800.6176/97: Telegram

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

1528. The following letter from the Colonial Secretary30 speaks for itself and is the result of the representations which I have made here. Both Malcolm MacDonald and Sir John Campbell wish to prevent a speculative movement setting in and would very much appreciate a statement from Washington which would have this effect as indicated in the ultimate paragraph of his letter. I have no doubt that there will be a real temptation to interpret “a reasonable price” as meaning a reasonable dollar price but the preamble of the rubber restriction scheme defines the price aim as “a price reasonably remunerative to efficient producers” and therefore we should continue to think in terms of a sterling not a dollar price thus permitting our rubber manufacturers to benefit by the exchange advantage. The larger United States manufacturers should therefore do all that they can immediately to adjust the New York price to a sterling basis of about 10D. (which price would allow for some increase in shipping and insurance costs). Their action or inaction within the next few days may well be decisive particularly as we must recognize that as the war develops and Great Britain’s foreign exchange resources decline the Government as well as the producers will have an interest in a higher dollar price for rubber. The letter reads as follows:

“I have now discussed the rubber and tin31 position with my advisers here. All details are available but in this letter I propose to deal with the matter only on the broadest lines.

While the rubber and tin control agreements will remain operative, increases in the quota can only be obtained with the fairly general consent of the signatory parties. If the Dutch and the British are in agreement their views as regards rubber would be decisive; as regards tin that agreement would just secure the majority required, but one opposing delegation could hold up a decision and insist on a meeting. Meetings are now quite impracticable at short notice anyhow; and the securing of consent by written and telegraphic communications would probably involve some, though we hope not material, delay.

Supplies are, we consider, adequate to meet all normal trade demands and all probable war demands at present, provided speculation does not dominate the situation, and future supplies are most fully assured. We went into the question of the position regarding both tin and rubber in the 1914–1918 war most carefully; and the broad conclusion was that the war demand for both commodities was easily [Page 868] met without affecting prices. Towards the end of the war the dominating influence on prices was shipping difficulty. At no time in the case either of tin or rubber did inadequacy of production make any difficulty. Conditions are not the same admittedly; but we still think that war, even long continued war, should have but little effect on the trend of the total demand. The real danger is speculation and particularly speculation in the United States of America, or unfounded fears on the part of consumers there leading them to the purchase of large immediate supplies. Sir John Campbell tells me that on the latest information available to him there has been excited buying of tin from America, and he took up with Captain Oliver Lyttelton, the Metal Controller here, the question of a further substantial increase in the tin quota yesterday. He has not yet had Lyttelton’s reply, but hopes that it was possible for him (Lyttelton) to discuss the proposals Campbell had made with Mr. Van Der Broek, one of the Dutch representatives who was over here yesterday, but did not come to London.

In this connection, and the point seems to me the most important of all at the moment, I enclose a summary of a telephonic conversation which Mr. Pawson, the Secretary of the International Rubber Regulation Committee, had with Mr. Butterworth yesterday. Campbell entirely agrees with the views expressed in that summary; and he hopes very much that some action will be taken at once in America in the direction suggested by Mr. Pawson as regards both rubber and tin. That to my mind would be the most useful and practically effective step which could be taken at the moment. Meanwhile the buffer stock is selling all the tin which it can be permitted, by the War Control authorities here, to sell at the fixed price of £230 a ton.

I am sending a copy of this letter to Lyttelton whose office is outside London.

As soon as the action which it seems advisable to take in respect of tin can be decided upon, Campbell proposes to attempt to obtain the consent necessary by telegraph from the delegations of the signatory countries. As regards rubber a proposal was made on the 31st of August to increase the quota for the last quarter of 1939 to 70%, to provide the first installment of the rubber required under the Exchange Agreement. All have agreed except the Dutch; despite repeated efforts we have not yet been able to obtain any reply from them. Campbell also proposes to call together such members of the Rubber Committee as may be available to discuss with them what further action if any should be taken in the light of the most recent events.

I should greatly appreciate any action that you may find it possible to take to make the facts known.”

“Telephone conversation between Mr. Butterworth and Mr. Pawson, 5:50 p.m., June 9, 1939.

I rang up Mr. Butterworth hearing that he had been trying to get in touch with Sir John Campbell and myself.

I told him the present position in regard to the proposed issue of a communiqué announcing an increase in the rubber quota for the last quarter of 1939 from 60% to 70% and said we were awaiting the reply of the Dutch delegation. He asked whether any action had been taken on the proposal contained in a telegram from Mr. Viles that, in addition to the 10% increase for the purpose of implementing the agreement [Page 869] for exchange of cotton and rubber, a further 5% increase to the general quota should be considered by the Committee. I said that Mr. Viles’ telegram was being circulated to all members of the Committee with a covering letter saying that the proposal for holding a meeting of the Committee in the near future to consider the general position was being kept in mind. Mr. Butterworth stressed the fact that there was great uneasiness in America in regard to rubber supplies; he said that present stocks were low and asked if he could be assured that the Committee would be willing to release more rubber in the near future? I said that I had talked to Sir John Campbell that morning and that he had in view the possibility of the Committee releasing more rubber if any speculative movement in America should cause a run on rubber and an increase in demand leading to much higher prices.

Mr. Butterworth asked if I did not think there would be a greatly increased consumption of rubber in war time? I said that past experience did not show this and, in any case, enormous supplies of rubber were available to deal with any increased demand which might arise. It must be remembered that the production of rubber would go on unhindered by war in all producing territories and that adequate rubber supplies were only a question of shipping whereas consumption would suffer definite reduction from the prevention of enemy countries from access to crude rubber supplies, and the diminution of civilian rubber consumption in ‘war’ countries. The chief danger to rubber, at the moment, was from the speculator who might rush to buy rubber, and create a false demand resulting in a temporary rise in price—present indications in America showed this was a real danger at the present time. If such a situation should arise, I said that I knew it was the view of the Chairman that the Committee would do everything in their power to meet it by raising the quota but I thought that the most effective weapon would be immediate propaganda in America against this ‘war’ speculative psychology, which was, in our opinion, based on entirely wrong premises and could only lead to great financial losses to any of those engaged in it, and create difficulties that need never arise. Nothing seemed more certain than that all the rubber the world required could and would be supplied at reasonable prices throughout the duration of war however long it might last—the only unknown factor was the shipping position but it was reasonably certain that this could never create difficulties in the supply of rubber to America other than perhaps purely temporary difficulties at one time or another.

Mr. Butterworth asked if he could pass on the gist of my remarks to the Ambassador. I said that I was speaking on my own authority but I felt certain that I was expressing very generally the personal views of the Chairman and I thought he could make any unofficial use of my remarks on that basis that he thought fit.”

  1. Malcolm MacDonald.
  2. For correspondence concerning tin quotas, see pp. 906 ff.