Foreign Relations of the United States, 1951, Asia and the Pacific, Volume VI, Part 1

493.009/5–1851: Telegram

The Secretary of State to the Embassy in Indonesia

secret

Washington, May 18, 1951—8 p. m.

1268. Dept agrees with decision Embtel 1615 May 18 not to issue press statement.¹

Fol may be useful background FYI:

At Apr Rome mtg² Rubber Study Group estimated 1951 Chi imports at 90,000 long tons. Chi received 27,000 tons during Jan Feb. Malaya shipped Chi and Hong Kong about 16,000 Mar and 10,000 Apr. Assuming all these figs correct and assuming May shipment 7,000 tons, Chi will have received 60,000 tons before Brit controls in Malaya effective. Remaining 30,000 included in RSG estimate for Chi presumably will be smuggled there or will go other destinations via legitimate trade channels.

RSG also estimated world production natural and synthetic rubber wld exceed consumption by 360,000 tons in 1951. If this potential surplus is absorbed into private or government stocks, price presumably will not break disastrously this yr. If surplus not absorbed price presumably will decline until sufficient marginal production eliminated to balance supply demand. Rubber market for balance this yr therefore likely to be influenced principally by stockpiling policy US and other govts. Whether potential surplus 360,000 or 390,000 relatively unimportant.

Indo Govt as member RSG fully aware these statistics. Also aware that US rubber policy most important factor influencing market. Because of adverse press (Embtel 1602, May 16, and related tels)³ Dept wishes that it cld give Emb material with which to reassure Indos re this policy. Unfortunately realities of situation prevent such assurances.

Fol are major factors in situation:

1. US world’s largest consumer natural and synthetic rubber which to large extent are interchangeable depending on price.

2. US world’s largest producer synthetic, most of which government-produced and sold on basis no profit no loss.

3. US Govt sole legal importer natural rubber for US consumption and stockpile and world’s largest stockpiler natural rubber.

4. US Govt allocating rubber both natural and synthetic to industry and limiting consumption.

5. US Govt fighting inflation, and its desire for generally lower prices is in opposition to Indos desire for higher rubber prices.

These factors give US and especially US Govt unprecedented power over world rubber markets and sometimes lead to conflicting policies. Industry viewpoint accurately summarized by quotation from Akron Beacon Journal May 13 attributed to Litchfield, Board Chairman Goodyear.⁴ “If synthetic is properly handled by the US we cld control the world’s rubber.”

Rubber products manufacturing industry (which is powerful political factor domestically) has been urging:

1. Expansion synthetic capacity. Litchfield urges 50 percent increase. USDel told RSG that Govt had decided increase capacity for annual production GRS from present level 760,000 tons to 860,000 by altering existing equipment. RSG not told new 40,000 tons butyl facility under consideration but not yet authorized. Neither was RSG told DuPont increasing neoprene capacity by 10,000 tons. (For definition GRS butyl neoprene and info re synthetic industry Emb may refer report sent Djakarta with unclassified instr 3, Jan 13, 1950.)⁵

2. Reduction in stockpiling objective and in rate of stockpile procurement. Stockpiling program currently being reviewed by Vital Materials Coordinating Comite, consisting inter alia of the fol agencies: Defense Production Administration, National Production Authority, General Services Administration, Munitions Board, Defense Minerals Administration and Dept.

3. No exports of synthetic until domestic demand satisfied. Govt produced synthetic is not being exported despite request from UK, Fr, It, Chile and others.

4. No long term natural rubber purchase contracts. Litchfield quoted as being “firmly opposed to the US entering into any price fixing agreement with the govts of the producing countries”. Industry has not been told of Wilson’s contract with Indos or proposed contract with Thai.⁶

At Rome US and other consumers offered to help stabilize natural rubber market during post-allocation period in return for acceptable allocation agreement. Producers (including Indo) rejected proposal. US not likely to make equally favorable offer again in foreseeable future. In fact US industry not informed of Rome proposal and wld have opposed it bitterly if informed. Executive agencies can not commit US on synthetic rubber policy which basically established by Congress. Present law expires June 30, 1952. In view anti-inflation policy and responsibility to US taxpayer agencies unlikely to agree on stockpiling or price support policy that wld pls Indos.

Ultimately producers of natural rubber must sell their product at price approximately that of general purpose synthetic (currently 24½ cents) or lose their markets unless general consumption greatly increases. Dept has been attempting for over year make this fundamental economic point clear to Indos and other producers. There is no probability that US will agree to stabilize rubber prices for extended period at artificially high level out of sympathy for producers problems. The sooner this point accepted the easier it will be for Dept to secure agreement to policies that may ease transition.

US will continue to produce synthetic for security reasons and as commercial demand develops. Someday it will stop buying rubber for stockpile because its security needs will have been met. These and other actions can be misinterpreted as being directed against Indo and will be so misinterpreted by those unfriendly to US. Implications US bad faith (such as those quoted in reftel) will not make US policies more favorable to Indo and on contrary may hinder efforts of those appreciative Indo problems to obtain adoption reasonable policies and administration.

US policy re Chi embargo is part of broader US policies toward support UN action in Korea and toward trade with Sovbloc and has no relation to rubber problems as such of US or Indo. On assumption US will not alter its policies re procurement natural rubber and production synthetic, adherence to Chi embargo wld injure Indo rubber interests only in negative sense that it might deprive them of opportunity to profiteer at expense Malaya. If such unfair profiteering led Malaya to withdraw its support UN effort discourage aggression, Indo wld lose because aggression anywhere in world contrary to interests all peace loving nations.

This tel not distributed outside Dept. Any reply shld be no distribution. Further tel will follow re phases US–Indo relations on which you may be able and wish take more positive line.

Sent to AmEmbassy Djakarta 1268; rptd info: AmEmbassy Colombo 401, AmEmbassy London by air pouch, AmEmbassy Bangkok 1774, AmConsul Singapore 775, AmLegation Saigon 1505.

Acheson

1. In telegram 1615 from Djakarta, May 18, Ambassador Cochran reported that he planned to have the Embassy issue no statement about the embargo question, despite the inaccuracy and unfairness of the Indonesian press’ attacks on the U.S. position at the United Nations (493.009/5–1851).
2. Documentation is scheduled for publication in volume ii.
3. Not printed.
4. Paul W. Litchfield.
5. Not printed.
6. For documentation, see pp. 1594 ff.