856D.6176/391: Telegram

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

76. Your 68, February 16, 1 p.m. The further increase in rubber prices and market developments give further immediate importance to the presentation made to the British authorities, reply to which is awaited.

Messrs. A. L. Viles, President of the Rubber Manufacturers Association, and J. J. Blandin, Goodyear Tire and Rubber Company, sailed March 3 for The Hague and London to discuss the rubber situation with appropriate government officials and trade contacts prior to attending the March 16 meeting of the International Rubber Restriction Committee. You are requested to assist them in every appropriate way in arranging contacts and to make every effort to assure that the Government considers their presentation with the utmost seriousness.

They have conferred at length with Commerce and State Departments, and there is substantial agreement on the main elements in their objectives, as both equitable and sound. These objectives comprise both the relief of the immediate situation (stock shortages, speculative prices, and inadequate releases of rubber) and the assurance of a continuing adequate supply of rubber during the life of restriction control (involving if necessary revision of the total basic quota, its [Page 892] re-distribution among areas, and provision for sufficient flexibility therein.) Experience definitely seems to establish the fact that mere upward revisions of the percentages of permissible exports are insufficient to take care of the situation and carry out the assurances of the Dutch and British Governments; actual revision of the underlying basis of the plan seem essential.

The American representatives (seeking the likely concurrence of the German representative) intend to press hard for the following specific changes among others. If they are not satisfied and if the price of rubber remains exorbitant they may bring the whole matter into the area of public discussion.

For the relief of the immediate crisis:
Statement by the Committee of the actual results obtained thus far in increasing the production of rubber by means of recent increases in the exportable allowances.
A statement as to a fair and reasonable price for rubber during normal periods, or if such a direct statement as to price is not feasible, then definite public assurance that permissible exports will be established at such levels that world stocks may be rebuilt at reasonable prices and maintained at a figure sufficient to constitute 6 months’ supply at the current rate of consumption. (550,000 to 650,000 tons is the figure contemplated on the basis of the estimated rate of consumption in 1938.)
Immediate increase in the output of rubber by making full use of the factor of flexibility provided by native production. (Labor limitations and seasonal conditions may render difficult production by estates up to the full amount of allowable exports for the first half of 1937, but it is believed that small holders in Ceylon and Malaya and natives in the Netherland East Indies are able to produce at higher rates than those in effect for the second quarter of 1937. Accordingly the objective is that the Restriction Authorities in these areas issue export coupons and crop permits for the second quarter in excess of the present rate, either by regular or prompt special issue, the excess over the otherwise effective rates to be adjusted during the last half of 1937.)
Long run objectives.
An increase in the basic global standard production.
Revision of the distribution of basic standard production as between the different producing areas so as to correspond more fully with the actual productive possibilities of each area. (We are informed that the assignments for the Netherland East Indies and Ceylon are substantially lower relative to their productive capacity than those for other areas. The same may be true of Sarawak.)
The Legation at the Hague informs us (Hague’s No. 15, March 523) that the assignment to the Netherland Indies for 1937 has been increased [Page 893] from 467,000 tons to 520,000 tons. We have no confirmation of this as yet, and do not know whether a similar amount has been deducted from the assignments to other areas or not. However, if this increase is made effective, it probably would be a step in the right direction.
A revision in the distribution of the basic quotas in the various areas between estates and natives so as to be sure that full use can be made of the element of flexibility provided by native production.
Revision of the exportable allowance for the third quarter of 1937 from 85 to 90 percent and simultaneous announcement of 90 percent for the fourth quarter. This step is desirable for whatever influence it may have in building up world stocks to the amount desired at the year-end, and for the psychological effect on speculative trade in nearby positions.

All American reports agree that a further diminution in stocks is in imminent prospect and that the situation is becoming increasingly unsatisfactory. Department greatly hopes that as a result of this visit of American representatives and the presentations made by this Government, the British and Netherlands Governments will do everything necessary.

As stated in the Department’s previous communication the British Government must be brought to realize that the maintenance of monopolistic and unfair prices of rubber will almost certainly be an acute element of dissatisfaction and criticism of the whole raw materials situation and unfavorably affect American opinion.

Report fully.

Repeat to The Hague.

  1. Not printed.