Foreign Relations of the United States Diplomatic Papers, 1936, General, British Commonwealth, Volume I

856D.6176/370a: Telegram

The Acting Secretary of State to the Ambassador in the United Kingdom (Bingham)⁷

Washington, December 5, 1936—4 p.m.

438. Colonel Townsend will arrive on the Queen Mary December 7 to attend the International Rubber Regulation Committee meeting December 15. He will be accompanied by A. L. Viles, President of the Rubber Manufacturers Association, and James J. Newman, Vice President of the B. F. Goodrich Company. It appears that all of the major rubber manufacturers support Townsend as representative of the American industry and would not consent to the substitution of any other representative. Viles and Newman are making the trip at the request of Townsend and the Board of Directors of the Manufacturers Association in order to remove all question of the unity of the American industry in approaching the International Committee and to assist in presenting the American position to members of the Committee.

The Department is convinced of the sincerity of these gentlemen and of their qualifications as representatives of the American industry, and it has every reason to believe the position to be taken by them vis-à-vis the International Committee, as described below, is reasonable and well supported by the available facts relative to the international rubber situation. You are instructed to render them every appropriate assistance and, when occasion offers, to emphasize the unity of the American industry and the confidence placed in Colonel Townsend.

Independently of the activities of these spokesmen for the American industry, you are requested to place the position of the American Government, as outlined below, before the appropriate officials of the British Government, either orally or in written form, at your discretion. It is intended that your approach should be made directly to the British Government as such, making it clear that there is no intention to interfere with the work of the International Committee or to seek to influence its members directly.

The available world supply of rubber in proportion to current absorption has been so greatly reduced in recent months that the recent rapid increase in rubber prices was inevitable. Prices have nearly reached 19 cents and 9 pence per pound and total known world stocks, outside regulated areas, including stocks afloat and in the hands of United Kingdom manufacturers, are now well below 470,000 long tons. Even the present limited stocks of rubber are badly distributed, leaving an actual scarcity in some areas. Probably little free rubber for future delivery is available to buyers and as a result there has been created the danger of greatly rising prices as a result of competitive bidding and the opportunity for a speculative squeeze on the rubber market.

Aside from the potential dangers, the Department is of the opinion that the world rubber situation has already become alarming from the standpoint of consumers and distinctly out of line with the assurances to consumers which accompanied the initiation of the present international agreement.⁸

It is recognized, of course, that the preamble setting forth the objectives of the International Agreement states only general propositions open to varying interpretation, but it is felt that impartial analysis of the present situation must lead to the following conclusions with respect to those objectives:

1. If present world stocks be considered in relation to present consumption requirements, they must be judged as already below a “normal figure” which would allow the orderly adjustment of supply to demand.

2. The present price level may rightly be considered by consumers to be unfair and inequitable because it will yield returns to efficient producers well above those which might be considered “reasonably remunerative” on the basis of the producers’ own production cost data.

The Aide-Mémoire of the British Foreign Office dated April 26, 1934⁹ was helpful in interpreting the objectives of the International Agreement. It contained a number of assurances to this Government with respect to the manner in which the interests of consumers would be protected under the regulation scheme. Based upon these assurances, the following remarks on the present situation appear to be pertinent:

1. The primary object of the scheme was stated to be the removal of “excessive stocks” of rubber; it is apparent that there are now no excessive stocks and that in some places stocks are inadequate.

2. Once excessive stocks were removed, it was stated that “all the rubber which consumers require will be forthcoming”; current releases of rubber appear to be more than 10,000 tons short of requirements each month.

3. Stocks in the hands of both dealers and producers appear to be below the ordinary normal requirements, creating an actual vacuum rather than a supply which could be called upon quickly to meet consumers’ requirements.

The only action taken by the International Committee to meet this situation has been the announcement that releases for the first 6 months of 1937 will be set at 70 percent, only 5 percent in advance of the present rate. According to conservative estimates of consumption requirements, even a 75-percent rate of release would fall short of providing a balance between supply and demand in 1937. At the request of the Consumers Panel, the International Committee has agreed to discuss the rate of release for 1937 at its December 15 meeting and it is understood that the Consumers Panel, or at least the American representative, will propose a 75–percent rate of release for 1937 and the same rate retroactive for the last quarter of 1936; if the retroactive feature cannot be secured, then releases of at least 80 percent for the first 6 months of 1937 will be requested and 75 percent for the rest of the year. It is the considered opinion of the Department that the rates of release indicated above would represent the absolute minimum required to prevent an already bad situation from becoming worse, provided that permissible exports are promptly shipped from the restriction areas and that present consumption estimates are not exceeded. Even greater releases would appear to be necessary to correct the present situation, which, as indicated above, is considered to be out of line with earlier assurances to consumers.

The first few months of the administration of the agreement encouraged considerable confidence in the judgment of the International Committee. It may be that the development of the present dangerous situation can be ascribed as much to unexpectedly heavy consumption as to tardy action by the Committee. This Government does not seek to invite a fruitless discussion or controversy over the interpretation of details of the present situation or of causes of that situation; the one important concern now is prompt and adequate action on the part of the Committee to correct the situation.

This Government is reminded of the statements in the Aide-Mémoire of April 26, 1934 that the members of the International Rubber Regulation Committee are selected by the Governments concerned and that, therefore, it cannot be said that the decisions of the Committee will be “unchecked” or that these decisions will not be made with a full sense of responsibility. It is the hope of this Government, therefore, that the British Government will maintain a lively interest in the administration of the International Agreement at this important juncture, to the end that the legitimate interests of consumers may be adequately safeguarded.

You may be interested in an extensive study of the rubber situation prepared by E. G. Holt of the Department of Commerce dated December 1, 1936, copies of which have been sent to Assistant Trade Commissioner Lockwood.

Moore

7. A similar telegram, which, however, omitted paragraphs referring to the British aide-mémoire of April 26, 1934, was sent as No. 38 on the same date to the Minister in the Netherlands (856D.6176/370b).
8. Agreement Between the Governments of France, the United Kingdom, India, the Netherlands, and Siam, To Regulate Production and Export of Rubber, signed May 7, 1934; for text, see League of Nations Treaty Series, vol. clxxi, p. 203.
9. Foreign Relations, 1934, vol. i, p. 653.