Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 2

398.2395/2–1053

Paper Prepared by the Deputy Director of the Office of International Materials Policy (Armstrong)¹

confidential

[Washington,] February 10, 1953.

Summary of Activities of United States Delegation at Rubber Working Party Meeting, January 5–27, 1953, in London²

Summary:

The main activity of the meeting was to consider a draft proposal for an internationally financed and controlled buffer stock of rubber which was presented by the British Colonial Delegation and supported by other producer groups.

The United States Delegation was guided throughout the discussions by two fundamental criteria, which were carefully explained to the group as a whole on a number of occasions. These two criteria were:

1. Objective judgment on practicability of the proposal.

2. Judgment of the Delegation as to items which should be included and amendments which should be made if the proposal were to receive serious consideration by the United States Government.

The proposal as originally advanced was very unsatisfactory, in the opinion of the Delegation, because it did not afford adequate protection to members, to producers, or to consumers, did not limit and define the obligations of member governments, and did allow for an unconscionable amount of maneuvering and speculation in the market. We spent a great deal of time and effort in amending the proposed agreement. In many respects we were completely successful, in others we proposed alternative drafts of provisions, and in others we reserved our position. The Delegation made it clear on numerous occasions that it could not and would not express an opinion as to the acceptability of the draft agreement (or any rubber agreement) to the United States. The Chairman noted specifically that active participation in the Working Party did not constitute any sort of commitment on the part of any member government of the Study Group.

The draft agreement which emerged from the meeting probably would be a practicable device, if certain disagreed provisions were settled satisfactorily. The agreement would have to be reviewed with care by experts to make sure that its provisions were technically sound from the legal and financial standpoint.

The outstanding features of the proposal as it now stands are as follows:

1. Provisions ensuring that the agreement would not come into force unless countries representing 75 percent of both imports and exports subscribed.

2. A weighted voting system which would enable the four countries with major interests in rubber (United States, Indonesia, British Colonies, and United Kingdom) each to have a veto, because no important changes could be made in the agreement without two-thirds vote of exporters and importers, voting separately.

3. Provisions to ensure the impartiality of employees of the buffer stock organization.

4. Fixed floor and ceiling which could not be altered to the disadvantage of consumers without a two-thirds vote of exporters and of importers, voting separately. Floor and ceiling prices would be linked to the price of general purpose rubber, so that a competitive position would be maintained if the United States price of synthetic were changed.

5. Provisions for correcting errors of original judgment which led the buffer stock to accumulate disproportionately large amounts of any particular grade.

6. No sales or purchases of rubber between the floor and the ceiling, except for rotation purposes.

7. No purchases from or sales to non-participating countries.

8. Storage of buffer stock rubber in consuming countries in proportion to their investment, with grades corresponding as closely as possible to consumption pattern in each country.

9. No restriction on the production or export of any kind of rubber.

10. A commitment by natural rubber producing countries to encourage the expansion of production to meet the prospective long-term shortage.

11. Provision for automatic liquidation of stock in the event the agreement is terminated, or if countries cannot agree on renewal or termination.

12. A security exception comparable to that contained in GATT.

The Working Party also did a statistical study, forecasting the supply-demand pattern for the period through 1958. This forecast is made on the basis of three assumptions regarding the percentage of synthetic to be used in the United States. If the present division of consumption (38 percent natural rubber and 62 percent synthetic) continues, there may be a substantial surplus during 1953–56, followed by a shortage in 1957–58. If our synthetic consumption is decreased to about 50 percent of total consumption, there really is no great surplus in sight.

Details of Negotiation:

The meeting made no effort to name floor or ceiling prices, nor to make judgment as to the potential size of the buffer stock. Financial contributions would be in accordance with the share of respective countries in the rubber trade, and voting rights would correspond to the size of financial burdens. Producing countries would contribute on an approximately even basis with consuming countries. The stock would operate in sterling which would be freely convertible. If the stock were to be large enough to cover 400,000 tons, and if the floor price were 21¢ a pound for RSS No. 3, the United States contribution would be in the neighborhood of $50,000,000. If the market judgment that there is likely to be a shortage after three or four years should be correct, the buffer stock should make money.

The producer delegations asked for safeguards against the disposal of non-commercial stocks except at the ceiling price. We felt we could not go along with this, but suggested some language taken out of the United States stockpile legislation as a comparable safeguard. A second safeguard which the producers wished was assurance that there be no discrimination against natural rubber. Our version of this safeguard would provide for no discrimination between natural, synthetic, and reclaimed rubber, except for measures within the scope of GATT or permitted by GATT. A third suggestion made by the producers was that no country should require the use of synthetic to an extent greater than 20 percent. We said this was unnecessary and unrealistic, because the only time we would be requiring a specified percentage of synthetic would be when there was an emergency situation, which would make it possible under the security clause.

The British Colonial Delegation was most unhelpful in its attitude toward us. The United Kingdom Delegation was not much help to us, but the French, Italians, Canadians, Germans, Australians, and Dutch were friendly and helpful as far as our efforts were concerned. The French Delegation made a number of excellent suggestions. The Indonesians were pleasant and non-committal.

I have given a general outline of the foregoing to the geographic bureaus primarily concerned (PSA, BNA, and SOA). I have also told Mr. Viles of the RMA and Mr. Young of the RTA the substance of the foregoing. I have further said that we would call an Industry Panel meeting in the first week of March to discuss the matter, and that I would be making no formal recommendations before that time.

The Future:

My detailed recommendations concerning the policy which the Department should follow during interdepartmental discussion of the position to be taken by the United States at the May 11 meeting in Copenhagen³ will have to wait until my return from Caracas. For your preliminary consideration, however, I have attempted to set down the pros and cons of a buffer stock agreement for rubber as follows:

Pro

1. An agreement is practicable from a technical standpoint.

2. An agreement would not hurt the United States rubber industry and trade and might help them by providing a foundation for expanded production in the future.

3. An agreement would not necessarily lose money for the Government, and might make a profit.

4. An agreement might conceivably be used as a means of persuading rubber producing countries not to ship to China and to limit shipments to Russia.

5. An agreement would accumulate additional stocks of rubber in friendly consuming countries, which could be very useful in the event of war. Our own security stockpile is not intended to be a source of natural rubber for our allies.

6. An agreement would be very helpful indeed, both psychologically and economically, to natural rubber producing countries.

7. The United States support of an agreement would do much to help the United States politically in Asia, and United States rejection would do us great harm.

Con

1. Despite point 2 under “Pro”, the rubber industry and trade will wage a heavy and a violent battle against approval of any agreement.

2. There is no basis for asserting that the United States rubber industry requires a buffer stock. It does not bear the burden of a surplus, and it can solve a shortage through constructing synthetic plants.

3. The same objectives as would be served by an agreement might be accomplished by buying more natural rubber, reducing synthetic production, selling the petroleum plants and putting the alcohol plants in standby, or by some combination of these devices.

4. There is no clear proof that an agreement is necessary to protect producers, because prices are now quite good and long-term prospects are reasonably satisfactory.

5. No agreement could be made without Congressional approval and Congress would not approve.

6. Approval by the Administration and disapproval by Congress might be more harmful to American interests in Asia than a rejection of the agreement at Copenhagen. Rejection does not have to be stated flatly, but could be in terms of “now is not the time”. (The opposite point of view has been expressed.)

1. Drafted by George H. Alexander of the Agriculture Products Staff. Willis C. Armstrong served as U.S. Delegate to the International Rubber Study Group; Alexander was Alternate Delegate.
2. For information on the origin of this meeting of the Working Party of the Rubber Study Group, see the editorial note, p. 847.
3. Regarding the meeting of the International Rubber Study Group at Copenhagen, see the memorandum by Deputy Director Armstrong to Alexander, Apr. 13, 1953, p. 947.