Current Economic Developments, Lot 70 D 467

Current Economic Developments

[Extract] secret

No. 190

Limiting Natural Rubber Shipments to the USSR

The USSR has been purchasing large quantities of the natural rubber of types suitable for stockpiling. It is believed that if some preventive action is not taken, the Soviets are likely to have by the end of 1949 a strategic stockpile sufficient to support consumption for over two years. In view of our concern, the UK has inquired if we would buy rubber which otherwise would go to the USSR, providing the producing countries would agree to regulate shipments to eastern Europe. Preclusive buying or additional procurement in one market alone is not the answer. The Department plans to discuss with the Munitions Board, the Department of Commerce, and ECA means to increase US purchases of natural rubber in order to reduce the amounts available in the world market for purchase by the USSR. Then, if these interdepartmental discussions are satisfactory, the Department will attempt to reach understandings with the producing countries in order to limit their shipments to the USSR.

USSR Believed Stockpiling Rubber Of the 125,000 metric tons of natural rubber received by the USSR in 1948, it is estimated that 80,000 tons were added to stocks. Soviet receipts represent about 8% of world production, as contrasted to normal prewar receipts of 3%, and only the top three grades—those suitable for stockpiling—were purchased. The British believe that if permitted to do so, the Soviets will purchase enough natural rubber in 1949 to make their strategic stockpile sufficient for nearly three years’ consumption.

Possible Restriction of Soviet Access to Natural Rubber Although there has been interdepartmental agreement that it would not be possible to deprive the USSR entirely of natural rubber, it might be practicable to limit shipments to the USSR to requirements for current consumption. Effective containment of the USSR would require correlated export control in all major producing countries.

It is exceedingly unlikely that any of the rubber producing countries would be willing to restrict exports to the USSR and its satellites unless guaranteed that the action would not result in a rubber surplus [Page 82] and declining rubber prices. Therefore, if the US is to request the producing countries to control exports to eastern Europe, it must be prepared to support the natural rubber market at an agreed level. The market for natural rubber is controlled in large degree by US purchases and policies. In 1948 US industry consumed a tonnage equivalent to 41% of world production. Of even greater importance to the world market than quantity purchased, is US policy: the price at which government-produced synthetic rubber is sold in effect sets a ceiling on the price of natural rubber, and the existence of a world rubber surplus depends on the quantity of natural rubber procured for the government stockpile and the proportion of synthetic that must be consumed because of government regulations.

Requirements of Proposed Rubber Program In order to be effective in depriving the USSR of rubber, the program would have to include a commitment from all major producing countries: 1) to limit exports to eastern Europe to a specified tonnage; 2) to be content with deliveries of specified tonnages for the US stockpile; and 3) to institute export controls. Such a program probably also would need to include as a minimum a commitment from the US to purchase a specified quantity of rubber for stockpile at a predetermined rate at prevailing market prices.

Natural Rubber Strategically Important The US is stockpiling natural rubber as a strategic and critical material indispensable in the manufacture of large truck and airplane tires and highly desirable in the manufacture of other products important to both the military and civilian economies.

Both the US and the USSR are dependent for natural rubber on countries in the Far East, principally Malaya, Indonesia, Ceylon, Siam, French Indo-China, and Burma. In turn, the economy of all Southeast Asia is in large measure based on natural rubber. A poor market for natural rubber would add to the political unrest already evident in the Far East, while an improved market would tend to stabilize conditions.

Rubber is important also in east-west trade. The Netherlands has formal commitments to supply natural rubber to Bulgaria, Czechoslovakia, Finland, Hungary, Poland, and the USSR. Rubber was described as a keystone in the recently concluded trade agreement between Poland and the UK, and in its trade agreement with the USSR the UK agreed to facilitate shipments of natural rubber to the Soviets.

Recent and Imminent Rubber Discussions with Other Countries In October 1948 the USSR offered to buy Ceylon’s 1949 output of high-grade rubber. (See page 9, November 22, 1948 issue of Current Economic [Page 83] Developments.1) After conversations with the US and the UK, Ceylon declined to enter into a government-to-government rubber contract with the Soviets. The Ceylonese Ambassador has discussed the rubber problem with officers of the Department and further discussions may be held.

US-UK discussions of the problem presented by Soviet rubber buying were held in Washington on January 14, 1949, at the request of the British. The British had refused our request that they prevent further shipments of rubber from Malaya to the USSR when Ambassador Douglas raised the question with them last July. They then contended that there was no evidence of Soviet rubber stockpiling; that sales of natural rubber to the USSR were in accordance with the existing USSR-UK trade agreement2 and were considered ordinary commercial transactions; and that the UK must obtain Soviet grain. (See page 2, August 9, 1948 issue of Current Economic Developments.3) In the January meeting, however, the UK admitted that if the USSR is permitted to continue unrestricted purchases, it will be able to stockpile natural rubber, and they asked whether the US would be willing to increase its stockpile purchases by 70–90,000 tons a year in order to prevent this quantity from going to the Soviets.

A general discussion of the world outlook for rubber will take place in March at the sixth meeting of the Rubber Study Group, of which two Iron Curtain countries are members.

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  1. The referenced portion of Current Economic Developments for November 22, 1948 is not printed. For documentation on the interest of the United States in the possible sale of Ceylonese rubber to the Soviet Union, see Foreign Relations, 1948, vol. iv, pp. 489 ff.
  2. The Soviet-British trade agreement of December 27, 1947.
  3. Not printed; documentation on the interest of the United States in the British sale of rubber in 1948 to the Soviet Union is included in the compilation cited in footnote 1.