856D.6176/486: Telegram

The Secretary of State to the Chargé in the United Kingdom ( Johnson )

107. With reference to your despatch No. 3916, February 16, you are requested to present a note to the Foreign Office which, after expressing our appreciation of the opportunity afforded us by the British Government to consider in advance the new plan for rubber regulation, will ask the careful consideration of the British Government for the following comments of this Government upon the proposed plan:

(1) This Government approaches the question of renewal of the Agreement with the interest natural to a country consuming such a large proportion of the supply of a commodity vitally important in so many uses, facing the prospect that the supply of that commodity within the next 5 years will be subject to the decisive and restrictive control of other authorities.

(2) Our judgment is that the proposed arrangements still do not give adequate representation to consuming interests; and as long as this is so, it must be regarded by us as a basic defect. It is appreciated that the Rubber Regulation Committee has been giving increasingly attentive and patient consideration to the views of the members of the Advisory Panel, and that a genuine working relationship has been developed. However, in this relationship it appears to us that the members of the Advisory Panel still have only a subordinate place. It is strongly desired that consideration be given to increasing the degree of influence they may have upon the operation of the scheme.

[Page 929]

The recommendation is noted that the number of American representatives on the Advisory Panel be increased to two representatives of the manufacturing interests. This Government does not wish to be construed as criticising the effectiveness or the attitude of the representatives of the American rubber manufacturers on the Advisory Panel; on the contrary, there is every reason to believe that under all the circumstances this representation has been well handled. However, it is suggested that the provision for representation on the Advisory Panel should be less rigidly framed so as to make it possible, during the operation of the scheme, to select as at least one of the American members an individual who may not be a representative of the rubber manufacturers, but who may perhaps be selected in some logical fashion as direct representative of the ultimate consumers. This Government has not yet considered the feasibility or desirability of any such system of dual representation sufficiently to warrant any definite suggestion pertinent in that regard at this time. However, it believes it clearly advisable that the provision in the agreement be so phrased as to permit flexibility in regard to the method of selection of the American members of the Advisory Panel.

(3) The general objectives set forth in the opening of the agreement commend themselves but do not seem to be adequate. It is believed that they should be supplemented with a definite statement of the intention or obligation of producers to make available, at all times, now or in the future, all of the rubber that may be required by the world at a price no greater than that required to be reasonably remunerative to efficient producers.

(4) This Government recognizes with satisfaction the fact that in the text of the proposed new agreement the definition of price objective contained in the present one is retained, namely, “a fair and equitable price level which will be reasonably remunerative to efficient producers”. However, its observation of the operation of the restriction scheme thus far definitely leads to the conclusion that this general statement of price objective must be supplemented if it is to be a fully protective basis for consuming interests.

This Government suggests that its effective significance would be increased

(a)
By the inclusion in the text of the agreement itself of adequate provisions for the collection and maintenance of full data on costs and efficiency of production, and for full and regular reports on the administration of the scheme in each local area. This would involve quite possibly the further extension of standard systems of cost accounting and of records.
(b)
By reconsideration of the manner in which, according to this Government’s understanding, the available cost data is interpreted in order to arrive at estimates of the price objective of the scheme. [Page 930] This Government understands that the method that has been utilized is one which averages unit costs of all estate producers, including a considerable number whose records show very low acreage production and very high unit costs. It is believed that the cost basis of these producers has no place, or at any rate only a restricted place, in the computations entering into the determination of price levels consistent with the price objective quoted above; it should be the cost to efficient producers that should be the determining cost.

(5) In the form in which it is proposed to renew the agreement there is lacking sufficiently definite assurance of available adequate supplies at all times. The proposed increase in maximum stocks permitted in producing areas is welcomed as a step tending towards giving such assurance, but it is noted also that this is merely a permissive arrangement and does not require or assure an increase in producer stocks. Would it not be possible to require producers to replace stocks up to certain minimum levels as promptly as possible whenever they are reduced below such levels?

It would seem clear that confidence in the adequacy and stability of supply would be greatly increased if the plan made provision for holding substantial reserve stocks of rubber in or near the principal consuming areas, available for prompt release at any time—the so-called buffer-stock idea.

The existence of such a stock would furthermore increase the assurance of this Government of the availability of supplies of this critical raw material during a period of emergency. In that connection consideration is also requested for a specific provision that there shall be no discrimination in the release of rubber to friendly governments by producing areas in time of war or other emergency.

It is understood that the Rubber Manufacturers Association may put forward for the consideration of the Committee a specific plan for buffer stocks at the meeting of March 29, and it is hoped it will be given careful consideration.

(6) The proposed limitations upon new planting still leave the fear that there might be a shortage of rubber in the event of unexpectedly expanding future demand. This seems to be increased by the fact that even the restricted rights to plant new rubber in each separate area would be non-transferable and canceled if not used in each particular area. It is strongly urged that if limitations on planting are retained, the planting rights should be made transferable between areas in order better to insure some definite expansion of potential supplies.

(7) The prohibition of the exportation of rubber plants to areas not covered by the agreement seems to this Government to be completely open to question. It is this feature of the agreement more than any other which lends color to the possible idea that the agreement [Page 931] sustains and gives official sanction to a scheme that is monopolistic in character.

It will be recognized that were individual governments to apply this principle in regard to other raw materials, a whole new area of commercial restrictions would be created. This Government therefore vigorously urges that this ban on the export of rubber plants be completely removed from the agreement so that the cultivation of rubber may be undertaken without undue restriction in all countries that may by nature or economic circumstances be fitted to do so.

(8) The comments of this Government upon the proposed recommendation for continuation of the rubber regulation agreement are being presented also to the Government of the Netherlands. There would be no objection to circulation of these comments to other governments, or to the members of the International Rubber Regulation Committee.

General instructions are being telegraphed to The Hague.6 Please repeat (mutatis mutandis) the numbered paragraphs to them in full by telegraph.

For your information with reference to statements made in the Foreign Office note and in the accompanying memorandum explaining the Committee’s recommendations, Viles assures the Department that he did not approve the Committee’s recommendations, having stated repeatedly that he and the American rubber manufacturers he represents are opposed in principle to rubber regulation, and having made specific requests that the Committee recommend adequate buffer stocks and no limitation on new planting.

Viles expects to arrive in London the 17th and to call at the Embassy on the 18th. He will have certain data which may serve as a background for oral discussions you may have with officials in the Foreign Office, and we have told him that you will be prepared to furnish him with a copy of this telegram for his confidential information.

Hull
  1. Telegram No. 24, March 12, 1 p.m., p. 928.