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

841.6176/21

The Ambassador in Great Britain ( Houghton ) to the Secretary of State

London , August 17, 1925 .
[Received August 27.]

No. 272

Sir: Referring to my telegram No. 258, dated August 17th, 3 p.m.,⁸⁷ I have the honor to enclose copy in triplicate of Mr. Chamberlain’s note mentioned therein concerning the concessions requested with respect to crude rubber exports from Malaya.

I have [etc.]

For the Ambassador:

F. A. Sterling

Counselor of Embassy

[Enclosure]

The British Secretary of State for Foreign Affairs ( Chamberlain ) to the American Ambassador ( Houghton )

London , August 15, 1925 .

W. 7756/5208/50

Your Excellency: With reference to my note of the 10th instant⁸⁷ I have the honor to state that the suggestions put forward by Your Excellency in the course of our conversation on July 22 in regard to an increase in the export of plantation rubber from Ceylon and Malaya have been the subject of a careful and sympathetic examination on the part of His Majesty’s Government.

2. The main proposals contained in the aide-memoire communicated by Your Excellency were as follows: that the exportable allowance of crude rubber should be increased by 20% (instead of 10%) as from the 1st instant; that rubber in excess of the exportable allowance should be permitted to be shipped to bonded warehouses in London, for subsequent release within exportable allowances, until the amount of rubber in England reaches 50,000 tons; and that the present plan should be made more elastic by providing for additional increases and decreases in the exportable allowance in accordance with variations in the price of rubber.

3. In the first instance I would observe that, although at the moment of Your Excellency’s representations, the price of rubber was unduly high, it was even then falling and has since fallen again, with the prospect of a still further decline. The price to-day is 3s/5d a lb., as against 4s/6d a lb. some weeks ago.

4. This downward tendency of prices will probably be assisted by a decision taken at the end of July by the Federated Malay States Government, acting on legal advice, to release 6,000 tons of “un-couponed” rubber, i. e., rubber comprising the stocks in the hands of dealers at a date in 1923 when it was made illegal to transfer such stocks without covering documents of authority to export. The effect of this decision is in itself equivalent to the authorisation of an additional release of approximately 7½% of the standard production of Malaya.

5. I would further observe that, while His Majesty’s Government have not been able to take the exact steps suggested in the aide-memoire, a similar result may in effect be anticipated from the reassessment of the standard production of rubber estates. As a result of this decision the maximum rate of assessment has been raised from 400 lbs. to 500 lbs. per acre and additional concessions have been made to small holders. The Rubber Export Restriction Regulations issued in October 1922 provided for a scale of export duties of which the minimum rate is payable if no more than a certain stated percentage of an estate’s normal (or “standard”) production is exported. At the inception of the scheme, this figure was placed at 60% of the standard production and, following the 10% automatic increase which took place on the 1st instant, it has now risen to 75% of standard production. As a result, however, of the revision to which I have referred, a proportion of 75% of standard production under the new assessment will be equivalent in fact to a proportion of rather over 80% under the old assessment. Thus since July last there has in effect been an increase corresponding to 15% of standard production, in addition to a release of 6000 tons of rubber representing a further 7½% of the standard production of Malaya.

6. His Majesty’s Government are confident that the two steps which I have explained will materially ease the situation. They regret that they cannot go further than this at the present moment. It is they believe, very questionable whether the immediate adoption of the steps recommended in the aide-memoire would in fact serve the purpose intended. For instance, it may be mentioned that the supply of labor on the rubber plantations has, on account of the long continued depression of the industry fallen below its normal strength. Any sudden and unanticipated increase of the percentage of rubber which may be exported on the minimum duty would not, therefore, have the effect of increasing the rate of export until such time as it might be possible for estates to recruit the necessary additional labor from India and elsewhere. For this two months at least would be required.

7. Again His Majesty’s Government consider that there are grave objections to any interference with the present scheme until it has been established beyond doubt that the present abnormal price is more than a purely temporary development. While giving all due consideration to the representations and the requirements of the consuming interest in the rubber industry, they feel there is no less need to have careful regard for the reasonable protection of the producers by whose enterprise this great industry has been built up in quite recent times. The plantation of rubber on its present extensive lines is, in fact, a matter of such recent history that the producing companies have not, in many cases, large reserves of capital to fall back upon in times of depression. Many of these companies were virtually exhausted and faced with the necessity of allowing their estates to go out of cultivation at the critical stage when the present scheme was introduced for their relief. If no such relief had been afforded by government action, the situation for consumers might have been considerably worse than it is today, since the producing area would, in 1922 and 1923, have been appreciably restricted by the collapse of a number of estates and small holdings.

8. I would here draw attention to the fact that during the two years immediately preceding and following the war the average price of rubber was approximately 2s – a lb.; for seven out of the eleven quarterly periods during which the scheme has been in operation the average price has been below 1s/3d a lb. Thus, for the larger part of this period consumers have been able to obtain their supplies at less than the price of 1s/3d to 1s/6d per lb. which they, in common with the other sections of the industry, agreed to regard as reasonable; only for the last two quarters of this period has the average price exceeded 1s/6d per lb. Judging from the latest estimates of the statistical position which have been brought to the notice of His Majesty’s Government, there is every reason to believe that, provided that the average price of rubber during the next few quarters does not fall below 1s/6d a lb., any risk of a shortage in the supplies of rubber on the world’s markets has now passed. The information which I had the honor to request in my note under reference will be of material assistance to His Majesty’s Government for purposes of confirmation and comparison with the statistics already in their possession.

9. While regretting their inability for the above reasons to give effect to the proposals of the United States Government, except in so far as this has been done by the measures described in§§ 4 and 5 of this note, I desire to assure Your Excellency that His Majesty’s Government will continue to keep a careful watch on developments as regards the price and other aspects of the market and will hold themselves free to intervene if at any time it appears that substantial injustice is being done or is likely to be done by reason of the present scheme. It is, as surmised in your aide-memoire, the policy of His Majesty’s Government “to stabilise the price of crude rubber at a price that would best serve the common interests of the grower and the consumer.”

10. Your Excellency must permit me to add that, as you very frankly admitted to me, the inconveniences of which the American users of rubber complain were not inherent in the Stevenson scheme but arose out of the speculative attitude adopted by those users towards the scheme and out of their consequent failure to make in time steady purchases at the low prices which prevailed up to so recent a date as the end of last year. Nevertheless I trust that the measures which His Majesty’s Government have taken as above described will be found effective to remove the graver consequences of this unfortunate lack of prevision.

I have [etc.]

Austen Chamberlain

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