CAB129-36 — Page 386

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11. A commodity agreement for rubber is not recommended. The chief arguments 8gainfs66o are—

Page 387 (a) The profound American dislike of rubber regulation. It must be remembered that in the case of rubber (unlike most primary com- modities) the manufacturers have the power to counter any measures they dislike because of the existence of an efficient and competitive synthetic industry; this opposition would take the form of pressure in Congress to prevent the Administration from entering an agreement and to renew the Rubber Act next year in an even more restrictive form. (b) The impossibility of enforcing, except in Malaya and Ceylon, a scheme

restricting production.

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(c) The practical difficulties, in the case of rubber, of enforcing a price control

scheme without Government buying.

12. The primary object must be an increase in the area of competition between natural and synthetic rubber. An attempt to secure a commodity agree- ment (even if otherwise desirable) would almost certainly fail and would destroy such chance as we have of succeeding in this primary objective.

Wool

13. The price of wool is still three or four times the pre-war level, and when, by the summer of 1950, the war-time stocks held by United Kingdom/ Dominion Wool Disposals Ltd. are virtually exhausted, the tendency will be for prices to rise. On the other hand competition from synthetic textiles is encouraged by the disparity in price, and it is likely that sales of large quantities of wool to the United States during the next few years can only be maintained by a fall in price.

14. There is no reason to suppose that a commodity agreement would hasten a fall in price. Moreover the conditions of surplus which, in accordance with the provisions of the Havana Charter, justify a price fixing agreement are not present. Finally, it is unlikely that the Commonwealth producers would favour an agreement which would include the United States; indeed they are thought to be contemplating some form of arrangement exclusively between certain producers.

Cotton

15. Of the quantities of cotton which enter into international trade, the United States exports 40 per cent., Egypt 17 per cent., "other Africa" 11 per cent., Brazil 11 per cent., Pakistan 7 per cent. Shortage of dollars has led to concentration of buying from non-dollar sources, which (except in the Colonies) has forced up the price of non-dollar American type cotton, as compared with United States cotton, and created differentials ranging up to 15 per cent. This is in spite of United States price support measures at about three times the pre-war level.

16. Any cotton agreement which might be negotiated at the present time would almost certainly have two results which would be unfavourable to the United Kingdom, since non-dollar and non-sterling producers, such as Egypt, would exploit their present strong position to fix prices at a high level, while the United States would try to ensure for dollar cotton the largest possible share of markets. As a result of pressure by Egypt for a commodity agreement, the International Cotton Advisory Committee is now engaged in study- ing methods of increasing consumption and methods of balancing production and consumption, but we hope that this study will be prolonged and not lead to definite proposals in the near future.

Sugar

17. It is important that Commonwealth production be increased, both from the point of view of those Colonies economically dependent on sugar and also for currency reasons, since Canada buys a large part of her requirements from the Commonwealth, and this at present necessitates an import of sugar from hard currency sources into the United Kingdom. His Majesty's Government have already undertaken to find a market for total exportable Commonwealth probagionsumf16e end of 1952 and have just Ragound then2intention to

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undertake discussions this autumn about longer-term arrangements with Commonwealth producer of 662

Page 388 18. For currency reasons, however, there is already an impending surplus of dollar sugar. The Cubans, in particular, who during the war increased their production to twice its pre-war size, are anxious about the future and have been pressing for a commodity agreement. Our primary objective is to preserve sufficient freedom for Commonwealth countries to expand their production and for the United Kingdom and Canada to absorb it, and we should, therefore, neither take the initiative in raising the question of an agreement, nor, if it is raised, even admit that conditions yet exist for considering an agreement.

Cocoa

19. West African cocoa is sold through two producers' marketing boards, which, until 1948, paid prices below the world prices and accumulated reserves to cushion prices and for development work. In spite of American suspicions, these boards are not Government monopolies, although informal consultations (to which no public reference should be made) take place between the boards, the Colonial Office and the Treasury, to ensure that they do in fact adjust quantities and prices in a way which ensures maximum dollar earnings and reasonable stability of prices. As regards the level of prices, the excess of demand over supply, which is expected to continue, should maintain a high price. For these reasons a commodity agreement seems unnecessary and, indeed, against our interest.

Sisal

20. Sisal is essentially in a similar position to cocoa, in that demand tends to exceed supply, prices are high (five times pre-war) and the growers are well organised. The chief danger to the price and volume of sales in the case of sisal is increased competition from other materials, but although this may become more serious later it is not a significant factor at the moment. The negotiation of an agreement on sisal now would tend to decrease our dollar earnings in the short term without necessarily increasing them in the long term.

Additional Notes

21. It is possible that a proposal for a tin agreement might lead to United States proposals for agreements on cotton or sugar. We should have to point out that the difficulties in the case of cotton and sugar are primarily currency difficulties limiting consumption. In any case, however, we should take our stand on the principle embodied in Chapter VI of the Havana Charter, that the only possible way to consider commodity agreements is singly, on the merits of each commodity.

22. It is recommended that the subject of barter agreements should be avoided if possible. Barter agreements on raw materials would tend towards a net loss of dollars in the long run since they would tend to provide for acquisition by the United States of strategic materials such as rubber and tin, without dollar payment; in return for purchases by us of cotton and maize for dollars. While these purchases would accelerate the rate at which the stockpile was accumulated, they would not ultimately increase its size. On the other hand we should be expected to take raw materials such as cotton and maize in excess of our minimum requirements.

23. A proposal was recently put forward by the United Kingdom Delega- tion to the Interim Commission of the I.T.O. in Annecy for the provisional appli- cation of the commodity chapter of the Havana Charter in advance of the Charter as a whole. The proposal was rejected, principally because the United States feared the effect on Congress. It has been suggested in the press and elsewhere that this proposal was due to a desire on the part of the United Kingdom for certain particular commodity agreements. This was not so, and, if the point is raised, we should emphasise that our object was to have machinery ready in case the need arose (and to secure that commodity agreements were dealt with by the I.T.O. or its forerunner, and not the Food and Agriculture Organisation).