INTERNATIONAL NATURAL RUBBER AGREEMENTSenate Consideration of Treaty Document 104-27
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[Senate Treaty Document 104-27] [From the U.S. Government Printing Office] 104th Congress Treaty Doc. SENATE 2d Session 104-27 _______________________________________________________________________ INTERNATIONAL NATURAL RUBBER AGREEMENT, 1995 __________ MESSAGE from THE PRESIDENT OF THE UNITED STATES transmitting INTERNATIONAL NATURAL RUBBER AGREEMENT, 1995, DONE AT GENEVA ON FEBRUARY 17, 1995 June 19, 1996.--Treaty was read the first time and, together with the accompanying papers, referred to the Committee on Foreign Relations and ordered to be printed for the use of the Senate LETTER OF TRANSMITTAL ---------- The White House, June 19, 1996. To the Senate of the United States: I transmit herewith, for the advice and consent of the Senate to ratification, the International Natural Rubber Agreement, 1995, done at Geneva on February 17, 1995. The Agreement was signed on behalf of the United States on April 23, 1996. The report of the Department of State setting forth more fully the Administration's position is also transmitted, for the information of the Senate. As did its predecessors, the International Natural Rubber Agreement, 1995 (INRA), seeks to stabilize natural rubber prices without distorting long-term market trends and to assure adequate natural rubber supplies at reasonable prices. The U.S. participation in INRA, 1995, will also respond to concerns expressed by U.S. rubber companies that a transition period is needed to allow industry time to prepare for a free market in natural rubber and to allow for the further development of alternative institutions to manage market risk. The new Agreement incorporates improvements sought by the United States to help ensure that it fully reflects market trends and is operated in an effective and financially sound manner. The Agreement is consistent with our broad foreign policy objectives. It demonstrates our willingness to engage in a continuing dialogue with developing countries on issues of mutual concern and embodies our belief that long-run market forces are the appropriate determinants of prices and resource allocations. It will also strengthen our relations with the ASEAN countries, since three of them--Malaysia, Indonesia, and Thailand--account collectively for approximately 80 percent of world production of natural rubber. Therefore, I urge the Senate to give this Agreement prompt consideration and its advice and consent to ratification to enable the United States to deposit its instrument of ratification as soon as possible. William J. Clinton. LETTER OF SUBMITTAL ---------- Department of State, Washington, May 29, 1996. The President, The White House. I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the International Natural Rubber Agreement (``INRA''), 1995, done at Geneva, February 17, 1995. The Agreement was signed on behalf of the United States on April 23, 1996. While the International Natural Rubber Organization (INRO), established by the Agreement, has been useful, the U.S. Government believes that free markets are better able to serve the interest of both consumers and producers. For that reason we have announced our intention that INRA 1995 will be the last we join. U.S. participation in INRA 1995 responds directly to concerns expressed by U.S. rubber companies and unions that a transition period is needed to allow industry time to prepare for a free market in natural rubber and to allow for the further development of alternative institutions to manage market risk. The United States has been a party to the previous two International Natural Rubber Agreements (``INRA 1979'' and ``INRA 1987'') despite our preference for a free market. The purpose of those earlier Agreements, which will continue under the new agreement, was to stabilize natural rubber prices within predetermined, but flexible, ranges through operation of a buffer stock of not more than 550,000 metric tons. Producing and consuming countries, both of which have benefitted from reduced price volatility, contribute funds to the buffer stock according to their share of world rubber exports and imports. Prior to conclusion of INRA 1979, rubber prices had historically been unstable, with strong rises--particularly in 1951, 1955, 1960, and 1973-74--followed by sharp and sudden declines. This behavior not only destabilized producers' incomes, but also contributed to inflation in industrial countries. In addition, it discouraged needed long-term investments in natural rubber production. This was and is of particular concern to the United States which, as the world's largest consumer of natural rubber, has a substantial interest in assuring adequate future supplies of this commodity. The United States has been satisfied with the operation of these agreements. The buffer stock has been responsibly managed and the price range within which it operates has been adjusted in accordance with the agreements' provisions for semiautomatic changes. The agreements have not adversely affected the day-to- day operation of the market or attempted to fix the market price at a level that was not responsive to fundamental changes in market forces. Renegotiation of a successor agreement, INRA 1995, was concluded in February 1995 at the Fourth United Nations Conference on Natural Rubber convened by the United Nations Conference on Trade and Development (UNCTAD). The objectives pursued by the United States resulted in a well-structured accord which offers a fair balance of benefits and responsibilities for both consumers and producers of natural rubber. The structure and provisions of the new Agreement are much the same as those in the previous agreements. The buffer stock will defend a price range designed to ensure consistency with long-term market trends. The price range adjustment mechanism will remain the same as that contained in INRA 1979 and INRA 1987, with the initial reference price level to be consistent with market price developments and activities of the buffer stock. INRA 1995, consistent with U.S. objectives, contains language which prohibits its members from taking measures to manipulate rubber prices or restrict rubber supplies outside of the Agreement. In addition, a number of improvements sought by the United States have been incorporated into the new Agreement. These changes provide for more frequent and automatic adjustment of prices to reflect market trends and to strengthen the financial structure of the Agreement. These changes provide a reasonable constraint on the financial liability of members; at the same time, they ensure that when the new Agreement enters into force, it will have sufficient resources to operate in an effective and financially sound manner. As in the previous Agreements, each government's share of the buffer stock will depend upon its votes in INRO, as determined by net exports or imports. The share of the United States will be between 14.2 percent and 17.8 percent of the total contributions of all members, depending on the number of governments that become parties to the Agreement. The Department of State's recommendation that the United States ratify and participate in INRA 1995 is contingent upon such participation's not requiring additional appropriations or outlays at this time to fund the U.S. contribution to the INRO buffer stock account. We will continue to consult with Congress to confirm that the current U.S. share in the buffer stock account, which totals approximately $78.5 million, may be rolled over from INRA 1987 to INRA 1995 without a new appropriation. This includes $7.5 million in the buffer stock account and $71 million held in the INRO Surplus Funds Account, an interest-bearing account managed by Rothschild Asset Management Ltd., Singapore. Depending on developments in the international rubber market, it is estimated that potential additional budgetary requirements during the term of INRA 1995 could reach $14 million ($78.5 million plus $14 million for a total of $92.5 million). Such additional funds would only be necessary, however, under worst case market conditions. The Department as well as market observers, including an independent producer/ consumer organization, believe that such worst case market conditions are unlikely. The annual contribution of the United States to INRO's administrative budget would be approximately $300,000. The Department's proposed budget for FY 1997 includes this item. The Office of the United States Trade Representative, the Departments of Commerce and Treasury, and the Office of Management and Budget concur in my recommendation that the Agreement (INRA 1995) be submitted to the Senate for advice and consent to ratification. Respectfully submitted, Warren Christopher.