383. Action Memorandum From the Assistant Secretary of State for Economic and Business Affairs (McMinn) and the Legal Adviser of the Department of State (Sofaer) to Secretary of State Shultz1
SUBJECT
- Transmission to the Senate of the International Natural Rubber Agreement, 1987
The report to the President (Attachment l)2 and proposed message from the President to the Senate (Attachment 2)3 have been prepared for the purpose of transmitting to the Senate, for advice and consent to ratification, the new International Natural Rubber Agreement, 1987, concluded in March 1987.4
The United States is currently a member of the International Natural Rubber Agreement (INRA, 1979). This Agreement entered into force in October 1980 for a period of five years. In 1985, it was extended to October 22, 1987; no further extensions are possible. Therefore, renegotiation of a successor Agreement (INRA, 1987) formally began in May 1985. The negotiations were concluded in March 1987. The U.S. delegation to that conference approved the text negotiated at that conference on an ad referendum basis. Since then, the Agreement has been reviewed and approved by the Trade Policy Staff Committee (TPSC). The TPSC also agreed that the United States should sign the Agreement. Jon Rosenbaum, Assistant U.S. Trade Representative, signed the Agreement in New York on August 28, 1987.
The objectives of the Agreement are to stabilize natural rubber prices without distorting long-term market trends and to ensure expanded future supplies at reasonable prices. To this end, the Agreement provides for the establishment of a buffer stock of up to 550,000 metric tons, jointly financed by producing and consuming countries.
Reflecting depressed economic conditions in the early 1980’s and the general weakness of commodity prices, significant purchases were [Page 932] made in the early years of the current Agreement. Since 1985 prices have been firm, and recently some sales have been made.
The structure and provisions of the new INRA are much the same as the current INRA. However, a number of significant improvements sought by the United States and other consuming countries were incorporated into the new Agreement. These changes provide for more frequent and automatic adjustment of prices to reflect market trends. They also strengthen the financial structure of the Agreement (most importantly, by eliminating the possibility of borrowing from the Agreement).
U.S. participation in the INRA, 1987 will require Senate advice and consent to ratification of the new INRA treaty. The Administration must also obtain appropriating and authorizing legislation from Congress. USTR has lead responsibility to obtain the necessary funds, which, as in the case of INRA, 1979, will be appropriated to the President’s 155 account. A request for the money to be included in the budget for FY89 has already been made. We estimate the U.S. obligation under the new Agreement will be about $74 million. Of this amount approximately $46 million will be covered by a transfer of U.S. assets between the old and new agreements. We calculate maximum new exposure of $28 million.
An appropriation of $88 million was provided for the current agreement. Of that amount, about $53 million has been called up for buffer stock operations. The remaining $35 million, which will not be disbursed, represents a saving to the Treasury.
If the United States does not join the new Agreement or if a new Agreement does not come into effect, the current Agreement requires liquidation of assets within three years of expiration. The receipts from that liquidation would be divided according to a formula reflecting member-country contributions.
The actual value of U.S. assets in the INRA is uncertain. If all stocks were sold at the Agreement’s current selling prices, the U.S. share of the proceeds would amount to about $55 million, somewhat more than our total contribution of $53 million. However, given the likelihood that there would be some quality discounting and that large-scale stock disposals would adversely affect prices, a reasonable estimate of the value of the U.S. share of the stock is $40–$45 million.
The Agreement is consistent with our broad foreign policy objectives. Continued U.S. participation will strengthen our relations with the ASEAN countries—in particular, Malaysia, Indonesia and Thailand—which produce approximately 80 percent of total world natural rubber production. Participation is also consistent with our overall policy of [Page 933] considering commodity agreements on a case-by-case basis and reflects a favorable attitude towards INRA’s relative flexibility and responsiveness to market trends.
The Administration has worked closely with representatives of the Rubber Manufacturers Association and the Rubber Traders Association, both in the renegotiation of the INRA and with respect to the day-to-day operations of the Agreement. The U.S. industry generally supports continued U.S. participation in the Agreement; in particular, Goodyear—the largest consumer—has publicly expressed strong support for the Agreement.
Recommendation
That you sign the report to the President (Attachment 1).5
- Source: Department of State, Executive Secretariat, S/S Files, 1987 Official Office Files for (E) Economic Affairs Allen Wallis, Lot 89D155: Through Memoranda, October 1987. No classification marking. Sent through Wallis. Drafted by Jeffrey Cunningham (EB/ERP/ICD/ISM) and John Medeiros (EB/ERP/ICD/ISM) on September 22. Cleared in EB/ERP/ICD, EB/ERP, EB, H, L/T, and L; in substance in USTR, Treasury, IO/E, and Commerce; and in draft in M/MO and L/EBC. Illegible initials and the date “10/6” are written at the top of the memorandum.↩
- Attached but not printed.↩
- Attached but not printed.↩
- Attached but not printed is Attachment 3, the text of the 1987 INRA.↩
- Attachment 1 is unsigned. On October 20, Reagan transmitted the International Natural Rubber Agreement, 1987, to the Senate for advice and consent to ratification. For the text of Reagan’s message to the Senate, see Public Papers: Reagan, 1987, Book II, p. 1207.↩