387. Action Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Larson) and the Assistant Secretary of State for East Asian and Pacific Affairs (Sigur) to the Deputy Secretary of State (Whitehead)1
SUBJECT
- Funding for the International Natural Rubber Agreement
ISSUE FOR DECISION:
Whether to authorize continued U.S. participation in the International Natural Rubber Agreement (INRA II).
BACKGROUND:
The International Natural Rubber Agreement, which came into force in 1980, is one of the few international commodity organizations that has functioned well and in accordance with U.S. interests. Renegotiation of the agreement, completed in March 1987, incorporated a number of improvements proposed by the U.S. with extension of the buffer stock operations conducted under the Agreement for an additional five to seven years.
U.S. participation in the Agreement requires budget authority to back our share of the buffer stock. Operations during the life of the first Agreement were supported by an $88 million appropriation in FY 81. Now, although little or no additional cash is needed, the appropriation must be renewed (for $73.6 million). This includes approximately $45.5 million worth of rubber in the stock whose value, OMB has determined, must be reappropriated, as well as renewal of authority for $28.1 million of the $37 million of the previous appropriation that was never expended. The likelihood of a near-term drain on U.S. budget outlays is very small; transfer of the existing rubber and other assets held by the organization should be sufficient to fund buffer stock operations for the next few years, even if the market (now strong) should turn down.
Failure to win financial backing for the buffer stock would result in collapse of the Agreement, which cannot be renewed without the U.S., the world’s largest consumer of natural rubber. We cannot ratify the [Page 940] Agreement unless we are prepared to meet our financial commitments. Other consuming nations are taking their signals from us.
Collapse of the Agreement would seriously damage relations with ASEAN countries, of which Malaysia, Indonesia and Thailand account for over 80 percent of world natural rubber production. It would hurt our efforts to gain ASEAN support for U.S. objectives in the Uruguay Round and to strengthen economic cooperation with ASEAN through the ASEAN-U.S. dialogue.2 In general the action would undermine our credibility with other signatories and could have a negative impact on our efforts in other multilateral negotiations.
A collapse could also provoke turmoil in rubber markets, as liquidation of the existing 270,000-ton buffer stock must follow, with immediate and serious effects for the economies of Thailand, Indonesia and Malaysia.
In economic terms the current Agreement has generally worked well. During the early part of the Agreement, prices were low and substantial stocks were purchased. More recently, prices have been high and, since September, a significant portion of the stocks have been liquidated, exerting a stabilizing effect on rising prices. The U.S. industry supports continued participation in the Agreement, as it improves stability in a market that has been subject to great volatility in the past.
To support continued U.S. participation, USTR requested that the necessary budget authority be included in the FY 89 budget. We now understand that OMB has determined that in order to meet the $18.1 billion budget authority ceiling imposed by the Executive-Legislative summit, it was forced to exclude requests for “new” funds, among which was INRA II. Although in strict terms continued participation in INRA is not “new”, if the decision holds, it will mean in practical terms the end of the Agreement.
We anticipate that strong efforts to reverse this decision will also be made by USTR and other interested agencies including Treasury and Commerce.
ACTION REQUESTED:
That you authorize funding of the International Natural Rubber Agreement within the current authority and outlay ceilings.3
- Source: Department of State, Executive Secretariat, S/S Files, 1988–1989 Official Office Files for (E) Economic Affairs Allen Wallis, Lot 89D154: Through Memoranda January 1988. Confidential. Drafted by Jeffrey Cunningham (EB/ISM); cleared in EB/ICD, EB/ERP, EAP/IMBS, EAP, and E. Sent through Wallis. Illegible initials and the date “1/9” are written at the top of the memorandum. Attached but not printed is an undated fact sheet entitled “INRA Budget Facts.”↩
- Documentation on the Uruguay Round of the GATT negotiations is scheduled for publication in Foreign Relations, 1981–1988, vol. XXXVII, Trade; Monetary Policy; Industrialized Country Cooperation, 1985–1988.↩
- Ralph Boyce checked the “Disagree” option on January 29 and wrote: “Per JCW: not possible within budget summit framework.”↩