800.6354/118

Memorandum of Conversation, by the Second Secretary of Embassy in the United Kingdom (Butterworth)77

A meeting was held on March 14th under the chairmanship of Sir Frederick Leith-Ross, Economic Adviser to the British Government. There were also present Sir John Campbell, chairman of the International [Page 915] Tin Committee, Messrs. G. L. M. Clauson and J. A. Calder of the Colonial Office, and Mr. Philip Broad of the Foreign Office. The discussion, which was friendly in tone, lasted almost two hours and it followed the general outline laid down in the Department’s instruction No. 535 of March 2, 1939, as supplemented by the last two paragraphs of the Department’s 163, March 4, 1 p.m.

A. Available supplies of tin.

The British representatives present expressed the view that the stock requirements as suggested by the United States would prove abnormally large and would prevent the International Tin Committee from carrying out its avowed policy under the buffer stock scheme. Sir John Campbell in particular cited the fact that such a level of stocks would constitute a larger amount than existed even in 1932, when the average per mensem stocks were 58,427 tons and the average per mensem price £136 per ton. He added that during one month in 1932 stocks rose between 61,000 and 62,000 tons and the price went as low as £102 per ton. He went on to point out that if, in his capacity as a British representative on the Tin Committee, he laid before the International Tin Committee such a proposition, it would immediately be rejected because the members present would be well aware of the fact that, if stocks were allowed to accumulate to such an extent, they would overhang the market and force down prices to an undesirable level. He added that the only possible hope of getting the Committee to consider such a stock policy would be if the U. S. Government could formulate “a reasoned statistical case”, not merely set forth arbitrary, unsubstantiated figures. I countered by saying that if the American suggestions as to stock requirements were regarded as unreasonable, a fact which I was not prepared to admit, what did he consider was reasonable? And after some difficulty the information was forthcoming that a figure between 12% and 17 % of current annual consumption (i. e. six weeks’ to two months’ supply) was regarded as an appropriate level for visible stocks. However, this was qualified by the statement that the surrounding circumstances always had to be taken into consideration as well. Clauson and Calder, as well as Campbell, emphasized the impossibility of getting tin producers or tin smelters to hold large stocks at their own expense, and they estimated that less than a month’s supply was usually in their ownership; tin producers sold spot to the smelters, and the smelters sold forward to consumers.

When the question of the level of stocks in the United States in relation to the unsettled international situation was raised, Sir Frederick Leith-Ross, as well as Sir John Campbell and Clauson, pointed to the British example of appropriating some £13,000,000 for the purpose [Page 916] of purchasing and storing key commodities, and implied that the U. S. Government, if it wished to protect itself for such an eventuality, might take similar action as regards tin. (See the last paragraph of Embassy’s 315 of March 9, 5 p.m.) In this connection, Campbell added that if a war stock of tin should be built up in the United States as the result of a particular arrangement, a condition of any such arrangement would necessarily be that the stocks would not be used as ordinary commercial stocks.

In this general connection, Campbell mentioned that about two years ago Mr. Hildt of Brown Bros., Baltimore, had come to England to see him on what was represented as a semi-official mission, in order to make specific inquiries as to what arrangements could be effected to build up a war stock of tin in the United States. Campbell stated that he had talked to Mr. Hildt at length about the matter but had since heard nothing from him.

As regards the distribution of the buffer stock of tin, Campbell stated that when he managed the last tin pool, as a matter of commercial convenience he habitually kept about half of the supply in the United States. He went on to say that under the existing arrangement the manager of the present buffer stock pool had a free hand in such matters; that even he, as chairman, did not feel he could approach him to make inquiries regarding matters which fell within the province of the manager of the pool.* But an occasion had recently presented itself, he said, when the manager sought advice of him and he had then advocated the practice of keeping about half of the stocks of the pool in the United States. This particularly applied to Straits tin for which the United States was the largest market, though some of it, due to cheaper storage facilities, was kept in Malaya. I expressed satisfaction that Campbell should also be convinced of the reasonableness of the procedure advocated, and said I hoped that a means would be found to assure the United States that the manager of the present tin pool would likewise be governed by this view.

As regards the ability of the International Tin Committee to increase without delay the rates of releases for those areas able rapidly to expand production whenever an upswing in consumer demand required a rapid expansion of production, assurances were given that the Committee was in a position to act as it did in 1936–37 by raising the standard quotas to such an extent as would compensate for any deficiencies in certain of the producing areas.

B. Prices.

In reply to the request that the British Government take steps to the end that more adequate information should be available as regards [Page 917] costs, Campbell expatiated at length on the “impracticability” of obtaining adequate information regarding costs. (See Embassy’s 329, April 21, 1938, 6 p.m.)78 He cited the variation in capital structure, the fact that tin was a wasting asset, and regional difficulties. He indicated that the Tin Committee had considered an inquiry to ascertain an average of costs of production and had abandoned the project as impractical. He emphasized that in Malaya there were about 1,000 producing units, one-third of which were Chinese from whom it was impossible to get production figures. Furthermore, the tin producing units in Malaya employed different methods, such as dredges, sluices, lode-mining, etc.; their costs of production varied greatly, and there was no agreement as to the amount of capital required per ton of tin won. The variation on one computation was from £400 to £1,200 per ton. Furthermore, in Bolivia the only data available were in the annual reports of the Patino mines, and the last figure for cost of production was £185 per ton. Campbell said that he saw no prospect of getting any other particulars of costs from Bolivia. It was most unlikely that cost of production figures could be obtained from the Belgian Congo, Siam, and Indo-China. Campbell also maintained that the Dutch would probably be unwilling to divulge their costs; in any case, the Dutch mines were in a special category because they were to all intents and purposes worked on a unified system under a scientific mining policy whereby in times of low production the high-grade ore was used and in times of high production the low-grade ore was used; and the profits of the tin mining industry were used to balance the budget in the Netherlands East Indies. Campbell went on to point out that the only other method of computing price lay in the index number basis, and that the Tin Committee had used an American index number. He said that he had personally made computations with other index numbers, and that these also came to about £200 per ton. He went on to discuss the past price movements of tin in relation to those of other commodities. At this time, and at several other points in the discussion, I stated that price movements of commodities, either unregulated or regulated by private monopolies, did not constitute a criteria for commodities such as tin which were controlled through Government action; that when Governments voluntarily put their machinery of enforcement at the disposal of a committee set up under Government auspices, they of necessity assumed an obligation to protect the consumer and to prevent abuses, however difficult it might be to accomplish those objectives.

Campbell then asked what the United States proposed to do if these suggestions for a cost inquiry were put by the Committee to the member Governments and the member Governments turned them [Page 918] down. I said that that was a hypothetical question of a negative character which I was not instructed to answer, but what I was instructed to do was to urge consideration by the British Government of a positive course of action to the end that more convincing evidence of costs be obtained. Campbell said that he was sincerely convinced that a cost inquiry was impractical, and he felt sure that if this question were referred to the mining experts of the American Government they would agree with his conclusion.

Calder then asked why the American Government only addressed its notes to the British and Dutch Governments and not to the Bolivian Government as well, and he went on to say that he assumed that the United States would not advocate a tin price which was not profitable to Bolivia. He stated that Bolivia was the highest cost producing area, and implied that any arrangement which would satisfy the Bolivian producers should give an ample margin to the other tin producers. I said I took it that if the United States ascertained a figure which would be satisfactory to Bolivia, then the British Government would consider such a figure acceptable. At this point Campbell became somewhat perturbed at the drift of the conversation and interposed to enumerate some of the difficulties which faced the Committee in its relations with Bolivia. He said that tin constituted “85 percent, of the economic activity of Bolivia”; that the Bolivian Government was a military dictatorship and therefore unstable; that the rate of taxation and the exchange value of the boliviano were important considerations which might vary at any time and would, of course, affect other producers. He concluded by tacitly admitting that if a true cost of production figure could be ascertained which would be profitable and acceptable to Bolivia, it would provide an ample margin for the other producers and he definitely stated that “it would provide an ample margin of profit for Malaya and Nigeria.” He added, however, that the currency position in Bolivia and the fact that tin ore was practically the only Bolivian export would make it necessary for the British Government to make safeguarding reservations as to its ability to accept any cost of production figure that might result from a Bolivian inquiry.

As regards the figures given in the Department’s instruction, Campbell and the other British representatives merely expressed the contrary view that £150 per ton would not bring out the requirements of the market “with a reasonable return to producers during periods of slack demand”, and reiterated that £200 to £230 per ton seemed, when the buffer stock scheme was formulated, the most equitable price range.

C. Consumer representation.

As regards consumer representation, Campbell gave assurances that although the Agreement merely permitted the tin consumer representatives [Page 919] “to tender advice to the Committee regarding world stocks and consumption”, in fact they participated freely in the meetings of the Committee on an equal footing with the other members, and no legalistic interpretation would be placed upon their functions.

Incidentally, Campbell referred to the published report of the American Iron and Steel Federation indicating that American tinplate makers’ stocks increased 55 percent, last year, which he said he could not believe but which certainly ran counter to the American Government’s theory that stocks were low. I had already discussed this matter with Mr. Todd, so I merely said that I was glad he did not take the report seriously. Campbell then went on to comment on reports received from an American “broker” (copies of which, together with Campbell’s reply, I already had in my possession through the courtesy of Mr. Todd), and this gave an opportunity to call into question the desirability of communications of this type passing back and forth despite the presence in London of an accredited American consumer representative. After the meeting I was able to have a private word with Clauson, and I expressed the hope that note had been taken of this matter; that I had not wished to give offense to Campbell by implying that he had taken any improper action, but that I did feel that in Todd the Committee had an able and straightforward representative; that efforts were being made in the United States to the end that the American Iron and Steel Federation would be in a position to supply the Committee, through Todd, with information which would be of real value in reaching quota decisions; that if the chairman of the Tin Committee carried on direct correspondence with an American broker and attached such importance to this broker’s opinions as to circulate his material to the Committee, it would impair Todd’s position and would lead to future difficulties. Clauson made a somewhat half-hearted attempt to defend his Chief’s actions by emphasizing that the chairman could not prevent people writing to him and that the Committee should have all the information from all sources at its disposal, but in the end he admitted that he had felt “uncomfortable” about the matter.

As regards the precedent of the existing International Sugar Agreement,79 Clauson, who acts as the consumer representative for the British Colonies, pointed out (a) that India was the third consumer representative in the case of sugar and that Soviet Russia (which in 1937 took about 25,000 tons of tin) would probably have to be the third consumer representative for tin; (b) that if more than three consumer representatives were to be authorized, several other countries would have to be included, which would make the Committee unmanageable; [Page 920] (c) that as regards the numerical voting division between sugar consumers and producers, under the Sugar Agreement there was no power to regulate the quotas until the expiration of two years and thereafter only by unanimous consent, whereas tin quotas had to be reconsidered at each meeting.

In concluding the meeting, Sir Frederick Leith-Ross asked whether the discussions which had taken place had met the request of the American Government’s note. He added that the British Government could, of course, formulate a reply, but that he doubted very much whether such a note would advance matters. I expressed the hope that in any case the British Government would give fuller consideration to the points raised. Leith-Ross promised that this would be done, and said if at any time the United States wished a further discussion, he would be glad to arrange it; that the British Government was anxious to clear up misunderstandings but that it did hope that the tin scheme would be given a fair trial.

Conclusions.

Taking into account the British methods of procedure and past experience in connection with both tin and rubber, it would seem that no decided changes will be made in the avowed policy of the International Tin Committee as a result of any representations the United States Government has made or will make. Such changes could only be brought about if the United States Government were in a position to take retaliatory action and prepared to do so. However, failing this, certain procedural methods should produce useful results.

The formation of the tin buffer stock modified the international tin control scheme. Its price aims were definitely formulated and publicly defined. The maintenance of the price of tin within the range of £200–£230 per ton, therefore, became the over-riding consideration. The question of the level of stocks is, of course, inextricably joined to the price range mechanism and it is evident that the British members of the Tin Committee will only advocate the maintenance of a level of stocks which will facilitate the carrying out of the buffer stock price policy. However, if the American consumer representative can obtain effective cooperation from the members of the American Iron and Steel Institute and thus secure significant data on American stocks and future requirements, he can do much to ensure that the Committee takes a liberal view of the stock position in regulating production quotas. By this means he can also do much to ensure that the buffer stock pool is operated with a view to keeping the price of tin nearer the lower rather than the higher level of the £200–£230 range.

As a result of the discussion recounted above, it seems reasonable to assume that a substantial percentage of the buffer stock will be kept [Page 921] in the United States. The buffer stock pool, however, may well prove inadequate to cope with a rapid and sudden consumption upturn. The presence of the buffer stock pool under the existing arrangement may gradually induce consumers to hold smaller stocks than they formerly did, provided they are convinced of the ability of the Tin Committee to supply the market within the £200–£230 price range. For example, with tin at say £220 per ton, a consumer may prefer to save storage, insurance and interest charges and take the risk of paying a slightly higher price at a later date. Should such a practice begin to grow, the buffer stock might have to be enlarged, if it is to be in a position to meet all demands.

The discussion regarding Bolivia may offer a means by which the Governments party to the International Tin Agreement can be persuaded to modify the Committee’s policy. If the United States could collect and formulate detailed information on Bolivian production and reach agreement with the Bolivian Government on a tin price and the maintenance of the external value of the boliviano, the British Government, and presumably the other member Governments, should find it difficult to avoid modifying the present policy of the Tin Committee. Incidentally, Mr. C. W. Wright of the Bureau of Mines, who until recently was assigned to London while making surveys of the European mineral situation, stated when he left that he was proceeding shortly to South America. It, therefore, may be practicable to assign him the task of making a survey of the tin situation in Bolivia.

As regards American tin stocks in the event of an emergency, it is evident that this problem cannot be successfully dealt with as part of the commercial stock position. Just as the British Government has made purchases of certain key commodities for storage for war purposes, so in the case of tin such a procedure offers the most practicable solution for the United States. Incidentally, it has been confidentially ascertained that tin is not one of the commodities that the British Government is now storing, because it considers that it will be able to obtain tin more readily than certain other commodities in the event of war.

  1. Transmitted to the Department by the Chargé in the United Kingdom in his despatch No. 2282, March 17; received March 24.
  2. This legalistic attitude is due to the reaction of other member Governments, particularly Holland, to the chairman of the Committee and the manager of the buffer stock both being British. [Footnote in the original.]
  3. Not printed.
  4. Signed May 6, 1937; 59 Stat. 922, or Department of State Treaty Series No. 990.