climatic and labor conditions, the British and Dutch possessions in the Middle East enjoy, at the present time, what amounts practically to a monopoly of crude rubber production. Some “wild rubber” comes from South America, but the rubber from this source represents a very small percentage of the total. Of the four million acres of land now devoted to rubber plantations in the Middle East, about 70% is in British territory or under British control, (Ceylon, the Malay States, the Straits Settlements, etc.) The report of the United States Department of Commerce, 1925, entitled “The Plantation Rubber Industry in the Middle East” (copy herewith)⁷⁹ gives a very complete survey of the situation in that part of the world.

Under these circumstances it is apparent that any curtailment of the production or shipments of crude rubber by the growers of the British possessions, such as is imposed by the “Stevenson Scheme” must have a very direct effect upon the operations of the American rubber industry. And, since America accounts for about three-fourths of the entire rubber consumption of the world, it is America that is primarily affected by such curtailment.

the conditions leading up to the adoption of the Stevenson scheme in 1922

The “Stevenson Scheme” was adopted as a result of a temporary condition of over-supply of crude rubber, as is shown graphically in the attached Exhibit A, in each of the three years immediately following the war, i. e., 1919, 1920, and 1921 when the production of crude rubber exceeded the consumption by a considerable margin. This naturally resulted in depressing the price of the commodity.

The year of 1919 showed a substantial increase in rubber consumption over 1918, the last year of the war, but this increase did not nearly keep pace with the tremendously increased production. Then came the post-war depression in all business, with the result that instead of the expected large increase in the consumption of rubber in 1920 and 1921, there was a marked decrease in each of these years as compared with the previous year. And, as above stated, in each of these years, the production was far ahead of the consumption.

The large stock of rubber on hand as a result of the three years of over-production, brought the price down as low as 14 cents per pound in 1921, a price which was asserted to be far below the cost of production. (See attached Exhibit B.)

It was this that led to the appointment in 1921 by the British Secretary of State for the Colonies of the so-called “Stevenson Committee” (taking its name from its chairman, Sir James Stevenson, now Lord Stevenson) “to investigate and report upon the present Rubber Situation in British Colonies and Protectorates”.

In its initial report of June, 1922, (a copy of which is annexed as Exhibit C), the committee reviewed the 1919, 1920 and 1921 production and consumption figures, and concluded from them:

“On these figures, the Committee cannot fail to advise you to contemplate with grave concern the position of the Industry in British Colonies and Protectorates, unless steps are taken to reduce stocks and, further, to prevent over-production of rubber so long as the potential normal production continues to be substantially in excess of consumption. They are of opinion that consumption is not likely to overtake potential production for some years.”⁸⁰

The Committee also discussed several proposals for bringing about the desired result, including voluntary restriction and governmental action, but made no definite recommendation, pending the ascertainment of the attitude of the Dutch government. In its supplementary report of October of the same year⁸¹ (attached Exhibit D) the Stevenson Committee noted the failure of attempts at voluntary restriction of production. It also stated that the Dutch Government declined to co-operate in governmental restrictions. Nevertheless, it decided that the situation warranted legislative restriction of production in the British Colonies and Protectorates. The Stevenson Committee therefore recommended that the present “scheme of governmental intervention should be put into operation in Ceylon, the Malay States and the Straits Settlements, as soon as possible”. This recommendation was followed.

the stevenson scheme

The supposed object of the Stevenson Scheme^* was to stabilize the price of crude rubber at 1s/6d per pound, or roughly about 36 cents. This was fixed as a price which would not only give a satisfactory profit to the producer, but would be sufficient to stimulate the investment of new capital in the planting of additional acreage. The method provided by the scheme for accomplishing this object is as follows: The actual output of each producer for the year beginning Nov. 1, 1919, was taken as his “standard production”. During the first quarter of the operation of the scheme each producer was permitted to export at the low, minimum rate of export duty, only 60 percent of his “standard production”. If he exceeded that percentage he would have to pay what, up to the present, has proved to be a prohibitive export duty on the entire amount exported. The more the amount exported exceeds the prescribed percentage, the higher the export duty. The prescribed percentage is subject to change each quarter depending upon the average price for the preceding quarter. That is, if the average price for a certain quarter is between 1s/3d and 1s/6d, the prescribed percentage exportable during the following quarter at the minimum rate of duty is increased 5% for the next quarter, and if the price is 1s/6d or over for a given quarter, the prescribed percentage is increased 10%. So also, if the average price falls below Is, the percentage is decreased to 55%, and if that reduction does not raise the average price to 1s/3d in the next quarter, a further reduction in the prescribed percentage to 50% becomes effective, and so on.

As is apparent from this brief resume of the scheme, it was an attempt artificially to maintain the price of rubber at 1s/6d by altering the amount of rubber exported or “released” each quarter.

the actual operation of the scheme

The Stevenson Scheme went into operation on November 1, 1922. At that time the world stock of crude rubber was large and it took some time before the effect of the restriction scheme was felt to any great extent. But upon the depletion of the accumulated stock (accompanied by a rapidly increasing rate of rubber consumption) the situation immediately took on a serious aspect. And now, as a result of the operation of the scheme, the price of rubber has been forced up to about three times the normal price of 36 cents, and there is threatened an actual shortage in the amount of rubber needed to meet the requirements of the consuming public. The following schedule tells the story of the operation of the Scheme:

Rubber Export Quota

Restriction Quarter	Exportable Allowance of standard production	Average Price
	Per cent	s	d	Cents
Nov. 1, 1922, to Jan. 31, 1923	60	1	2.295	27⅝
Feb. 1, 1923, to Apr. 30, 1923	60	1	4.858	32½
May 1, 1923, to July 31, 1923	65	1	2.242	27⅛
Aug. 1, 1923, to Oct. 31, 1923	60	1	2.974	28
Nov 1, 1923 to Jan. 31, 1924	60	1	2.175	25½
Feb. 1, 1924, to Apr. 30, 1924	60	1	0.917	23¾
May. 1, 1924, to July 31, 1924	60	0	10.974	20
Aug. 1, 1924, to Oct. 31, 1924	55	1	2.632	27½
Nov. 1, 1924, to Jan. 31, 1925	50	1	5.9983	36
Feb. 1, 1925, to Apr. 30, 1925	55	1	7.38	38
May 1, 1925, to July 31, 1925	65			*115

The present day price, while of a somewhat speculative character, is believed to be indicative of the actual conditions of supply and demand and to forecast a real shortage of crude rubber supply unless decisive steps are taken by the British authorities to make immediately available a greater amount of rubber than is provided for by the Stevenson Scheme as it now exists.

the large and increasing demand for crude rubber in the united states

Not only has the accumulated world stock of rubber been depleted, and the rate of production of rubber reduced by the Stevenson Scheme, but the consumption of rubber in the United States is now increasing very rapidly so that the 1925 consumption figures will be greatly in excess of the figures of any year in the past. This increase in consumption of rubber by our citizens is due to the following causes, namely:

1. The normal increase in population.

2. The increasing number of articles that are made in whole or in part of rubber, and

3. The very large increase in the use of automobiles (both commercial and passenger vehicles), and in the change that has recently been effected in the type of tires used upon many of these vehicles.

This third cause of increased consumption has the greatest effect upon the situation, because approximately 80 per cent of the rubber consumed in the United States goes into the manufacture of motor vehicle tires. The growth of this important, modern and indispensable form of transportation can be visualized by reference to the attached sheet entitled “Production and Registration of Motor Vehicles 1895 to 1924” (attached exhibit E. See also exhibit F, showing the increase in gasoline consumption.) Moreover, the figures for the current year indicate a very large increase in the number of motor vehicles in use, as compared with 1924. But this increase in the number of vehicles does not tell the whole story, for practically all of the cars now being manufactured are equipped with the new types of tires known as “balloon tires” which embody a substantially greater amount of rubber per tire than was formerly the case. Also the rapid development of the motor bus, which is run almost continuously and is equipped with very large tires, accounts for a considerable increase in rubber consumption.

Other lines of rubber products in addition to tires include “mechanical rubber goods” such as hose, transmission and conveyor belts, packing, jar rings, etc.”, “footwear”, such as rubbers, boots, arctics, rubber-soled shoes, rubber heels, etc., “drug sundries” such as hot water bottles, syringes, air cushions, rubber sheeting, gloves, etc., and “hard rubber articles” such as electric battery jars, radio panels, handles, combs, etc. These are only a few of the many thousands of articles, made wholly or partly of rubber, which are essential to the welfare and progress of our people. And in substantially all of these lines the consumption of rubber is steadily increasing.

The United States must have an adequate supply of rubber to meet its increasing needs which will soon outstrip the now anticipated production, even in the absence of any artificial restriction. (See Exhibit G.) And it must be able to purchase it at a reasonable price (for example, the 1s/6d fixed by the British growers as reasonable), so that the American consumer shall not be forced to do without things to which he has been accustomed because he cannot afford to pay for them. The present operation of the Stevenson Scheme threatens an actual shortage of rubber, and, as pointed out above, it has already raised the price of rubber by artificial means to almost three times the normal figure.

the efforts made by the rubber association to avert the present critical situation

The present shortage and high price of rubber, as a result of the Stevenson Scheme, was not unforeseen by American rubber manufacturers. Immediately upon learning of the enactment of the Stevenson Scheme, American manufacturers realized the great danger which it threatened. They considered it to be economically unsound and absolutely unnecessary. And they believed and feared that the increase in rubber consumption in the United States, which was then forecast, would bring about just such a situation as exists today, if the plan were carried out as then intended.

Accordingly, the Rubber Association of America, on behalf of the American manufacturers, opened negotiations with the Rubber Growers Association of London, which represented more than half of the British Crude rubber interests and was understood to have been instrumental in originating the Stevenson Scheme and presenting it to the British Government through the Stevenson Committee. These negotiations early took the form of an invitation to the Rubber Growers Association to send to the United States a Committee which might visualize for the crude rubber growing interests the enormous rubber manufacturing capacity of this country and the great and constantly increasing use of rubber, particularly in the automotive industry. It was hoped that a presentation of the actual facts would cause these representatives of the British growers to realize the necessity of providing an adequate supply of the necessary raw material and to prevent not only an actual shortage of the material but also an abnormal or speculative market which would retard the growth of the industry and deprive the American people of their needs for rubber products.

The personnel of the Committee or Delegation appointed by the Rubber Growers Association of America to visit the United States and to confer with American manufacturers consisted of three men prominent in the development of the crude rubber growing industry, namely—

• Sir Stanley Bois
• H. Eric Miller, and
• P. J. Burgess

The first two named were members of the Stevenson Committee and Sir Stanley Bois was the past Chairman of the Rubber Growers Association. The Committee spent about three weeks in the United States, which time was occupied in conference with leading American manufacturers and in the inspection of the principal rubber manufacturing districts, including New Jersey, Northeastern Ohio, and New England. They also inspected the great automobile manufacturing center in Detroit.

The situation was explained fully and frankly to these British representatives and their attention was directed particularly to the fear entertained by our manufacturers that upon the depletion of the then existing stock of crude rubber the continued operation of the Stevenson Scheme would present an ideal situation for speculative or trading interests and would make for abnormally high prices and thus perhaps demoralize, temporarily at least, the rubber manufacturing industry.

The British representatives, while careful to explain that they could not speak for their Government, expressed the belief that the restriction scheme gave a sufficient degree of discretionary power to permit the control of any speculative or runaway market conditions and that it was their firm belief that such control would be exercised if the contingency arose. In the report of the British Delegation to their Association, they said, in part (Rubber Growers’ “Bulletin” February, 1923, page 71):

• “4. There is a definitely express[ed] fear that the legislation may prove insufficiently elastic to prevent an actual shortage of rubber if America’s requirements come up to present anticipations; that if this were to eventuate speculation and price manipulation would inevitably ensue in a manner most detrimental to the interests of manufacturers and producers alike.
• 6. The Americans feel, however, that they are entitled to ask, and they do most strongly urge, that a declaration be made by or on behalf of the Governments controlling the Restriction of Exports, to the effect that if the legislation at present enacted should prove to be insufficiently elastic to furnish adequate supplies of rubber for the needs of the industry as and when required, steps will be taken by those Governments to release additional exports more rapidly than present legislation admits. This request for a declaration has the support of Mr. Hoover, Secretary of State [sic] for the Department of Commerce at Washington.”

Ever since the visit of these British representatives the Rubber Association has supplied the Rubber Growers Association of London, the British Embassy at Washington and the Department of Commerce with a quarterly statement showing the consumption of crude rubber in the United States, and since November 1924 with a monthly statement of the consumption. At all times, therefore, the British growers have been in a position to visualize the actual balance between supply and demand and to see the approach of the serious condition with which we are now confronted.

As has been stated above, when the world’s stocks began to reach a low point late in 1924, rubber prices began to rise. When they had passed beyond the established price level of 1s/6d cable negotiations were renewed with Mr. H. Eric Miller, first as the spokesman of the Rubber Growers Association and then as a member of the Stevenson Scheme Committee, and therefore an adviser to the Government. Cables were also exchanged with Lord Stevenson, who was acting as an Aide to the Colonial Office in the restriction matter. Copies of this correspondence are appended⁸² and need no explanation. It appears from them that the American rubber manufacturing industry can look for no relief through this source.

As indicative of the present attitude of the British Government, we quote the following Associated Press dispatch of July 13, 1925:

“London, July 13 (AP).—The British Government does not consider the present price of rubber warrants reconsideration of the existing ordinance restricting the output of the Malay Peninsular, W. G. A. Ormsby-Gore, Parliamentary Under Secretary for the Colonial Office, announced today in the House of Commons in response to a question.

A member had asked whether the present high price of rubber would likely mean the reconsideration of the present Government policy.

Mr. Ormsby-Gore said the legislation originally was framed to restrict export, not production. The whole matter always is under consideration of the Colonial Office, he said.

While admitting the present rise in prices was unexpected, he declared it meant that the amount of rubber for export would be increased automatically on Aug. 1. But if prices remain at the present extraordinary high figure, the situation would without doubt be reexamined. Legislation would be required in the Straits Settlements, the Federated Malay States and Ceylon to increase the percentage of Aug. 1 by 20 per cent instead of 10.

This increase could not be made suddenly without creating a great disturbance, he explained”.

conclusion

It is apparent from this dispatch that the British Government considers it possible to effect such modification in the restriction scheme as it may deem necessary or wise. It is the view of the special committee appointed for this purpose by the Rubber Association of America that if the British Government could be made to understand fully what the present situation is in the American Rubber manufacturing industry and how the future of that industry is threatened by a continuation of the present operation of the scheme, it would see the desirability and the necessity of relaxing its restrictive provisions.

The Rubber Association of America, Inc.

78. Left at the Department on July 17, 1925. The exhibits attached to this memorandum are not printed.
79. Not reprinted in Foreign Relations.
80. Great Britain, Cmd. 1678 (1922): Report of a Committee Appointed by the Secretary of State for the Colonies to Investigate and Report upon the present Rubber Situation in British Colonies and Protectorates, p. 4.
81. Great Britain, Cmd. 1756 (1922): Supplementary Report of the Committee Appointed by the Secretary of State for the Colonies, to Investigate and Report upon the present Rubber Situation in British Colonies and Protectorates.
82. See pages 3 to 5 of “The Plantation Rubber Industries in the Middle East.” U. S. Dept. of Commerce 1925. [Footnote in the original.]
83. Price on July 16, 1925.
82. Not printed.