811.20 Defense (M) Colombia/74: Telegram
The Secretary of State to the Ambassador in Colombia (Lane)
632. Your 698 of May 25.
1st. Rubber Reserve Company would prefer to have a fixed price for the 5-year period in order to encourage making investment in [Page 180] rubber production. The Brazilian and Peruvian agreements provide for such change in the price at end of the first 2 years as is mutually agreed upon as appropriate by reason of changed circumstances affecting the world price of rubber. Such a provision in the Colombian agreement would be satisfactory, but a fixed price for the 5 year period is preferred. There are real advantages to Colombia in having the price fixed for 5 years; if, for instance the war should end in 2 years, Colombia would nevertheless have a market for its rubber at this price regardless of what other sources of rubber should then be available, such as Far Eastern or synthetic rubber. However, Rubber Reserve would not be inclined to take a firm stand on the point if it is considered important by the Colombian Government.
2d. While under ordinary circumstances this Government would consider with the greatest sympathy the construction of a tire plant in Colombia, such a project is impossible at the present time. In many of the American republics such projects have been put forward and the policy of the Department has been uniformly against them except in the case of Peru where special considerations were believed to exist. In spite of the fact that it is stated by proponents of these plants that second-hand machinery will be used, investigation reveals that some new equipment is generally required which is of the tightest priority. Moreover, it is difficult if not impossible to be assured that such plants will be as efficient in limiting the amount of crude rubber used in manufacture or in adopting other conservation methods as is the case here.
This does not mean that there is any failure to recognize the desirability of saving shipping space and risks involved in the delivery of crude rubber to this country and sending tires back to the producing country, or to recognize the necessity for satisfying Colombia’s essential requirements for rubber products. The Department’s circular telegram of May 18 sets forth this Government’s attitude in this respect.
The Department is engaged in obtaining complete information on rubber manufacturing capacity in Central and South America. Until and unless this investigation establishes that there now exists insufficient capacity for supplying essential requirements in these countries, and taking into consideration the factors referred to above, the Department will not favor any additional construction or expansion of existing facilities in Central or South America. It is repeated, that this Government will, however, endeavor to satisfy Colombia’s indispensable requirements for rubber products.
3d. The information available here indicates that Colombia’s indispensable requirements are between 500 to 1,000 tons per annum. [Page 181] You are authorized to agree on any amount between these two figures which appears to you to be reasonable having in mind your estimate of 600 tons for tires and tubes and the fact that presumably Colombian requirements for miscellaneous products should be small.
4th. A price of 33 cents for castilloa was offered to Colombia as compared with the price of 24 cents agreed on with Brazil. In order to equalize the situation, Brazil has been offered and has accepted an increase in all prices, both for castilloa and hevea, of approximately 15 percent, 7½ percent to be passed on to the producers and 7½ Percent to be retained by the Instituto Agronomico do Norte, such increase to be effective for the first 2 years of the contract. Accordingly, while no increase in the price for Colombian castilloa is in order, Rubber Reserve will agree to pay Colombia, for the first 2 years of the contract, 39 cents plus approximately 15 percent for the equivalent of Upriver Acre Fine, on a washed and dried basis, with appropriate differentials for other types and grades. The exact increased price agreed on with Brazil is not yet known here. You will be advised when it is available, and in the meantime you may discuss it on the basis of a 15 percent increase over the 39 cents price.
A draft agreement is going forward by airmail.