Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

329. Memorandum From the Under Secretary of State (Katzenbach) to the President’s Special Assistant (Califano)¹

Washington, October 5, 1966.

SUBJECT

• Rubber and Tin Disposals

1. Our current rates of stockpile disposal are 170,000 tons a year for rubber and 15,000 tons a year for tin, with projected earnings of about $140 million during fiscal year 1967.

2. Since the beginning of the year the prices of these two commodities have fallen sharply, tin from $1.78 to $1.53 a pound and rubber 26 cents to 22 cents a pound. If we continue selling at current rates, prices of these commodities will fall further—tin probably to about $1.40 a pound and rubber probably to about 20 cents a pound.

3. Malaysia, Thailand, Indonesia, and other friendly developing countries are being hurt. Their foreign exchange earnings from tin and rubber this year will probably be down by almost $300 million figured on the basis of annual rates as a result of the decline in prices that has already occurred. The further fall in prices that is likely to occur if we continue our present rate of disposals will cause an additional loss of $150 million a year in their export earnings.

4. Secretary Fowler is concerned that the Malaysians will be forced to sell sterling from their reserves because of these developments. As you know, this adds to our problem of supporting the pound and also risks an indirect drain on our gold stocks.

5. Delegations are being sent from the rubber and tin producing countries and from the rubber and tin inter-governmental organizations to attempt to persuade us to cease sales. We have no intention of doing so since we are all aware of the importance of these revenues, but I recommend that we be authorized to ease off in our sales during those periods when the price structures of these commodities are being undermined. Even if this price weakness were to continue, we would still make sure that we sold during the remaining nine months of this fiscal year a minimum of 6500 tons of tin and 100,000 tons of rubber. Thus under the very worst circumstances we would get $105 million during this fiscal year from the stockpile sale of rubber and tin. Taking into account the lower current prices, this compares well with the $130 million we earned in fiscal year 1965 from rubber and tin.²

Nicholas deB Katzenbach

1. Source: Johnson Library, White House Central Files, Confidential File, CM (Tin—Watches). Confidential. In an attached October 5 note to Califano, Katzenbach emphasized that while he recognized the importance of selling from the stockpile, “it still does not make sense to me to push so hard for an additional $35 million, or less, that we cost Malaysia, Thailand and Indonesia, $150 million of their earnings.” Katzenbach’s note concluded: “I know the President’s concern with stockpiles. I really feel quite strongly about this one.”
2. On October 17, President Johnson approved a Department of State recommendation to dispose of 120,000 tons of rubber from the stockpile in 1967. (Memorandum from Secretary Rusk to President Johnson, October 15; Department of State, Central Files, DEF 1–2 US, and memorandum from Bromley Smith to Secretary Rusk, October 17; ibid.) On October 18, the General Services Administration announced that beginning on January 1, 1967, it would reduce its rubber disposal program from 42,500 long tons per quarter, which had been announced on June 10, 1966, to a quarterly rate of approximately 30,000 long tons, or 120,000 long tons annually. (Text of GSA News Release 3428, October 18, transmitted in telegram 68093 to Kuala Lumpur (and 10 other posts), October 18; ibid.)