811.24 Raw Materials/182:
Telegram
The Ambassador in the United Kingdom
(Kennedy) to the Secretary of State
London, June 20,
1939—midnight.
[Received June 20—7
p.m.]
864. The following is the proposed final draft of the agreement
between the Governments of the United Kingdom and the United States
of America for the exchange of cotton and rubber.40
- “(1) The United States Government will supply to the
Government of the United Kingdom, delivered on board
ship, compressed to high density, at New Orleans,
Louisiana, and at other Gulf and Atlantic deep water
ports to be agreed upon between the two governments,
600,000 bales of raw cotton of the grades and staples
which will be specified by the Government of the United
Kingdom. The United States Government will make
available in adequate quantities for such purpose cotton
from the stock on which the United States Government has
made advances to growers.
- (a)
- The price will be fixed on the basis of the
average market price as published by the Bureau of
Agricultural Economics for middling ⅞ inch during
the months of January, February, March and April,
1939 for spot delivery at New Orleans, plus 0.24
cent per lb. for cost of compression and delivery
on board ship, with adjustments in price for other
grades and staples according to differences above
or below middling ⅞ inch quoted in that
period.
- (b)
- The cotton will be inspected to determine its
classification in accordance with the universal
cotton standards for grade and the official
standards of the United States for staple, and
will be accepted, by experts appointed by the
Government of the United Kingdom. Any disputes
which may arise will be settled by boards of
referees constituted of three members, of whom one
shall be nominated by the Government of the United
Kingdom.
- (c)
- Samples representing the cotton of the grades
and staples specified by the Government of the
United Kingdom will be made available for
inspection and acceptance during a period of 6
months beginning 15 days after the entry into
force of this agreement, and such inspection and
acceptance will be made within a reasonable time
after the cotton is so made available. Delivery at
the warehouse at the port of sailing with
provision for free delivery on board ship at high
density will be made within 15 days after
inspection and acceptance, and storage and
insurance charges will be borne by the United
States Government for a period of 2 weeks but no
more after delivery at the warehouse at the port
of sailing.
- (d)
- All cotton will be invoiced and accepted on
gross weights at the time of delivery.
- (2) The Government of the United Kingdom will supply
to the Governmnt of the United States, delivered on
board ship at Singapore by agreement between the two
governments, at other convenient ports,
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rubber in bales, of the
grades which will be specified by the Government of the
United States, to a value equivalent to that of the
total value of the cotton to be supplied in accordance
with paragraph 1 of this agreement. In determining such
equivalent value, the rate of exchange between Straits
Settlements dollars and United States dollars shall be
deemed to be the average of the buying rate during the
months of January, February, March and April, 1939, in
the New York market, at noon, for cable transfers
payable in Straits Settlements dollars, as certified by
the Federal Reserve Bank to the Secretary of the United
States Treasury and published in Treasury Decisions.
- (a)
- The quantity of rubber will be calculated upon
the average market price, as published by the
Department of Statistics in the Straits
Settlements, for No. 1 ribbed smoked sheets,
during the months of January, February, March and
April, 1939, for spot delivery at Singapore plus
0.25 Straits Settlements cent per lb. for cost of
baling and delivery on board ship, with
adjustments in price for other grades according to
differences quoted in that period.
- (b)
- The rubber will be inspected and accepted by
experts appointed by the United States Government.
Any disputes will be settled in accordance with
the normal custom of the trade.
- (c)
- The rubber will be made available for
inspection and acceptance by experts appointed by
the Government of the United States during a
period of 6 months beginning at a date to be
agreed upon by the two governments, and such
inspection and acceptance will be made within a
reasonable time after the rubber is so made
available. Delivery at the warehouse at the port
of shipment with provision for free delivery on
board ship will be made within a period of 15 days
after inspection and acceptance, and storage and
insurance charges will be borne by the Government
of the United Kingdom for a period of 2 weeks but
no more after delivery at the warehouse at the
port of shipment.
- (3) If either government should find that delivery in
accordance with the arrangements specified in paragraphs
1 and 2 is likely to restrict supplies available to
commercial markets unduly or to stimulate undue price
increases, the two governments will consult with a view
to postponing delivery or taking other action in order
to avoid or minimize such restriction of supplies or
such price increases.
- (4) The intention of the Government of the United
Kingdom and of the United States Government being to
acquire reserves of cotton and rubber, respectively,
against the contingency of a major war emergency, each
government undertakes not to dispose of its stock
(otherwise than for the purpose of replacing such stocks
by equivalent quantities insofar as may be expedient for
preventing deterioration) except in the event of such an
emergency. If, however, either government should at any
future date decide that the time has come to liquidate
its stock of cotton or rubber, as the case may be, it
may do so, only after
- (a)
- consulting the other government as to the
means to be employed for the disposal of such
stock and
- (b)
- taking all steps to avoid disturbance of the
markets. In no case may either government dispose
of such stocks, except in the case of a major war
emergency, before a date of 7 years after the
coming into force of this agreement.
- (5) The Government of the United Kingdom will use
their best endeavors to secure that the export is
permitted under the international rubber regulation
scheme of an amount of rubber approximately equivalent
to the amount of rubber to be supplied to the United
States Government under this agreement in addition to
the amount of rubber which would under the normal
operation of the scheme be released to meet current
consumption needs.
- (6) Each government undertakes, in shipping to its own
ports the stocks of cotton and rubber respectively
provided for in this agreement, so far as may be
possible to distribute the tonnage equally between the
ships of the two countries, provided that the shipping
space required is obtainable at reasonable rates.
Consultation with the purpose of giving effect to this
paragraph shall be between the Board of Trade and the
United States Maritime Commission.
- (7) Should the United States Government, before the
delivery is completed of the cotton provided for in
paragraph 1 of this agreement, take any action which has
the effect of an export subsidy, they will deliver to
the Government of the United Kingdom an additional
quantity of cotton proportionate to the reduction in
price below that provided in paragraph 1 caused by such
action.
- (8) This agreement shall come into force on a date to
be agreed between the two governments.”
The British do not wish to put the explanatory matter into a formal
exchange of notes because this would entail publication with the
agreement in a white paper which would therefore necessitate precise
and formal drafting and lend force to the view that the agreement
would have to be considered by Parliament. They have suggested and
we have concurred, subject to your approval, in following the
precedent established in connection with the United States–United
Kingdom trade agreement41 (see final minute of November 17,
1938, especially paragraph 1842)
they do not object to publication of these minutes but do not wish
them published as part and parcel of the agreement. The minutes are
as follows:
- “1 (c). It was agreed that the
cotton should be chosen in the first place by reference
to the existing samples. The cost of any resampling
requested by the representatives of the Government of
the United Kingdom would be borne, up to a maximum of
0.01 cent per pound of the total quantity to be
delivered, by the United States Government. Should this
maximum be exceeded the total cost of resampling would
be divided equally between the two governments.
- (2) The representatives of the United States
Government assured the representatives of the Government
of the United Kingdom that between 80% and 90% of their
requirements of rubber would be for ribbed smoked sheet,
though not necessarily all of number 1. They might
require between 5% and 10% of pale crepes.
- 2 (c). The representatives of
the United States Government expressed the opinion that,
with a view to avoiding increase of price,
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the Government
of the United Kingdom should not begin purchasing rubber
until additional quotas had been made available by the
International Rubber Regulation Committee. The
representatives of the Government of the United Kingdom
replied that it was equally in the interest of the two
governments to avoid any undue rise in the price of
rubber and that their government would do everything
possible to avoid any such price increase. Accordingly,
they took sympathetic note of the view of the United
States Government.
- (7) It was agreed that if any action of the kind
contemplated in paragraph 7 were to be taken by the
United States Government in the form of a direct
payment, or the remission of indebtedness, to growers of
a definite sum, the maximum compensation to be accorded
to the Government of the United Kingdom shall be
measured by the amount of the sum paid or remitted. The
Government of the United Kingdom would not regard the
fixing, for the 1939–40 crop, of a loan rate less than
that fixed for the 1938–39 crop as, by itself,
constituting action which has the effect of an export
subsidy within the meaning of paragraph 7.
- (8) It was agreed that the aim of the two governments
would be to bring the agreement into force as soon as
possible after the necessary legislative power was in
their hands. The representatives of the Government of
the United Kingdom explained that they might have to ask
for a delay for a few days in order to complete the
arrangements for sending experts to the United States of
America for inspecting and accepting cotton.”
As regards (2): Following your suggestion, although the question of
fresh rubber is not incorporated in the minutes, the British and
American representatives took note of the situation in the following
terms: in purchasing rubber the Government of the United Kingdom
will take into consideration the American desire to obtain fresh
rubber and will recognize that special attention will be paid to
this point by the American inspectors.
As regards 2 (c): It is a compromise to
encompass your idea and yet not prejudice the British Government’s
relations with the International Rubber Regulation Committee, the
susceptibilities of which they are anxious not to offend because
they need their active cooperation.
As regards 7: This formula was worked out in the hope of overcoming
the difficulties inherent in the situation and referred to in your
459, June 19, midnight.43 It is designed to mean that if, for purposes of
example, government action of the kind envisaged in paragraph 7 of
the agreement were taken and the price of cotton did not fall below
the average base price no compensation would be due; if action were
taken which involved a payment or remission of indebtedness of say
two cents and the price of cotton only fell one cent below the base
price then the British would get the one cent; if such action
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were taken and the price
fell three cents below the base price, the British would only get
the two cents. You will note that your suggested changes in
paragraphs. 1, 3, 4, 6 and as regards paragraph 8 have all been met.
The exchange rate matter is being checked by the British Treasury
but it is not anticipated that there will be difficulty on this
score. The British are convinced that their information is correct
as regards packing the rubber etc., and are prepared to make the
necessary adjustment should this information prove incorrect. They
are rechecking. Incidentally they realize that one quarter of a cent
Straits Settlements is a moderate price for packing and putting on
board ship. I earnestly hope that you will find it possible to clear
the agreement and minutes tonight, otherwise given the time
differential we will not receive and be able to decode your answer
until Thursday morning London time.
