811.24 Raw Materials/111: Telegram

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

330. Reference is made to your conversation with Mr. Welles32 and your 604, May 4.33

There is no rigid view here as to price arrangements which we recognize would probably be to some extent a matter of bargaining.

A simple and uniform formula for determining the relative values of the various commodities is greatly to be desired. We suggest that consideration be given to utilization of base market prices derived as an average of the daily market prices that have prevailed during the first 4 months of 1939 for each commodity (with the exception of wheat under certain circumstances, explained below).

As to the particular market price, we would greatly prefer using New York prices for cotton and wheat and London prices for rubber and tin, but we would recognize the force of the argument that delivered prices might be more reasonable. We would be prepared, therefore, to accept New York prices for rubber and tin and Liverpool prices for cotton. In the case of wheat, however, Liverpool prices during the past few months have been extremely low and the Department of Agriculture is hot willing to dispose of further large quantities of wheat during the current season on that basis. If delivered prices on wheat are to be used they should be an average of some period prior to August 1938, an agreed-upon arbitrary price, or the minimum price established by the International Wheat Committee in the event that Committee reaches an agreement on this point.

We are studying the problems involved in arrangements for delivery, particularly the division of the carrying business, and will telegraph our suggestions shortly.

Using current prices as the basis would avoid haggling over the relative value of cotton and rubber. If the British Government is inclined to press for lower cotton prices, you may call their attention to the logical expectation that producers of rubber and tin would accept prices considerably below the current market for orders of this nature, particularly since this will be an entirely extra-market demand and will provide increased production at a time when it is most needed. We would be willing, however, for the British Government (and also the Netherlands and the Belgian Governments, if they join in the arrangement) to secure materials from the producers at whatever figure they can negotiate, entering these commodities in the [Page 241] exchange with us at the market price, providing of course that our cotton and wheat is also accepted at the market price.

In connection with the discussion of price, you may consider it wise to emphasize again the point that we would expect the international control committees to provide additional quotas covering the amounts to be furnished this Government in connection with these exchanges so that the supplies available to the commercial market, and market prices, would be in no way affected.

With respect to the period of time during which the two Governments would be committed to hold the acquired stocks off the market, the best arrangement would appear to be commitments on the part of both Governments to hold the stocks acquired as reserves against war emergencies. It would be most desirable to agree that in the absence of such an emergency the stocks would be held for an indefinite period of time. If the British Government is unwilling to make such an arrangement, we suggest that the agreement provide for a reexamination of the question after an initial period of at least 5 years.

The agreement can include necessary arrangements for rotation of semi-perishable commodities.

It is hoped that the discussion of 500,000 bales of cotton represents only the first stage of a much more extensive deal. The Department of Agriculture has entertained the hope that as much as 1,500,000 bales of cotton and 30,000,000 bushels of wheat could be included in the proposed exchanges.

Hull
  1. Sumner Welles, Under Secretary of State.
  2. Not printed.