Foreign Relations of the United States, 1951, Europe: Political and Economic Developments, Volume IV, Part 1

No. 440

London Embassy files, lot 59F59, 500 General

Memorandum by the Director of the Office of International Materials Policy (Brown)

confidential

[Washington,] July 17, 1951.

Summary of Points Raised by Mr. Hall and Mr. Muir With Respect to Raw Materials Prices, and Disposition Thereof

The United States understanding of the points raised by Mr. Hall and Mr. Muir, and the conclusions reached during the discussions with them,¹ is as follows.

1. The British Government was much concerned at the inflationary effect of high raw materials prices, felt that concrete action should be taken as soon as practicable and to the extent practicable to get them down, and that the current lull in the upward movement of commodity prices was a good time to act.

The United States shared this concern and was willing to consider and participate in any practicable steps designed to keep these prices down.

2. The British Government had no proposals to make with respect to long-term measures for price stabilization, nor did they suggest any over-all or global approach to the problem. They felt that the problem would have to be tackled in terms of specific measures designed to deal with the situation in specific commodities. All that they could say about the longer term was that they were still strong supporters of Chapter VI and that they felt that long-term contractual arrangements provided a promising method of achieving stability.

The United States agreed that the approach would have to be a selective, commodity-by-commodity approach and that it was still in agreement with Chapter VI.

3. Wool

The United Kingdom felt that the United States suggestion for an allocation of wool would not work for the following reasons:

(a) There were over 3,000 different grades of wool. To allocate these effectively would be an impossible administrative task. The only real way of getting the quantities of the particular grades needed by particular people at particular times was to let the private trader do it.

(b) The producers attached tremendous importance to the maintenance of the auction system. The British Government did not feel prepared, or indeed that it was desirable, to ask them to modify this system materially.

(c) In the case of Australia, the federal government did not constitutionally have the power materially to interfere with the auction system in times of peace, and it was a political impossibility for the state governments to cooperate in any modification of the system, if for no other reason than they were of differing political parties.

The British Government was, however, concerned at the high price of wool. It did not feel that there was as much of a shortage as the Americans did, but it agreed that there was probably a modest shortage, which would persist over the longer term. They therefore believed that measures to moderate the price of wool were desirable and proposed to suggest to the IMC that this be accomplished by having the consumers agree to impose price ceilings and not to import wool or permit the importation of wool at prices above those ceilings. They did not expect the producing governments to take any part in the policing of this system. They felt that there would be a high enough proportion of world demand represented by the IMC consuming countries to enable this scheme to result in real moderation of prices. As to the levels of prices, they felt they should be approximatley the May levels. They did not feel that this would result in having all the bidders at the auction bid the ceiling, with the consequent need for drawings to determine which should get the wool, because the degree of the shortage and the consequent pressures against price were, in their view, not very great. They agreed that if the shortage was more substantial than they thought, it would be difficult for their proposal to work.

The United States representatives expressed doubts as to whether a system could work without allocation. They were concerned that under the British proposal many bidders would inevitably bid the ceiling and, therefore, interference with the auction system would be inevitable and there would be substantial black-market operations. They agreed to consider the proposal and to give the British a comment, probably through their representatives on the IMC committee.

The British stated that they felt a large part of the unusual price increase had resulted from speculative buying and, more particularly, from United States military buying. They felt essential to the success of any scheme that special buying for stockpile and military purposes should be evenly phased and internationally coordinated. To this end, they were prepared to support the French proposal for a small committee to consider and coordinate government special buying.

The United States representatives stated that this proposal would create great difficulties for them, that it always gave buyer A a great advantage to know what buyer B was going to buy and when, that United States military requirements were not competitive with British or French military requirements, being for grades of 60 or above, but were, in fact, competitive with British commercial requirements for quality goods. They felt that any such committee would inevitably result in leaks or in charges of not properly representing the national security interests. On the other hand, it was to the United States’ interest, as well as to everybody else’s, that buying for special purposes be phased as much as possible. The problem was perhaps as much psychological as practical, and perhaps if it could be announced that there was agreement on the principle that special buying be phased and that the United States and other special government purchasers were working out their own policies for achieving this result, the speculators and those who were worrying about the impact of unexpected government purchasing on the market would be reassured.

The British stated that this would not give them what they wanted, but that something along that line might possibly prove satisfactory. It was the consensus on both sides that the United States and the British were not too far apart on this point.

4. Cotton

The British stated that they were encouraged by the prospect for a substantial United States cotton crop in the coming crop year and would be interested in a statement of United States plans with respect to that crop and subsequent crops. They also stated that if the United States should feel disposed to reopen the question of a cotton agreement along the lines discussed with them before the war, they would be disposed to discuss it sympathetically.

The United States representatives stated that they expected a crop of better than 16 million bales, that it was their policy to export everything that was needed above United States requirements and not to add to the carry-over at the end of the coming crop year. They said they did not anticipate difficulties such as led to the discussion of a cotton agreement before the war and had no particular desire to initiate such discussions. They expected in the future that they would so operate their price-support and acreage-control programs as to try to keep adequate supplies available and avoid the necessity of government buying at the support price.

It was agreed that there was probably no need for an IMC allocation of cotton in the next crop year.

5. Cotton Linters

It was agreed that there might be a problem with respect to cotton linters, but that the problem was manageable and could be handled in the IMC cotton committee.

6. Rubber

The British said they had no specific proposals to make with respect to rubber, nor were they particularly concerned about the prospects of the long-term market for rubber. They were, however, concerned about what would happen after the United States stockpile was full and United States synthetic rubber production going full tilt. They anticipated that there might then be a time when natural rubber prices would fall below economic levels and certainly in which they would fall to levels that would discourage the planting of new trees. They hoped the United States was conscious of this problem and would be thinking about it, and they might raise it again with us in more specific form.

The United States representatives stated that they recognized that there was a possibility of a real and difficult problem in this respect and were considering what the United States attitude should be.

7. Tin

The British stated that if we desired to discuss the price of tin or international allocation of tin, they would be glad to discuss the subjects. They wanted us to know that they had considerably changed their views from those expressed during the March, meeting in Washington,² both as to price and as to the producer safeguarding elements that would need to be incorporated in an international allocation agreement.

The United States representatives said that they were reasonably content with the way in which the tin price situation was going, were in a rather comfortable position with respect to tin, and were in no particular hurry to go back into the market or to discuss international allocations.

8. Copper and Zinc

The British stated that they were very concerned about the situation in these two commodities. They were assured of a substantial portion of their requirements from Commonwealth sources such as Southern Rhodesia and Canada. They felt that they could get these supplies at the United States price. They were, however, forced to go out into the market and pick up odd lots of copper to make up the deficiency between the Commonwealth supplies and the amounts they were likely to have allocated to them by the IMC, which, in turn, would be substantially below their requirements. They were, therefore, forced to pay higher prices, in some cases exorbitant prices, for these marginal amounts. They were concerned that the effect of their paying these higher prices for the marginal amounts would cause their suppliers of the principal amounts to insist on higher prices for them. They felt that an IMC allocation would exercise a distinctly stabilizing effect on prices, but that this would not be enough and that the IMC committee should specifically consider prices, as had the IMC tungsten and molybdenum committee.

The British felt, however, that it was most important to get a fourth-quarter allocation for copper and that the introduction of the price factor into the discussions would, as a practical matter, make agreement on a fourth-quarter allocation impossible, not because of major policy differences, but simply because of the need for delegates to get new instructions and consider a new problem. Therefore, they felt that introduction of the price question should be deferred until consideration of the allocation for the first quarter of 1952.

The United States representatives agreed with the United Kingdom concern about the price of copper and that it should be considered in the IMC. They shared the United Kingdom’s feeling that the most important thing was to get a fourth-quarter allocation and that the injection of the price factor into the IMC discussions would make that impossible for practical reasons.

The United States representatives stressed their conviction that some form of quid pro quo for the producers would have to be brought into the IMC before agreement could be reached on price ceilings. A number of possible inducements were discussed, and the United Kingdom representatives stated that they would have to give the matter a great deal more thorough thought and might wish to talk with us again informally after they had done so. It was agreed that the considerations expressed on both sides with respect to copper applied equally to zinc.

9. Sulphur

The British expressed surprise that sulphur had been mentioned in their aide-mémoire and said they had no questions to raise about it.³

10. Tungsten

The British stated that the proposal they had in mind for dealing with tungsten had already been adopted by the IMC tungsten committee and they had no further points to raise.

11. The United States repesentatives asked if there were any other commodities that were giving the British particular trouble and which they wished to discuss. The British representatives replied that they had not thought of any which were creating problems comparable to those discussed or which were susceptible of any very effective multilateral treatment.

12. Sanctions

One of the United States representatives raised the question of whether there should not be consideration of what sanctions might be employed to enforce decisions of the IMC as to quantity or price and as to whether and to what extent sanctions should be used.

It was the consensus on both sides that this question could not be usefully discussed in general terms and would have to be considered in the light of circumstances existing in particular cases.⁴

1. Memoranda of the conversations between the British and U.S. representatives during the morning and afternoon of July 16 are in London Embassy files, lot 59F59, 500 General.
2. No record of this meeting has been found in Department of State files.
3. Not printed, but see footnote 1, supra.
4. On July 17, the representatives discussed wool further and on July 18, copper, lead, and zinc. At the final meeting on July 19, both sides stated that they had nothing further to discuss and agreed that the talks had been very useful. Memoranda of these three meetings are in file 397.6/7–1351.