Memorandum of Conversation, by Emmett Lamar White of the Office of South Asian Affairs



  • Ceylon’s Present Rubber Problem


  • Sir Oliver Goonetilleke, Minister of Agriculture and Food, Government of Ceylon
  • Sir Claude Corea, Ambassador of Ceylon
  • Mr. K. Alvapillai, Food Commissioner, Government of Ceylon
  • Mr. Rajendra Coomaraswamy, Assistant Secretary, Ministry of Finance, Government of Ceylon
  • Mr. William Clyde, U. K. Adviser to Ceylon Mission
  • Mr. G.S. Peiris, Second Secretary, Embassy of Ceylon
  • Mr. George C. Casto, General Services Administration
  • Mr. Frank Wilson, OIT, Department of Commerce
  • Mr. Willis Armstrong, OMP, Department of State
  • Mr. George Alexander, APS, Department of State
  • Mr. E. A. Dow, Jr., EDS, Department of State
  • Mr. J. R. Fluker, SOA, Department of State
  • Miss M. Yenchius, SOA, Department of State
  • Mr. E. L. White, SOA, Department of State

The Ceylon Mission to the United States met with officials of the United States Government at 10 a.m. to discuss the above subject.

Sir Oliver Goonetilleke opened the discussion by summarizing the two main developments in Ceylon’s situation since the previous United States–Ceylon conversations in 1951 and early 1952. (1) Shipments to Communist China have brought about a 5 to 7 pence (5.75 to 8.05 U.S. cents) premium for sheet rubber prices in Ceylon. (2) Falling world prices for most grades of rubber are severely damaging Ceylon’s marginal producers. Sir Oliver went on to say that Ceylon is, and must continue for years, looking to the dollar area for a growing share of its rice needs, and that the Prime Minister is “very keen” on working out some means of returning Ceylon’s rubber exports to the historical trade pattern. Hence Sir Oliver was interested in knowing what the United States Government might be prepared to do with respect to purchasing rubber from Ceylon.

Mr. Armstrong reviewed developments on the United States side since the termination of the earlier (1951–52) discussions with the Ceylon Government. On June 30, 1952 the General Services Administration stopped buying rubber for current consumption by industry. Since then, this Government’s purchases have been solely for the stockpile. It is believed that other measures taken by the United States Government, including the elimination of restrictions on natural rubber consumption, have been generally helpful to the rubber producing community.

Mr. Armstrong and Mr. Casto emphasized that the United States stockpile goal is now largely met, and that the funds available for rubber purchases when the 1951 offer to Ceylon was under discussion are now nearly exhausted. The residual purchasing power now available would permit only a 6-month contract of the type previously discussed, which would not be very useful for Ceylon. Mr. Armstrong added that in giving this objective account of the United States Government’s rubber buying activities he wished to assure the Ceylon Mission that we are conscious of the problems faced by Ceylon and [Page 1532] other rubber producers, and of the need of so many countries to maximize their dollar exchange receipts.

At this point Mr. Fluker asked Sir Oliver whether he wished to give the group the benefit of any further thinking and suggestions the Ceylon Mission might have, since the gist of the United States situation had been transmitted to the Ceylonese some time ago. (Sir Oliver interjected that Ambassador Corea had made it clear to his government why the United States offer had an expiration date, and that the Government of Ceylon could only hold itself to account if it allowed the offer to lapse.) Subsequent discussion brought out that the Ceyonese still were hopeful that by some means the United States Government could backstop an “assured sales” program approaching 6,000 tons per month or 72,000 tons per annum. However, the Mission offered no constructive suggestions or new ideas.

Mr. Casto and Mr. Armstrong then offered informal suggestions as to how, within the framework of what might be possible and feasible, Ceylon could increase the volume of its dollar exports of rubber. There is a strong demand in the United States market for certain pale latex crepes (#1–x and #1 thick pale crepe). Ceylon could convert its facilities for producing sole crepe into facilities for thick pale crepes, increasing production of the latter from 1,900 tons to 3,000 tons per month. The G.S.A. would be prepared to help by contracting for 500 tons monthly over an 18- or 19-month period to offset the cost of installing extra equipment. Such equipment could be purchased in Singapore without a dollar outlay. Ceylon could thus realize an early increase in dollar earnings. Apart from the immediate benefits, this conversion would constitute a sound investment for Ceylon in adjusting to the future market pattern.

As regards dollar exports of sheet rubber, Mr. Casto pointed out that the Government of Ceylon’s big problem is internal. Under the existing auction system, which has many advantages for the Ceylonese rubber trade, United States buyers constantly are being outbid by non-dollar buyers: the market thinking of the Ceylonese producers and exporters is, understandably, in terms of rupees. Even if a government-to-government agreement were still possible from other standpoints, its implementation in conformity with the auction system would be highly doubtful. Therefore the Government of Ceylon should decide whether the country’s need for dollar exchange warrants some degree of interference with the auction system. Sir Oliver was asked whether the Government of Ceylon would consider it feasible to set aside some definite portion of total sheet exports for hard currency markets, possibly coupling this measure with some suitable incentive scheme for the producers, such as tax adjustments, to assure them substantially the same rupee yields (“take-home” pay) as if they had sold this sheet under the auction system. In this way, perhaps [Page 1533] 1500 or 2000 tons of sheet could be marketed monthly for hard currency. It would be for the Government of Ceylon to decide whether the foregoing suggestions would be reasonably satisfactory financially and from the standpoint of acceptability to producers.

Sir Oliver responded that some such plan might be possible, particularly with the larger producers. He had appeared to be favorably disposed to consider the “thick pale crepe” suggestion.

There was some general discussion of such related topics as rice subsidies and the cost of living index (Sir Oliver anticipated it will be necessary to make sharp cuts in the subsidies), land use questions, and declining tea prices.

In response to the suggestion that Sir Oliver and his group might wish to give further thought to the points made by Mr. Casto, Sir Oliver requested continuance of the discussion at 4 p.m. July 23, a meeting subsequently cancelled.