the outstanding difficulties, and not resort to separate action, I said that I understood from the American Group that they considered that the questions at issue were solely between Gulbenkian and the Turkish Petroleum Company and that they could neither be a party to nor would they desire to block arbitration between the Turkish Petroleum Company and Gulbenkian. I added that I further understood that, in the event that the agreement which might ultimately be reached between the Turkish Petroleum Company and Gulbenkian was not of a character to permit the participation of the various groups in the actual crude oil produced, or if this agreement imposed onerous charges upon the prospective participants in the Turkish Petroleum Company, I could give no assurance that the American Group would not withdraw. On this point they would have to consult, and would probably consult, their own business interests.

I gathered that the French Ambassador himself did not have any data on the situation or any knowledge of the background which had led his Government to make the request contained in his note.

Later in the day, I read over the telephone to Mr. Swain, of the Standard Oil Company of New Jersey, the pertinent sections of the French Ambassador's note. Mr. Swain replied that he could only confirm what he had already stated, that the American Group did not see that they could properly be a party to the proposed arbitration; that the questions involved were questions between the European partners and Gulbenkian. If those parties desired to refer their difficulties to arbitration that was their concern.

A. W. DULLES

890g.6363 T 84/229: Telegram

The Secretary of State to the Ambassador in Great Britain

74

(Houghton)

[Paraphrase]

WASHINGTON, December 19, 1925—6 p. m.

369. Our No. 357 of December 5 and your No. 377 of December 9. 1. Under date of December 8 the American Group has written the Department reviewing the present status of their negotiations with the Turkish Petroleum Company and asking whether the Department can do anything further through diplomatic channels regarding the Turkish Petroleum Company and asking whether the Department would object to direct negotiations by the American Group with Iraq or Turkey.

2. No written reply has yet been given to the above questions, but the Department could hardly answer in the negative should it

"Letter not printed.

126127-40-vol. 1--21

be pressed for a reply to the second question. If the American Group should decide to enter into direct and independent negotiations with Iraq or Turkey it probably would mean that the cooperative effort developed so laboriously during the past three years is ended. Paragraph 2 of our telegram No. 357 of December 5 still accurately reflects attitude of the American Group.

3. It is really important that the door should be kept open for arranging a fair basis for American participation in developing the Mesopotamian oil field. I wish you, therefore, to take an early occasion to present the matter to the British Secretary of State for Foreign Affairs on the basis of the points set forth in Department's telegram No. 331 of September 20, 1924 75 and No. 357 of December 5, 1925. You should say that the Department considers it contrary to the interests of both the American and British Governments that the effort to settle this problem on a basis of cooperation between the American and foreign interests concerned should stop, especially with agreement so nearly reached.

4. Report what action you take.

KELLOGG

890g.6363 T 84/231: Telegram

The Ambassador in Great Britain (Houghton) to the Secretary of

State

[Paraphrase]

LONDON, December 21, 1925—5 p. m.

[Received December 21-3:35 p. m.] 383. Your telegram No. 369 of December 19. I am assured by Tyrrell 76 that the British have not changed their attitude toward American participation in the Turkish Petroleum Company. He told me that British oil interests have been engaged in deadly warfare for some time and he believes that in this conflict American interests have been used as a catspaw. This trouble is now being terminated and under government pressure arbitration is being resorted to. Within a day or two the result will be known, and Tyrrell believes that matters will move smoothly once this difficulty is settled. As soon as the result of arbitration is known, Tyrrell will personally inform me.

75 Foreign Relations, 1924, vol. 11, p. 232.

HOUGHTON

Sir William G. Tyrrell, British Permanent Under Secretary of State for Foreign Affairs.

890g.6363 T 84/231: Telegram

The Secretary of State to the Ambassador in Great Britain

(Houghton)

WASHINGTON, December 31, 1925-9 p. m. 372. Your 383, December 21, 5 p. m. Please expedite supplementary reply; also endeavor to discuss matter with Chamberlain " earliest possible opportunity.

KELLOGG

EFFORTS BY THE UNITED STATES TO OBTAIN FOR AMERICAN RUBBER MANUFACTURERS RELIEF FROM BRITISH RESTRICTIONS ON THE EXPORT OF RAW RUBBER

841.6176/5

The Rubber Association of America, Inc., to the Department of State 78 MEMORANDUM SUBMITTED BY THE RUBBER ASSOCIATION OF AMERICA, INC., WITH REFERENCE TO THE EFFECT UPON AMERICA'S CRUDE RUBBER SUPPLY OF THE BRITISH "STEVENSON SCHEME" UNDER WHICH THE EXPORT OF CRUDE RUBBER FROM BRITISH POSSESSIONS IS RESTRICTED

The so-called "Stevenson Scheme" is a legislative measure under which the amount of rubber exported by the British rubber-growing possessions in the Middle East, is arbitrarily restricted for the purpose of enhancing its price.

The purpose of this memorandum is to explain the history and operation of this scheme, and to point out the critical situation that now confronts the American rubber manufacturing industry as a result of the artificial curtailment of crude rubber supply which its operation has brought about. This situation is such that an early relaxation of the restriction imposed under this scheme is of the utmost importance to the American rubber industry and to the American consuming public.

THE BRITISH POSSESSIONS IN THE MIDDLE EAST ARE THE CONTROLLING FACTOR IN THE CRUDE RUBBER MARKET

Due primarily to climatic and labor conditions, the British and Dutch possessions in the Middle East enjoy, at the present time, what amounts practically to a monopoly of crude rubber production. Some "wild rubber" comes from South America, but the rubber from

Sir Austen Chamberlain, British Secretary of State for Foreign Affairs. "Left at the Department on July 17, 1925. The exhibits attached to this memorandum are not printed.

this source represents a very small percentage of the total. Of the four million acres of land now devoted to rubber plantations in the Middle East, about 70% is in British territory or under British control, (Ceylon, the Malay States, the Straits Settlements, etc.) The report of the United States Department of Commerce, 1925, entitled "The Plantation Rubber Industry in the Middle East" (copy herewith)" gives a very complete survey of the situation in that part of the world.

Under these circumstances it is apparent that any curtailment of the production or shipments of crude rubber by the growers of the British possessions, such as is imposed by the "Stevenson Scheme" must have a very direct effect upon the operations of the American rubber industry. And, since America accounts for about threefourths of the entire rubber consumption of the world, it is America that is primarily affected by such curtailment.

THE CONDITIONS LEADING UP TO THE ADOPTION OF THE STEVENSON SCHEME IN 1922

The "Stevenson Scheme" was adopted as a result of a temporary condition of over-supply of crude rubber, as is shown graphically in the attached Exhibit A, in each of the three years immediately following the war, i. e., 1919, 1920, and 1921 when the production of crude rubber exceeded the consumption by a considerable margin. This naturally resulted in depressing the price of the commodity. The year of 1919 showed a substantial increase in rubber consumption over 1918, the last year of the war, but this increase did not nearly keep pace with the tremendously increased production. Then came the post-war depression in all business, with the result that instead of the expected large increase in the consumption of rubber in 1920 and 1921, there was a marked decrease in each of these years as compared with the previous year. And, as above stated, in each of these years, the production was far ahead of the consumption.

The large stock of rubber on hand as a result of the three years of over-production, brought the price down as low as 14 cents per pound in 1921, a price which was asserted to be far below the cost of production. (See attached Exhibit B.)

It was this that led to the appointment in 1921 by the British Secretary of State for the Colonies of the so-called "Stevenson Committee" (taking its name from its chairman, Sir James Stevenson, now Lord Stevenson) "to investigate and report upon the present Rubber Situation in British Colonies and Protectorates".

"Not reprinted in Foreign Relations.

In its initial report of June, 1922, (a copy of which is annexed as Exhibit C), the committee reviewed the 1919, 1920 and 1921 production and consumption figures, and concluded from them:

"On these figures, the Committee cannot fail to advise you to contemplate with grave concern the position of the Industry in British Colonies and Protectorates, unless steps are taken to reduce stocks and, further, to prevent over-production of rubber so long as the potential normal production continues to be substantially in excess of consumption. They are of opinion that consumption is not likely to overtake potential production for some years."

99 80

The Committee also discussed several proposals for bringing about the desired result, including voluntary restriction and governmental action, but made no definite recommendation, pending the ascertainment of the attitude of the Dutch government. In its supplementary report of October of the same year 81 (attached Exhibit D) the Stevenson Committee noted the failure of attempts at voluntary restriction of production. It also stated that the Dutch Government declined to co-operate in governmental restrictions. Nevertheless, it decided that the situation warranted legislative restriction of production in the British Colonies and Protectorates. The Stevenson Committee therefore recommended that the present "scheme of governmental intervention should be put into operation in Ceylon, the Malay States and the Straits Settlements, as soon as possible". This recommendation was followed.

THE STEVENSON SCHEME

*

The supposed object of the Stevenson Scheme was to stabilize the price of crude rubber at 1s/6d per pound, or roughly about 36 cents. This was fixed as a price which would not only give a satisfactory profit to the producer, but would be sufficient to stimulate the investment of new capital in the planting of additional acreage. The method provided by the scheme for accomplishing this object is as follows: The actual output of each producer for the year beginning Nov. 1, 1919, was taken as his "standard production". During the first quarter of the operation of the scheme each producer was permitted to export at the low, minimum rate of export duty, only 60 percent of his "standard production". If he exceeded that percentage he would have to pay what, up to the present, has proved

Great Britain, Cmd. 1678 (1922): Report of a Committee Appointed by the Secretary of State for the Colonies to Investigate and Report upon the present Rubber Situation in British Colonies and Protectorates, p. 4.

81

Great Britain, Cmd. 1756 (1922): Supplementary Report of the Committee Appointed by the Secretary of State for the Colonies, to Investigate and Report upon the present Rubber Situation in British Colonies and Protectorates. *See pages 3 to 5 of "The Plantation Rubber Industries in the Middle East." U. S. Dept. of Commerce 1925. [Footnote in the original.]