Office of the Historian

350. Letter From Secretary of State Rusk to Secretary of Defense McNamara1

Washington, September 1, 1967.

Dear Bob:

I share your concern about the prospective budget deficit and want to be helpful. The sales program you suggest in your letter of August 18,2 however, poses problems not merely for the State Department but for the Administration as a whole.

As you will recall, it was the President who decided to limit the rubber sales program as of July 1, 1967 to 70,000 tons (or the amount of actual government use, whichever higher)3 because of the developments in the international market for natural rubber and the importance of rubber-derived revenues to producing countries. Since then, natural rubber prices have continued to decline and on August 28 stood at an 18-year low of 18–3/4 cents per pound. A price decline of one cent per pound represents an export earnings loss for Malaysia, which exports about 1 million tons annually, of about $22.4 million. For all rubber growing countries as a group the earnings loss is about $51.5 million, most of it hitting Southeast Asia.

Tin also presents problems. The buffer stock of the International Tin Agreement is buying tin to support prices which are now at a three-year low. This means the under-developed tin producers (Malaysia, Indonesia, Thailand, and Bolivia) are in effect buying the tin GSA sells. The only reason we are getting away with it is that we have an arrangement with the Tin Council which has the effect of keeping GSA sales at the present rate of about 6,000 tons per year. If we took steps to raise the sales rate, there would be world-wide protest, not only from these countries but also from UNCTAD and from the Latin Americans who would charge a violation of the President’s commitments at Punta del Este.

Notwithstanding these very major considerations, I have asked my staff to have another hard look at the situation regarding commodities mentioned in your letter, as well as other commodities in surplus, in order to see what possibilities exist for stepping up the sales program in the current fiscal year. For example, there may be some means of expanding rubber sales by extending government-use programs beyond tires and tubes to other products incorporating rubber. My people will be in touch with their counterparts in DOD and GSA.

[Page 838]

Regarding the two other items you named specifically, tungsten and abaca fibre, I am informed (1) that the tungsten target you mentioned will probably be met, and (2) that the Department will, notwithstanding the Philippine problem, raise no objection to an increased abaca disposal rate.

With warm regards,

Sincerely,

Dean
  1. Source: Washington National Records Center, RG 330, OSD Files: FRC 72 A 2468, 400.23. No classification marking.↩
  2. Not found.↩
  3. Not further identified.↩