846E.2395/2–2852: Telegram

The Secretary of State to the Embassy in Ceylon


324. Embtel 489, Feb 28.1 We appreciate reluctance GOC undertake commitment requiring interference local rubber market. Simple fact is that rubber contract implies firm obligations by both sides. US obligation wld be to take fixed quantity rubber at Singapore price. Ceylon obligation wld be to see that quantity made available. Benefit [Page 1510] for Ceylon is assured receipt dollars plus stability resulting from rubber contract.

Obviously GOC cannot undertake commitment make definite quantity available without in some fashion interfering free local market. This interference cld take several forms:

Informal arrangements with rubber dealers to make certain that quantities are offered. This may or may not be feasible, depending on local conditions. In any event, without formal controls, govt wld run risk in making commitment.
Export license system which wld direct contract quantity to US, and which wld prevent excessive shipments other directions. We recognize it is difficult impose export licenses on top of auction system, but it is not impossible.
Entrance of GOC into market as buyer to extent necessary assure performance under contract. This wld probably place GOC in somewhat more vulnerable position than export license system, but again it cld be done.
Complete appropriation of entire rubber output by GOC. This probably too drastic step and not required by circumstances.

Thai rubber agreement terms provide for use private trade in Thailand, where conditions quite different from Ceylon (i.e., no auction system). As far as we know, agreement has worked satisfactorily with minimum interference in trade by Thai Govt (only two instances, both of minor nature).

Gunaratna called at Dept today and we again reviewed with him foregoing, emphasizing that a “gentleman’s agreement” is unworkable from US standpoint, that a contract places obligations on the US which we are prepared to assume, that comparable obligations wld fall on Ceylon, and that net advantage wld be to assure supply dollars to GOC, and to afford general market stability. We also pointed out that control of rubber for security purposes wld involve measures comparable to foregoing in any event, and that net advantage of contract might as well be included, since some form security control will doubtless have to be undertaken.

FYI three NY rubber traders indicated separately to GSA today that they had obtained rather full knowledge contract negots from Colombo trade.

  1. Telegram 489 from Colombo, not printed, stated that when the U.S. rubber position was discussed with the governor and deputy governor of the Ceylon Central Bank, both officials emphasized that the Government of Ceylon would be extremely reluctant to undertake any commitment which would require it to enter the local rubber market (846E.2395/2–2852).