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The British Foreign Office to the British Embassy in the United States 53

We are much concerned at the difficulties which have arisen over United States purchases of rubber and have given most careful consideration to your telegrams. As we have had from the American Embassy a copy of a telegram received by them from the State Department dated April 2nd54 referring to similar difficulties encountered by Metals Reserve Company in its purchases of tin, this reply covers both rubber and tin. You will no doubt be able to obtain the text of the telegram of April 2nd about tin from the State Department.

2. The two crucial factors affecting the purchases by the Reserve Companies of rubber and tin in the quantities and within the price range specified appear to be (i) competition by American consumer buyers and (ii) the shipping situation. Recent statements by Mr. Harriman55 to the United States Trade, past and current New York prices for both commodities and American trade circulars, confirm this view.

As regards (i) it appears that beyond doubt America’s best buyers operating on their own account are prepared to pay higher prices than the Reserve Companies and also to buy much more freely forward. In these circumstances it is difficult to see how isolated action by British producing territories to control the price would achieve the results required. Maximum price of £230 per ton fixed for tin in the United Kingdom and in Malay early in the war failed entirely to secure its objective. Concerted action with other producing countries to control local market prices would involve difficulties and delay and might in any case be impossible to attain.

As regards (ii) the provision and allocation of freight space is now entirely outside our control.

3. You may be assured that both International Committees are and always have been most anxious that arrangements entered into with Reserve Companies should work smoothly and give satisfaction to both parties. They have dealt urgently with all matters within their competence and no delays are attributed to them. Neither Committee has ever desired to see prices rise above those specified in the agreements. As has frequently been put to the United States authorities, we should welcome the presence of an American representative on either or both Committees. [Page 500]

A. Tin

When the Metals Reserve Company Agreement was negotiated,56 it was estimated that world exports with a quota at 130 percent would be 230,000 tons. This figure is admittedly less than 130 percent of total quotas but it was realised from the first that Bolivia at any rate could no longer reach even 100 percent of her basic quota and that only countries particularly favourably situated could exceed it by as much as 30 percent. Total exports in 1940 are now closely estimated at 237,000 tons. Exports from July 1940 to February 1941 inclusive have been at an annual rate of 249,000 tons. For the six months to the end of February 1941 world exports totalled 145,815 tons of which 122,572 tons or 84 percent went to the United States. Invisible stocks held by private American consumers are probably in the region of 50,000 tons. Amount available for Metals Reserve Company or for additions to private American stocks is estimated on current rate of production at 6000 to 7000 tons per month. Thus the conclusion seems clear that the United States as a whole have obtained and can continue to obtain delivery of very large quantities of tin, even if the proportion of the deliveries to Metals Reserve Company as opposed to consumers is less than the Company desires.

As regards the State Department cable of April 2nd to the Embassy in London a war risk insurance scheme is in fact in operation in Malaya which covers tin from time when it is placed on warrant until it is shipped. Any difficulties on this account have therefore now disappeared. As to the suggestion about the sale on F. O. B. terms, we think it would be impracticable to attempt at this juncture to enforce a fundamental alteration in commercial practice of the Malay tin industry and to place on the vendors a financial onus which depends upon provision of shipping space and on the allocation of that as between shippers, when both of these are entirely outside their control or control of their Government.

B. Rubber

The rubber situation has recently been reviewed by the International Rubber Regulation Committee and you should ask the State Department for the text of a memorandum prepared by the Committee for the Rubber Reserve Company and cabled from the American Embassy here on April 29th. However, as this memorandum was prepared without reference to us, you should note that it does not emphasize the important point that the willingness of consumer buyers to pay more than the Reserve Company New York price limit has been an additional obstacle to the latter’s purchases.

4. Please explain the position to the United States authorities in the light of the foregoing information and of the message recently sent by the Colonial Office to the Governor of Malaya, giving the text of a statement made on April 16th by Sir John Hay to a committee of the International Rubber Regulation Committee, Rubber Growers Association and Rubber Trade Association.

[Page 501]

As regards rubber, your Commercial Counsellor might ask the Rubber Reserve Company how far the suggestions of the International Rubber Regulation Committee meet their difficulties. If, in fact, any difficulties remain, which cannot be solved between the Company and the Committee we shall be ready to consider further whether direct action by His Majesty’s Government is feasible. Needless to say we shall be only too happy to consider any specific suggestions which the United States authorities may put forward in your further discussions.

[Enclosure]

Statement Made by Sir John Hay on April 16th as Chairman of Meeting of a Coordinating Committee of Trade Which Has Been Set Up in London, Comprising Members of International Rubber Regulation Committee, Rubber Growers Association and Rubber Trade Association

1.
The United States Government is providing all shipping for transporting rubber from British ports in the Far East to America.
2.
The shipping space is being allocated in America on the basis of one-third to Rubber Reserve Company and two-thirds to industry—each of the big five will get their allocation direct and smaller consumers will be handled in bulk through the medium of American Rubber Trade Association. Basis of allocation will be flexible. Mr. Viles has promised me that attention will be paid to any reasonable representations made through me regarding its practical application and that on basis of any such representations he will be prepared to consider revision.
3.
This method of allocation should be accepted and should not be condemned in advance. I have good reason to believe that His Majesty’s Government would not lend their support to any contrary action.
4.
Rubber Reserve Company has undertaken to buy on godown terms at upper unit of price range and endeavour is being made to agree to exact godown equivalent of this upper unit in currencies of Straits Settlements, Netherlands East Indies, Ceylon. Producers have a clear obligation under agreements concluded between the International Rubber Regulation Committee and Rubber Reserve Company to be free sellers within the price range, and all available rubber must be offered to them freely at the agreed price.
5.
Free flow of rubber to America under the agreements is a matter of extreme urgency at the present time to which His Majesty’s Government attach the greatest importance.
6.
I have gathered from conversations with Departments concerned that unless rubber does go out under conditions outlined above they [Page 502]will feel compelled to consider very seriously taking action to ensure that it does so. Market would in that event lose that freedom which it has enjoyed since the beginning of the war.
7.
The substance of this statement which I have just made will be telegraphed to the Governor of the Straits Settlements so that he can transmit it to the Rubber Section of Singapore Chamber of Commerce.
  1. Copy handed to the Secretary of State on May 6, 1941, by the British Ambassador.
  2. Not printed.
  3. W. Averell Harriman, special representative of the President, with rank of Minister, to facilitate aid to the British Empire.
  4. For text of agreement, see Foreign Relations, 1940, vol. ii, p. 297.