The Secretary of State to the Minister in the Netherlands (Emmet)

No. 355

Sir: Recent press reports indicate that Premier Colijn, in a speech before Parliament, repeated substantial portions of his views as reported [Page 889] in your No. 10, February 15, 1:00 p.m. These expressions of the viewpoint of the Netherlands Government are highly encouraging to this Government. Will you please seek an early opportunity, therefore, to express to Colijn or to some appropriate official of the Ministry of Foreign Affairs the satisfaction with which his statements have been received by this Government and our hope that the Netherlands Government will continue to implement this viewpoint in every possible way?

At the same time you should indicate that this Government views with concern the continuation of a situation which allows the present price levels, speculative activity, and stock depletion to continue and our inability to agree with the view expressed by the Netherlands Government in the note of January 23, 1937 that the actions taken by the International Rubber Restriction Committee are adequate to assure for the year 1937 a stable and satisfactory price. For this reason and because of its bearing upon future decisions with respect to the rate of rubber production and release, it seems appropriate to place before the Netherlands Government a brief review along the following lines of the situation which has developed since the inauguration of the rubber restriction scheme.

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 stocks 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 restriction, however. During the nine months from the end of February to the end of November 1936, 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 twelve [Page 890] months, fell from a six months’ supply to less than a four 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:

At the present time the American consumers of rubber find that despite the fact that they have remained out of the market for a protracted period in the hope that the market would assume a more normal aspect, they are faced with a situation wherein world stocks and their own stocks are continuing to decline and control of available supplies of rubber for the next few months is very largely in the hands of speculative interests which rely upon continued narrow restriction to assure a further marked increase in price. In fact, according to well informed reports, it is hardly too much to say that the restriction scheme at the present moment is operating to put consuming interests at the mercy of speculative interests, an outcome which this Government assumes to be as unwelcome to the Netherlands Government as to it.
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 Netherlands Government in its aide-mémoire of April 28, 1934.22
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 [Page 891] are extremely uncertain as to the future, and speculation and instability in the market are encouraged.

A somewhat similar note has been presented by the Embassy in London to the British Government. You may use your discretion as to whether it would be preferable to present this matter to the Netherlands Government in a formal note or simply as an aide-mémoire.

Repeated reference has been made in your No. 10 and in recent despatches to difficulties of rapidly increasing production because of labor problems and problems of time and expense. In this connection you may wish to point out orally that these difficulties could in large part be avoided by the allocation of larger quotas of native rubber without necessarily raising the quotas for plantation rubber by the same proportionate amount. It is believed that native production offers sufficient flexibility not to involve many of the problems which may be alleged in connection with increased production of plantation rubber.

Very truly yours,

For the Secretary of State:
R. Walton Moore
  1. See telegram No. 30, April 28, 1934, from the Minister in the Netherlands, Foreign Relations, 1934, vol. i, p. 657.