[Enclosure]
The British Secretary of State for Foreign
Affairs (Simon) to the American
Ambassador (Bingham)
No. W 3750/89/29
London, 26 April,
1934.
Your Excellency: I have the honour to
refer to the aide-mémoires regarding the
rubber regulation scheme which were left at this Department on the
3rd April, and the 13th April33
and to state that they have received the most careful consideration
of His Majesty’s Government in the United Kingdom.
2. His Majesty’s Government note with appreciation that the United
States Government approve the general objectives of the scheme; they
hope to convince the United States Government that the scheme, if
adopted, will re-act beneficially, rather than detrimentally, upon
United States consuming interests.
3. In Your Excellency’s Aide-Mémoire of 13th
April reference is made to the meeting held at the Foreign Office on
the 4th April, at which representatives of Your Excellency’s Embassy
and officials of His Majesty’s Government attended, in order that
the United States representatives might have an opportunity to
discuss informally the bearing of the scheme on United States
consuming interests, and to put questions on any points which were
not clear to them. Supplementing this discussion, and giving greater
precision to the points then examined, I have the honour to submit
the following further remarks with reference to Your Excellency’s
aide-mémoires.
(a) The United States Government state that
the plan contains no explicit safeguard against the scheme operating
in such a way 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”. No maximum price is
laid down in the scheme, because no machinery exists in the scheme
for fixing or holding any particular price. The object of the scheme
is that, once excessive stocks have been gradually reduced,
producers should be able to sell as much rubber as the world will
take at a reasonably remunerative price. It is clearly contrary to
producers’ interests to attempt to hold or force prices too high,
not only because of the danger which this would make as regards
native production in the Netherlands East Indies as explained in my
Note No. W 2742/89/29 of 23rd March last,34 but also because unduly high prices or
excessive price fluctuations would tend to decrease the demand. His
Majesty’s Government believe that the apprehensions of the United
States Government are unduly influenced by the experience of the
Stevenson plan. The conditions of the rubber industry are now
fundamentally different from those that existed at that time as the
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potential supply of
rubber now greatly exceeds demand and, in such cases, as the
experience of the United States Government and of other Governments
with regard to wheat and sugar has shown, the difficulty lies rather
in securing an adequate measure of restriction than in any risk of
undue curtailment of supplies. Nor does the scheme enable producers
to force or hold a high price. Supply will be adjusted as closely as
possible to demand; all the rubber which consumers require will be
forthcoming.
Producers working to a higher percentage of their potential output
can produce at a lower cost; and it seems probable that part at
least of the increased profits thereby obtained would be passed on
to the consumer in the form of a lower market price.
While it is true that the responsibility for releasing supplies of
rubber will rest entirely with the Rubber Regulation Committee, it
must be borne in mind not only that members of this Committee will,
as Your Excellency is aware, be selected by the Governments
concerned, but also that the voting power will almost certainly be
placed in the hands of Government officials; as we understand is the
case in some of the United States control schemes. In these
circumstances, it cannot be said that the decisions of the Committee
will be “unchecked”, nor is there any reason to think that they will
not be made with a full sense of responsibility.
(b) There are several factors in the scheme on
which the United States can rely for rapid price protection in the
event of temporary fluctuations occurring. In the first place, both
dealers and producers will be allowed, under the plan, to hold
stocks of very considerable size. In the second place, it would be
open to the Committee if the scheme comes into operation, (when
stocks are approaching normal) to set up a buffer stock analogous to
the proposed tin buffer stock. The members of the Committee, who it
should be noted will be plenipotentiaries, and therefore able to
vary the export quotas at short notice, would then have ample
resources on which to draw in order to deal with temporary price
movements. The existence of considerable stocks in the hands of
producers and dealers, the power of the Committee to increase the
quotas rapidly, the possible creation later of buffer stocks, the
pressure from producers to be allowed larger export quotas, and the
constitution of the Committee, should, as I am sure Your
Excellency’s Government will agree, provide adequate safeguards
against any artificial scarcity.
(c) As will have been clear from the foregoing
considerations, a cardinal feature of the scheme now proposed is its
flexibility. There will therefore be no danger of any situation
arising such as occurred under the Stevenson plan, the rigidity of
which was one of the causes of its breakdown. Under the Stevenson
plan the release of further supplies of rubber was contingent on
prices reaching a certain level, and was attended by considerable
delay and consequent inconvenience to consuming interests. Under the
present scheme, on the other hand, exports will be determined by
demand. The Committee will be able to vary the export quotas,
without delay, in accordance with the increase or decrease in
demand, and the working of the scheme should be such as to prevent
any violent price movements.
(d) With regard to the observations on the
working of the tin plan contained in paragraph (d) of Your Excellency’s aide-mémoire of 3rd
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April, I have the honour to enclose a
memorandum36
dealing in some detail with the criticisms advanced.
As regards the representation of consumers’ interests under the
proposed scheme, His Majesty’s Government are of opinion that the
provisions of the scheme (setting up a panel of consuming interests
to tender advice from time to time to the Committee) go considerably
beyond any obligation assumed by His Majesty’s Government under
section (d) of the General Resolution adopted
by the Economic Conference and are indeed an innovation without
parallel in national or international restriction schemes now in
force. In the resolution of the Economic Conference it is stated
that any scheme relating to the co-ordination of production and
marketing should be “fair to all parties both producers and
consumers … and that it should as far as possible be worked with the
willing co-operation of consuming interests in importing countries
who are equally concerned with producers in the maintenance of
regular supplies at fair and stable prices”. His Majesty’s
Government consider that these conditions are amply fulfilled by the
scheme as it stands.
In this connexion His Majesty’s Government would observe that the
United States Government have recently taken action drastically to
restrict the production of cotton in the United States with a view
to raising the market price. This action related only to American
cotton production and not to world supplies, but the import of
American cotton is as essential for certain British industries as
the import of rubber is for certain American industries. So far as
His Majesty’s Government are aware, the United States Government did
not enter into any consultations with foreign consumers’ interests
before framing their measures of restriction of cotton production
and far less did they offer those interests any share in the future
control of operations under the scheme.
4. Your Excellency’s Government will, I hope, agree that the
foregoing observations, referring primarily to the points made in
Your Excellency’s aide-mémoire of the 3rd
April, also meet the general objections advanced in your further aide-mémoire of the 13th April. The function
and constitution of the Regulation Committee have been fully
explained above and His Majesty’s Government are confident that it
would be impossible to elaborate in advance a hard and fast scheme
limiting the decisions of this Committee. His Majesty’s Government
are equally confident that the safeguards inherent in the scheme
against excessive price-movements are the most effective which can
be devised.
5. With reference to Your Excellency’s request for information as to
the extent of the stocks to be held by the possible buffer pool, the
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source from which
these are to be drawn and the nature of the control to be exercised
over them, I have the honour to remind Your Excellency that, as I
have already explained, the setting up of such a buffer pool is at
present only a possibility dependent on the action of a Committee
which has not yet been constituted. Your Excellency will therefore
appreciate that it is quite impracticable for His Majesty’s
Government to work out any details concerning such a plan,
especially at a time when the regulation scheme has not yet been
officially put before them.
6. Your Excellency further inquires what His Majesty’s Government
consider to be a price “reasonably remunerative to producers” and
how this price is to be determined. As was made clear at the
discussion referred to in the third paragraph of this Note, the
level of a “reasonably remunerative price” depends on the degree of
restriction and this in turn depends on the demand and the cost of
production, factors which it is clearly outside the power of His
Majesty’s Government to control. In fact, such a price has not been
“determined” nor is it possible to do so.
7. I have the honour to express the hope that the foregoing
observations will suffice to convince Your Excellency’s Government
that the scheme now proposed provides adequate safeguards and will,
in fact, operate beneficially for United States consuming
interests.
I have [etc.]
(For the Secretary of State)
George Mounsey
