World pact expected to strengthen natural-rubber trade
A major commodity pact taking effect Oct. 1 could be a landmark event for global trade and development. It is the International Natural Rubber Agreement (INRA), concluded earlier this summer after three years of negotiations.
Commented Thomas Martin of the State department, who led the US negotiators: "If it isn't ideal, the whole range of approaches are the closest thing to ideal that you can achieve in international bargaining. It's very significant, both as a precedent and as creating a kind of psychological environment."
The pact is supported by several factions of today's oftencompeting commercial blocs. The United States, Japan, and the European Community, plus third-world nations, have rallied behind the agreement. China is considering ratification.
The pact marks the first commodities accord under the United Nations Conference on Trade and Development. Proponents of the deal say it will bring producers and suppliers together, with neither side dictating to the other. further, they add, it will result in an orderly expansion of supplies for a product whose demand will rise sharply. Consultation in the event of supply shortfalls is part of the pact, buttressed by a full financing clause -- unlike other such documents -- and genuine buffer stocks. Buffer stocks are built up when an excess supply is depressing prices, reduced when excess demand is forcing prices above target levels.
Its advocates say that the INRA may be an important step in North-South economic cooperation. They add that it certainly will bring the US closer to ASEAN (the Association of Southeast Asian Nations) after painful memories of the retreat from that region in 1975.
Further, it is hoped the pact will end speculation that has beset natural-rubber prices.
World rubber consumption is 14.5 million metric tons, a third of which is the natural substance. It was only after 1960 that synthetics took the lead over natural rubber. Intensive research in World War II led to the synthetic form, and while 15 chemically distinct types will hold most of the consumption over the next two decades, the rise in demand for all forms of rubber is expected to boost natural rubber production. While 10.4 million metric tons was needed in 1975, the figure rose to over 12 million metric tons in 1977. By 1983, more than 16 million metric tons -- for hoses, footwear, belting, tires, aircraft, autos, buses, and Bicycles -- will be required, it is forecast.
"Even recessions won't really cut into rubber," says an opponent of INRA, who favored concentrating on new techniques for synthetics. "What cars do not pick up, latex will. It only means the rate of consumption will not match earlier levels that we saw."
The new agreement sets a minimum price of 31 cents a pound, a maximum of 56 cents. A common fund will be established, with Malaysia, producer of 45 percent of the world's natural rubber supply, contributing $176 million. The US is committed to half that amount. Some 60 countries participated in negotiations and are pledged to uphold the pact with specified funding amounts. A stabilization band between ceiling and floor prices is to be reviewed every 18 months, while those prices are reviewed every 30 months. Buffer stocks will range from 400,000 tons to 550,000 tons.
Within the Rubber Manufacturers Association in the US, an internal split over the accord surfaced. Officially, the association opposed the agreement. One trade executive objected to its supposed interference with the free market. "Conditions that existed in 1974-75, when we saw prices fluctuate, are no longer with us, and probably will not return," he said.
A faction in the association supported negotiations. But others were concerned that the pact could lead to the growth of a rubber cartel.
Raja Shahriman, of the Malaysian Rubber Research and Development Board, disagrees. "It cannot be a cartel, because producers got together from the begining with countries that are buying natural rubber. In a cartel, one side dictates to the other."
Hevea braziliensis, the rubber tree, was literally transplanted from South America into Malaysian soil in the last century. (Curiously, the renowned Brazilian coffee beans are natives of Malaysia.) Most of the industry is dominated by small farmers working on less than 40 hectares (one hectare equals 2.47 acres).
A fourth of the natural rubber crop comes from Indonesia, placing it in second place after Malaysia. Thailand, with 12 percent of the share, ranks third. Sri Lanka and the Philippines play a role, and Southeast Asia produces 90 percent of the global supply. Some activity is found in Brazil, Liberia, and Ghana, places where Firestone has planned large expansions.
Western Europe and North America each consume a fourth of the supply. The US takes about one-third of Malaysia's output. East Europe (with 12 percent of the total supply), Japan (9 percent), and China (8 percent) are also key purchasers.
Because it takes five to seven years for a tree to yield any substance, uncertainties about price have hindered planting. The trees are usually fruitful for 30 years, sometimes 25. Uniroyal, however, hopes to complete a breakthrough that will shorten the time to the start of production while slightly increasing the number of productive years.
Since the mid-1960s, return on investment for Goodrich, Firestone, Goodyear, and Uniroyal has risen. That rate has been as low as 3.2 percent for Uniroyal (in 1976) and a scant 2.2 percent for B. F. Goodrich (in the same year).
The adequacy of natural rubber production has worried observers. However, the Malaysians are increasing theirs from 3 to 5 percent over the next year. Other countries could follow suit.
When world rubber consumption was just over 1 million metric tons in 1940, almost all of it was of the natural variety. It requires eight ounces of petroleum to produce a pound of synthetic substance. Natural rubber takes less than half that amount. Those in the trade who favor more reliance on natural rubber maintain it is pollution-free as well.
In 1973, only 1 in 12 tires came from natural rubber, but with the advent of radials, that figure is now 50 percent. Other uses include insulation, adhesives, railway tracks, latex products, and as a foundation for structures jeopardized by earthquakes. The trees are useful in combating soil erosion.
A variety of new applications could emerge during this decade for specific processing or end-use requirements. For this purpose, the experts speak of "constant-viscosity rubber, oil-extended, and deproteinized rubbers." Thermoplastics have received attention, and if efforts are successful, need for vulcanization could be sidestepped. Scientists are experimenting with various chemical modifications. The Natural Rubber Research and Development Board has offices in Europe, Asia, Australia, Trinidad, New Zealand, and the US. Its base is, not surprisingly, in the Malaysian capital, Kuala Lumpur.
Major rubber manufacturers own about 2 percent of the area devoted to planting and tree tapping. Uniroyal has about as many hectares in Malaysia as does the dunlop company (12,000 apiece of 1.7 million hectares). Goodyear owns most of the non-locally held land in Indonesia. Its ownership in the Philippines, a thousand hectares, equals Goodrich's share. Firestone is dominant in Brazil. Of 150,000 hectares owned by these companies and General Tire -- which has a tiny plantation in Ecuador -- Firestone controls 60,000. Uniroyal is second with 38,000, and Goodyear holds third place (30,000 hectares).