Foreign Relations of the United States Diplomatic Papers, 1934, General, the British Commonwealth, Volume I

856D.6176/191: Telegram

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

London, March 23, 1934—5 p.m.
[Received March 24—8:55 a.m.]

127. I have been informed today that it is not expected now that producers’ agreement (see paragraph 1 my 118, March 19, 4 p.m.) will be concluded for 2 or more weeks.

Conference with Government experts mentioned in last paragraph my telegram above referred to is now set for April 4th.

Following is text of Foreign Office note marked “Very Confidential” received today; see paragraph 3 my telegram first above referred to.

“I have the honor to inform Your Excellency that most careful consideration has been given to the representations and suggestions contained in Your Excellency’s note number 360 of the 2d March²¹ with regard to the regulation of rubber production.

2. I hasten to assure Your Excellency, in the first place, that no regulation scheme has as yet been submitted for the consideration of His Majesty’s Government; and that, if such a scheme were to be submitted to them, their first care would be to ascertain that it conformed to section D of the general resolution adopted by the Monetary and Economic Conference in regard to international agreements for the regulation of production and marketing.

3. Although no regulation scheme has as yet been communicated to them, His Majesty’s Government are, however, aware that a draft of such a scheme has been under discussion between the private interests concerned in rubber production, and it is on the hypothetical commentaries that some scheme will be put into effect that I am addressing to Your Excellency the following observations on the rubber situation in general and on the points raised in Your Excellency’s note in particular.

4. Your Excellency will remember that after the break-down of the Stevenson restriction scheme in April 1928, all restriction came to an end, and in 1929 largely increased supplies of rubber were available; the effect on prices would have been disastrous but for the marked expansion of the demand, both in the United States of America and elsewhere. During 1930 and 1931, however, demand was rapidly shrinking in consequence of the economic crisis. The fall in price naturally revived the question of control of output, and in 1931 the Netherlands Government approached His Majesty’s Government, and the position was examined by an informal committee which found that the total world production was largely in excess of the estimated world consumption and that the existing stocks were considerably greater than those normally carried by the industry. A number of possible schemes were reviewed, and the committee unanimously agreed that the only scheme which would be practicable and acceptable would be a quota scheme under which a basic tonnage would be fixed for each producing country and a production and export quota allotted. After careful consideration, His Majesty’s Government and the Netherlands Government were forced at that time to the conclusion that an international scheme to regulate the production and export of rubber was not practicable. This conclusion was published in a joint communiqué. Since that date His Majesty’s Government have had no official information about a rubber restriction scheme, but they are aware that negotiations have been going on without [within?] the industry—negotiations which were not initialed by His Majesty’s Government. At a certain point in the course of these negotiations the representatives of the rubber industry established unofficial contact with representatives of His Majesty’s Government; this contact has been of a spasmodic and occasional character.

It is therefore impossible to reply to Your Excellency’s inquiries on a strictly official basis. I cannot even assume that the producers scheme is yet in its final form, but I know enough about its contents to be able to give to Your Excellency some degree of assurance with regard to certain points.

5. As regards price, the scheme as drafted does not aim at the fixing of a pivotal price, on the lines of the Stevenson scheme. It aims primarily at the adjustment of production and export to consumption, and the reduction of admittedly excessive stocks, and it contemplates that supplies adequate to world needs will be available at all times, at a price which is not more than reasonably remunerative to efficient producers. As consumption increases, the export quotas will be varied so as to follow the consumption curve as nearly as possible. Under this system it is anticipated that prices cannot vary greatly, and that, in fact, a stable price will be maintained, once the present excessive stocks have been liquidated.

6. I assume that Your Excellency’s Government are not opposed in principle to a policy of raising commodity prices above their present uneconomic level, but that their main preoccupation is at the same time to guard against a sudden and excessive increase of prices, brought about through artificial scarcity or cornering operations. The objections [objectives?] of the scheme and the price raising policy of Your Excellency’s Government would seem to be identical. The scheme precludes any idea of artificial scarcity, or cornering operations; and it seeks only a reasonable price. The large stocks of rubber now on hand and the well-known difficulties connected with native production, render any undue rise in prices well-nigh impossible. I think that I can safely assure Your Excellency that any apprehension your Government may feel with regard to the price question is unfounded. The fixing of a maximum price, however, would, as you will be aware from the foregoing paragraphs, be inconsistent with the scheme which I have explained. That scheme does not include provisions by which any definite price can be attained, or held; it leaves the price to be settled by the free play of the market, within the production limits fixed by the operation of the scheme. The fixation of a maximum price in these circumstances would, in my view, be unscientific and undesirable. There would probably be constant pressure on the body working the scheme to attempt to attain—and hold—any maximum price fixed. The objective should be stability in price at a reasonable level.

7. Your Excellency will have observed that the principle of the scheme is not unlike that of the tin-control plan, to which you referred in your note. The excessive stocks of tin existing at the outset of the scheme have, even after 3 years of control, not yet been reduced to a normal figure; all the tin required by the market has been readily forthcoming at all times; price has been left to the operation of the free market; and I understand that for the last 8 months the price has been practically stable—a position never, I believe, hitherto attained by the tin industry.

8. Your Excellency further inquires what measure of representation of the consuming interests is to be provided for and how this representation should function. His Majesty’s Government understand that the rubber export quotas will be settled by the vote of the large producing countries (who must bear the main sacrifice inherent in the scheme), through the machinery of an international committee, as in the case of the tin scheme; and that this committee will consult a body or panel of consumer’s representatives whenever they are considering questions affecting stocks and export quotas and cognate matters, these being the factors which affect prices. The consumer’s representatives, therefore, will be kept fully informed of all developments which affect their interests, and will have full opportunity to express their views before changes are made by the International Committee. I have no doubt also that arrangements will be made for publishing the committee’s decisions, and for reporting on the progress of the scheme although this is a point which has not yet arisen and will not arise until the committee meets.

9. Your Excellency will also have appreciated that if the producers succeed in reaching agreement on their part there can be no possibility of its going into immediate effect since the effective scheme must be one agreed, not by the private interests but by the Governments concerned. The Governments therefore (which in addition to His Majesty’s Government include the Governments of the Netherlands, Indo-China, Sarawak, North Borneo and Siam) must first accept the scheme, and agree to put it into effect. It is the Governments, and not the producers, who will appoint the international committee that is to operate the scheme; this, in itself, is a safeguard against the possible formation of an international ring of producers to exploit the market, and there will be no risk, to quote the words of Your Excellency’s note, ‘of the flow of American requirements of these commodities being subjected both as regards price and supply of [to] the arbitrary decision of producers’ groups in which the American consuming interests have no effective influence.

The control scheme will be worked, not by producers, but by officials appointed by and truly responsible to the Governments mentioned above.

10. I trust that the foregoing assurances will satisfy the Government of the United States as to the objectives and machinery of any rubber restriction scheme which His Majesty’s Government are prepared to countenance. Your Excellency will at the same time appreciate my difficulty in giving formal information regarding a private agreement which is still in draft form and has not yet been officially communicated to His Majesty’s Government. It is only my anxiety to avert any misgiving in the United States that has prevailed upon me to anticipate in this way the terms of a scheme of which I have as yet no official cognizance.”

Bingham

21. See telegram No. 88, March 2, 4 p.m., from the Ambassador in Great Britain, p. 630.