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

856D.6176/191: Telegram

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

Washington, March 28, 1934—7 p.m.

118. Your 127, March 23. Please follow up at once discussions regarding rubber restriction program, being guided by the following which you may present in the form of an aide-mémoire:

(1) My Government has instructed me to transmit the following informal observations on the note presented to me by the Foreign Office regarding the scheme for rubber restriction which is under consideration. It appreciates the willingness of the British Government fully to discuss this matter, believing that full discussion can most profitably be pursued, and necessary modifications can be worked out with the least difficulty and fewest complications, at this time, before the scheme is put in any final and official form.

(2) The Government of the United States notes with approval the statement regarding the main objectives of the restriction plan, as summarized in the note of the Foreign Office, to wit, “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”.

However, it ventures to express the opinion that the details of the plan as far as they have been made available do not give adequate assurances regarding the fulfillment of these principles. The safeguards provided in the plan as regards (a) the possible course of prices, (b) the provision of adequate supplies at all times without delay at a reasonable price, and (c) provision for continuous and full consultation between consuming interests and producing interests, seem to it distinctly insufficient.

(3) The Government of the United States has asked consideration for certain suggestions with regard to these matters. These suggestions, in its judgment, represent modifications of the plan which are essential in order to avoid the grave danger that the results of the restriction scheme will be out of accord with expressed intention, and will give rise to difficulties and damages such as resulted from the Stevenson Plan. It is prepared to discuss, of course, any variations of these suggestions that seem adequate.

(4) The Government of the United States wishes to avoid unnecessary exchange of contentions regarding the projected plan. It feels called upon, however, to make several observations in regard to the points presented in the Foreign Office note:

(a) The plan as outlined, in its judgment, contains no explicit safeguard against the possible operation of this scheme so as to elevate prices to, or beyond, the highest bearable point, or to prevent large price fluctuations such as took place during the life of the Stevenson Plan. The whole responsibility of releasing the supplies of rubber would appear to be wholly subject to the unchecked decision of the International Control Committee. My Government is not heedless of the statement that the members of the Control Committee will be selected by governments; it is commonly understood, however, that these representatives will be selected from the circle of rubber producing interests.

(b) The plan itself should provide some explicit and quickly effective method of price protection, on which producers could with certainty rely. My Government does not perceive any feature of the scheme which in itself “precludes any idea of artificial scarcity”. The statement contained in the note that the scheme was [as?] drawn “leaves the price to be settled by the free play of the market, within the production limits fixed by the operation of the scheme” carries no assurance against at least temporary creation of artificial scarcity. A market in which supply can be arbitrarily fixed and varied cannot be called a free market; it is considered by most commentators on the subject as the very opposite of a free market.

(c) The observation in regard to the place of the pivotal price in the Stevenson Plan is not in accord with the understanding of my Government. What appears to have happened under the Stevenson Plan is that there was no effective pivotal price or in fact any effective price control whatsoever; there was merely a tardy adjustment of supplies, so tardy as to give rise to enormous price movements.

(d) The reference of the British Government to the operation of the tin plan similarly does not alleviate the apprehension of my Government. The stocks of tin at the end of January 1934 had been reduced to, at the most, 3 months current consumption. My Government is not without apprehension lest the available stocks be reduced to a point that may produce extreme price movement. The increase in the price of tin has, in the judgment of many, already been inordinate. As of January 1934 the London price of tin in sterling had risen well above the 1929 price level and was only 22 per cent below the peak price of 1926; the prices of other commercial metals are, on the other hand, from 40 to 60 per cent below the price levels attained in the earlier period.

(5) As for the matter of representation of the consumers, a provision that merely gives consuming interests “opportunity to express their views” will be inadequate and would not carry out the intent of section (d) of the general resolution adopted by the Economic Conference. In the judgment of my Government the consumers would have to be given full and regular participation in the meetings of the Control Committee though perhaps without vote. They should have the right to follow and comment on all features of the scheme’s operation.

(6) The American Government does not at this time request special consideration for those American interests which, after the failure of the Stevenson Plan, undertook plantation production, and have developed improved types of rubber. It hopes that as the scheme develops this matter may be worked out between the American and other producing interests in consultation with the governments concerned.

(7) The Government of the United States wishes to make clear that in its discussion of this matter it is not prompted merely by the wish to safeguard its rubber consuming interests. This question of control of vital supplies of raw materials has great importance in the public mind. The impression received by the American people as to whether the terms of the plan are fair, open, and well-balanced, will determine whether cooperation may be expected or whether there may grow a critical attitude and the beginning of an organized effort to offset the plan.

Confidential for the Ambassador. It would seem advisable to pursue informal discussions on this whole subject. If the British Government indicates a desire to receive more specific suggestions than have so far been put forward by us we will do our best to formulate them.

The Department assumes London and The Hague are keeping each other mutually advised and asks you to inform The Hague of this instruction.

Hull