Foreign Relations of the United States, 1950, East Asia and the Pacific, Volume VI

800.2395/12–1150

Memorandum of Conversation, by Mr. George H. Alexander of the Economic Resources and Security Staff

confidential

Washington, December 11, 1950.

Subject: Anglo-American cooperation in rubber.

Participants:	E—Mr. O’Gara
	ER—Messrs. Armstrong and Alexander
	BNA—Mr. Labouisse1
	General Services, Administration—General Wilson, Messrs. Walsh2 and Casto3
	British Embassy—Messrs. McDougall4 and Christelow5

The meeting was called at the request of the Department to consider informally the necessity and desirability of a unified Anglo-American approach to world rubber problems.

Mr. Armstrong explained that the United States is seriously concerned about three problems involving natural rubber;

1. Sales to the Soviet bloc.

2. The necessity for acquiring large quantities immediately for the United States.

3. Exorbitant prices.

He opined that the United Kingdom and continental European buyers must be concerned by the same phenomena and added that the United States considers these problems sufficiently grave to justify the British in putting Malayan rubber under export control immediately without waiting for other countries to agree to international allocation or some other form of control system for rubber. The United States has proposed an intergovernmental meeting for January to consider broader measures.

The British were told that GSA shortly would be designated as sole legal importer of rubber for United States industry and stockpile. The effective date probably will be January 1. Messrs. Walsh and Casto stated that United States requirements are covered for December and January delivery but that GSA must enter the market shortly to buy for February and March delivery. GSA has not been in the market since October 17.

Mr. McDougall said that the British favored the idea of a January meeting to discuss some form of international control and added that effective control will require all rubber markets to be closed. This, however, cannot be done overnight. He pointed out that any controls established in Malaya are likely to be ineffective if the Indonesian market remains uncontrolled and a price differential develops that makes it profitable to smuggle rubber from Malaya. He offered to inquire whether London had any suggestions as to how to secure cooperation from Indonesia. Mr. Armstrong observed that if the January talks fail because Indonesia won’t cooperate it may be necessary for the United States, the United Kingdom, and other buyers to buy together preclusively in the Indonesian market. This method of control obviously would be expensive and least desirable.

Mr. McDougall also recognized the need of Anglo-British cooperation during the short run before a broader international control scheme can become effective. He promised to consult London regarding measures that could be taken at once in cooperation with the United States to meet the tight February–March position.

Mr. Armstrong pointed out that the immediate and longer term problems are related because if either the United States or the United Kingdom enters the market too aggressively in buying rubber for February–March delivery, both may face increased prices when a control scheme is being discussed next month. He called attention to the uncertainty and high cost of operating on the basis of spot purchases and suggested the need for long term contracts negotiated at a fair price.

In response to a question from Mr. O’Gara, Mr. McDougall expressed the opinion that the United States would not jeopardize a future allocation scheme if it were to negotiate bilateral, Government-to-government contracts now, provided that the contracts were not in excess of probable allocations and would be pooled once the scheme went into operation. The merits of buying spot rubber in Burma, Indochina, Thailand, and Ceylon (leaving Indonesia as an off-shore hedge) were discussed.

Mr. McDougall suggested that United States officials go to London immediately to discuss the possibility of US–UK cooperation in meeting GSA’s requirements for February–March delivery and to develop a unified Anglo-American position in preparation for the proposed January talks. He stated that the British probably would be agreeable to having the latter meeting also held in London.

Mr. McDougall also stated that the UK would attempt to secure the cooperation of Ceylon. In fact, the British already had talked with the Ceylonese, whose initial reaction was hostile. As the price for agreeing to an international control scheme they apparently want the protection of a long-term price guarantee and some agreement that the production of synthetic rubber will be reduced if a rubber surplus develops. Rightly or wrongly they feel they received a raw deal in regard to rubber during World War II.

Mr. Casto stated that the GSA hopes to obtain 75,000 long tons of rubber for delivery during February and an additional 75,000 tons for delivery during March, although 35,000 tons each month would be sufficient to support industrial consumption alone with no allowance for stockpiling. He stated that GSA plans to adjust its selling price to industry monthly during the first quarter of 1951 and quarterly thereafter. It is recognized that while markets remain open in other countries the United States selling price will establish a floor for natural rubber prices. Mr. Casto added that there is no intention to subsidize industry or to use rubber from the stockpile as a price weapon.

General Wilson stated that the United States also is thinking of going into the public purchase of tin and wants the International Tin Committee reconstituted. It was generally agreed that tin is an easier commodity to control than rubber because the necessity of smelting tin ore and the scarcity of smelters provide a bottleneck where controls can be enforced.

1. Henry R. Labouisse, Jr., Director of the Office of British Commonwealth and Northern European Affairs.
2. Aloysius T. Walsh, Commissioner, Emergency Procurement Service, General Services Administration.
3. George K. Casto, Assistant to the Director of the Rubber Division, General Services Administration.
4. Mr. G. E. M. McDougall, First Secretary, British Embassy.
5. Mr. A. Christelow, Counselor, British Embassy.