398.2395/5–2854
Memorandum of Conversation, by Francis G. Jarvis of the Office of Philippine and Southeast Asian Affairs
- Subject:
- General Discussion of Studies Prepared by Other Agencies for Consideration by the Special Rubber Committee Considering U.S. Rubber Policy under NSC Directive 5417/11
- Participants:
- OFD—Emerson Ross
- OMP—Willis C. Armstrong
- OMP—George Alexander
- PSA—Francis Galbraith
- PSA—Francis Jarvis
Mr. Armstrong opened the meeting and proceeded to discuss seriatim the various proposals outlined in the documents prepared by a number of agencies for consideration at a meeting of the Special Committee on Rubber. These papers discuss U.S. action on the following subjects:
- 1.
- Bartering agriculture surpluses for rubber.
- 2.
- Direct purchase of rubber by the U.S., possibly as a result of an increased stockpile objective.
- 3.
- Extending grants of agriculture surpluses; the proceeds from the sale of which could be used to improve the natural rubber industry.
- 4.
- Participating with the U.K. and others in long-term loans or grant assistance to improve the natural rubber industry.
- 5.
- Persuade U.S. rubber companies to increase the percentage of natural rubber currently used in making tires.
Mr. Armstrong stated his belief that the problem of rubber was primarily a problem in Indonesia where efforts could possibly be stepped up to help the smallholders. Mr. Galbraith reviewed the reasoning which had prompted the Department to recommend a synthetic price rise of two cents per pound, later withdrawn in the face of the objection of other Departments, and the results of increased pressure in Indonesia for shipments of rubber to Communist China since the announcement at Ceylon that the U.S. would not raise the price of synthetic or support a rubber buffer stock scheme. Mr. Galbraith emphasized the serious foreign exchange position in Indonesia and its relation to political deterioration.
A discussion of the alternatives followed:
1. Bartering agriculture surpluses for rubber: Mr. Armstrong is of the opinion that this proposal should not be supported by the Department. The paper prepared by the Department of Commerce [Page 1174] stated that this proposal would require new legislation if pursued, which Commerce does not believe is justified solely on benefits which would result to the economy of Indonesia. The PSA representatives concurred in Mr. Armstrong’s position. (Comment: If rubber continues to be readily marketable, albeit at low prices, Indonesia, through the sale of its rubber, can earn badly needed foreign exchange.)
2. Direct purchase of rubber by the U.S., possibly as a result of an increased stockpile objective: Mr. Armstrong stated that the U.S. stockpile is complete; in fact, natural rubber may now be over-stockpiled. He is of the opinion that a proposal to increase stockpile purchases of natural rubber would be rejected. The Office of Defense Mobilization in its paper on this subject recommended that no further consideration be given to the proposal to purchase additional quantities of natural rubber for the U.S. stockpile. The PSA representatives took no issue with Mr. Armstrong’s position since there is considerable evidence to support the ODM position. However, Mr. Jarvis pointed out that the suggestion that a stockpile of natural rubber be developed in Japan should not be considered in the rubber concept; it should be considered from the strategic aspect. Mr. Armstrong’s opinion is that if the U.S. should embark on a stockpile of strategic materials in Japan, not only rubber but a number of other commodities would have to be considered for such a stockpile. He did not believe that this suggestion should be pursued.
3. Extending grants of agriculture surpluses; the proceeds from which could be used to improve the natural rubber industry: Mr. Armstrong introduced the suggestion of extending grants of agriculture surpluses so that the proceeds from the sale thereof could be used to improve the natural rubber industry. He seemed to be of the opinion that something might be done in this area. He had in mind a project under which the U.S. industry would render technical assistance in Indonesia (a) to further the Indonesian Department of Agriculture educational services to smallholders and (b) to improve Indonesian rubber production and marketing methods. He seemed to support the position advocated by FE that agriculture surpluses, such as cotton, could be used to generate counterpart funds which would be used to support a smallholder improvement program in Indonesia. Mr. Armstrong said that the U.S. should continue to have control over such Indonesian currency as would be generated. The U.S. might negotiate an agreement under which it would be permitted to approve the use of the funds on specific projects. Mr. Ross interjected that the OFD position is that such funds should also be considered for such programs of diversification that OFD believes the Indonesians should undertake. Such funds [Page 1175] could be employed to advantage, for example, in the improvement of the sugar industry in Indonesia. Messrs. Armstrong and Ross noted that presently the U.S. does not have surplus disposal legislation under which anything can be accomplished right now. Mr. Jarvis stated that the U.S. will probably have a new policy shortly; the Harrison Surplus Agriculture Disposal Bill may be passed. Largely at the insistence of Mr. Ross, it appeared that the E representatives were reluctant to further pursue grants of agriculture surpluses to Indonesia now. However, Mr. Jarvis urged that the Department continue to pursue this aspect. He continued that the U.S. would have new surplus agriculture disposal legislation rather shortly. Mr. Ross repeated that the U.S. does not have legislation now under which the U.S. can act now. Mr. Jarvis continued to press for continued consideration by the Special Rubber Committee. Mr. Armstrong seemed to agree.
Mr. Ross then expressed the view that a technical assistance program is a more likely vehicle under which direct assistance can be quickly given, not only to Indonesian small rubber holders, but also to accelerate the economic development of Indonesia.
The FOA proposal noted that because of the inadequacies in the Indonesian economy, the disposal of U.S. surplus agriculture commodities there will not supply assistance “on a scale most urgently needed.” The FOA project mentioned the commodities considered likely to be available for disposal in 1955. These included grains, seed oils, cotton, skimmed milk, beans, cheese, and butter. (Comment: The FOA proposal closely parallels a proposal prepared in PSA and submitted informally by FE to Mr. Armstrong.)
4. Participate with the U.K. and others in long-term loans or grant assistance to improve the natural rubber industry: It was the consensus of the group that this is a good proposal and should be further explored in the Special Rubber Committee. The Treasury and the FOA in this paper recommend that the U.S. consider a direct grant of dollars to Indonesia for the purpose of aiding the natural rubber industry if Indonesia appears likely to accept it. This paper also recommends that similarly the U.S. should consider lending dollars to Thailand if Thailand should appear interested. The U.K. should be invited to make similar aid available to Malaya, Ceylon and possibly Burma. The paper also noted that “such financial assistance should be limited to the cost of the rubber improvement program which could not be met through surplus commodity transactions.”
5. Persuade U.S. rubber companies to increase the percentage of natural rubber currently used in making tires: All agreed that it is very doubtful that anything can be achieved in attempting to persuade U.S. rubber companies to increase the percentage of natural [Page 1176] rubber currently used in making tires in order to increase the demand for natural rubber. The Department of Commerce in this paper suggested that this proposal be abandoned.
Mr. Galbraith distributed a paper which he had prepared on the general political and economic situation in Indonesia.2 This statement of the problem is urgently needed by the Special Committee on Rubber. It will be used by the Committee in the course of its consideration of the alternative courses of action on rubber. (A copy of Mr. Galbraith’s paper is attached.)
At the close of the discussion Mr. Armstrong asked Mr. Alexander to prepare a State Department paper to be presented to the Special Rubber Committee at its next meeting. He asked Mr. Alexander to take into account in the preparation of the paper views expressed at this meeting. This paper will be cleared with FE.