856D.6176/381: Telegram

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

34. You are requested, if you see no objection, to call upon Mr. Eden if that is convenient, otherwise upon Mr. Vansittart or the highest official of the Foreign Office available, and present an aide-mémoire along the following lines.

The British Government will recall the exchange of views with this Government at the time the international rubber restriction scheme was being initiated early in 1934. It was the opinion of this Government that the agreement as it finally materialized provided no adequate safeguards for the interests of consumers, either with respect to supply or price. However, in view of the strong assurances, in general terms, offered by the British Foreign Office, this Government refrained from further presentation of its judgment at the time, preferring to observe and study the actual operation of the scheme over a period of time.

This Government was at first encouraged to believe that the International Rubber Regulation Committee had decided to follow moderate and reasonable policies. During the first year of the agreement, the rate of restriction of exports did not appear unjustified, taking into consideration the level to which stocks had risen and the current rate of consumption. Toward the end of 1935, however, world absorption increased at the same time that more drastic restrictions upon exports were introduced. The result was a rapid decline of stock and increase in price. At the end of the first quarter of 1936 it appeared reasonable to believe that all “excessive stocks” had been removed and that as a result prices had risen to the point where they must be considered, even by producers on the International Committee, as “fair and equitable” and as “reasonably remunerative to efficient producers”.

With prices early in 1936 above 15$ per pound in New York and in the neighborhood of 7½d. sterling and 4½d. gold, it was hoped that the International Committee would consider that stocks had been reduced sufficiently to gain the primary objectives of the agreement and that therefore it would arrange to release as much rubber as was needed currently by consumers. The International Committee continued to follow a policy of severe restrictions, however. During the 9 months from the end of February to the end of November 1936, [Page 886] stocks of crude rubber outside the regulation areas (as given in the Statistical Bulletin of the International Rubber Regulation Committee) were reduced by 150,000 tons, and, measured against absorption for the previous 12 months, fell from a 6 months’ supply to less than a 4 months’ supply. It is not surprising, therefore, that prices rose during the same period and that now for several weeks they have been at a level more than one-third above the reasonably remunerative level reached early in 1936.

Having failed to prevent the development of a serious situation with respect to the supply of rubber, the International Committee then, at the end of 1936 and at the beginning of 1937, took no adequate action to remedy the situation, providing in fact for such limited releases during the first half of 1937 as to give rise to the expectation that stocks would actually continue to decline.

As a result of these developments the following conclusions have gained increasing support:

The International Rubber Regulation Agreement has been so administered as to bring about a reduction in stocks and an increase in price considerably in excess of the objectives set forth in the agreement itself and of the position taken by the British Government in its aide-mémoire of April 26, 1934.19
The arrangement for representation of consuming interests by the Consumers’ Panel has not provided a sufficient check on the actions of the International Committee; the restrained warnings and advice of the Consumers’ Panel have not been heeded to a sufficient extent or with sufficient rapidity.
No changes have been made in the scheme or in the method of control to warrant assurance that the future consequences of restriction will be more satisfactory to consuming interests than in the past. The personnel of the Committee remains the same; the governments parties to the agreement have taken no new action to guard against unreasonable pressure on consumers; no new powers have been given to the consumers’ representatives, no provision has been made for greater flexibility and speed in releasing necessary supplies, and there has been no clarification of the Committee’s attitude with respect to desirable levels of stocks and of prices, with the result that consumers are extremely uncertain as to the future and speculation and instability in the market are encouraged.

This Government has entertained the hope that the governments which brought the scheme into being would accept and exercise full responsibility for the operation of that scheme, not only because of the repeated assurances that the rights and interests of consumers would be adequately safeguarded but also because of the special significance at this time of problems involved in restrictive control of the sources of supply of raw materials and the desire of all nations for freedom and facility of access to such materials. It still trusts that this hope will not be disappointed. Otherwise public opinion will conclude that there is no way of providing internationally for those kinds of checks and controls of producer-monopolies, in the interest of consumers and of the public as a whole, which have been found necessary by governments with respect to their own domestic situations.

[Page 887]

This Government has been encouraged to set forth its position in some detail with respect to the rubber regulation scheme in the hope that this position might appeal to the British Government as reasonable and as forming the basis for further discussions leading to a constructive adjustment of the scheme and of its administration more in line with the many interests directly and indirectly affected.