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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(77)616 final .
Brussels ,22November 1977 .
COMMISSION COMMUNICATION TOTHE COUNCIL
CONCERNING GUIDELINES FOR ACOMMUNITY POSITION
WITH AVIEW TOTHE WORK OFUNCTAD ONNATURAL
RUBBER
CO::(77 )616final .

Kl -DGIII -OGVIII
Commission Communication totheCouncil concerning guidelines for a
Community position wit .*?aview tothe work ofUNCTAB onnatural rubier
1• Natural Rubber within theUKCTAP Integrated Programme forCommodities
1-1 Resolution 93(IV)adopted attheFourth UNCTAO inNairobi inMay1976
lists theobjectives ,thecommodities ,theinternational measures andthe
follow-up procedures andtimetable fortheImplementation ofthemeasures
oftheIntegrated Prooramme forCommodities ,Among the 11stof18commodi­
ties identified byth«resolution ,andincluded inthehard "cor©"of10
products considered suitable forbuffer stack srrangement s,1snatural rubber .
Natural rubber hasinfact been thesubject ofInternational discussion for
some 25years within theforums oftheInternational Rubber Study Group in
which information about rubber 1sregular lyexchanged *
1.2 Inaccordance withResolution 93CIV )afirst Heeling ofaPreparatory
Committee onNatural Rubber wasconvened bytheSecretary-General ofUNCTAD
andtook place inGeneva from 17-21 January 1777 .This Hasfollowed bya
meeting ofanIntergovernmenta IWorking Group (2-9June 1977 )andbyaSecond
Meeting ofthePreparatory Committee C6-1Q Juie 1977 )also inGeneva .At
.these meetings th-»Association ofNatural j?uober Producing Countries (ANRPC )
Malaysia ,Indonesia ,Thailand ,Singapore ,*,SriLanka ,India ,Papua-New Guinea
putforward forconsideration theAgreement which they hadsigned 1nDjakarta
inNovember 1976 andfollowed this with proposals foraninternat ional buffer
stock arrangement .These ANRPC proposals have provided thebasis ofdiscussion
atallthemeetings held sofar.TheSecond Meeting ofthePreparatory Commit­
teeagreed tosetupanIntergovernmental Task Force onRubber with thefollowing
mandate :
toconsider ingreater detail andassess thespecific elements ofa
possible commodity agreement fornatural rubber (1)andother factors
relatin gtonatural rubber asalready Identified bytheIntergovern­
mental Working Group 1nitsreport ,together with anyother proposals ,
inorder tomake concrete recommendations onthem ,
(1)SeeAnnex 1

1.3AtthefirstmeetingofthisIntergovernmental TaskForce/heldin
Genevafrom10-20October1977,discussions coveredalltheelementsiden­
tifiedbytheIntergovernmenta IWorkingGroupasrequiringfurtherdetailed
examination .Itwashoweveracceptedthattheprecisepositionsofproducing
andconsumingcountriesarelikelytobesettledonlyifanegotiating situa­
tionisarrivedatsincetheyarenotallsusceptible t©precisetechnical
analysis.Nevertheless attheendofthisfirstmeeting,theTaskForcewas
abletoagreeonastatementtodepictprogress(1).
1.4AsecondmeetingoftheTaskForcehasbeenarrangedfor6-9December
1977andisexpectedtoprepareareportandrecommendations fortheThird
MeetingofthePreparatory Committee,(scheduled 27February-3March1978)
atwhichconsumingcountrieshavegivenacommitmenttotakeadecisionwhether
toagreetoconveneanegotiating conference aimedatconcluding aformaInter­
governmental commodityagreement.
1.5The*present documentisintendedtoproposeguidelinesforanEC
positionforthisforthcoming meetingoftheTaskForce.Itistobeempha-
sised,however,thatatthisstageinthediscussions undertheIntegrated
ProgrammeforCommodities,nodrecti/eforactualnegotiations isrequiredor
beingaskedfor.TheECwillnotindeedfacethenecessityofadoptingsuch
adirectiveunlessthePreparatory CommitteeatitsThirdMeetingagreesto
proceedtonegotiations ,althoughitisadvisabletoanticipatethattheTask
Forcewillrecommendthis.Nevertheless ,negotiations areunlikelytostart
beforetheSummerof1978.HoweverinthatcasetheCommissionwillreturn
withproposalsnecessarytoestablishsuchadirective.
2.FeaturesoftheWorldRubberMarket
2.1Production
Worldproductionofallelastomers in1976wasabout11.5milliontons,
ofwhichsome30%(3.540.000tons)wasnaturalrubber(NR).Production of
NRishighly.concentrated onSouthEastAsia:Malaysia(1.56milliontons),
Indonesia (848.000tons),Thailand(373.000tons)andSriLanka(152.000tons)
providenearly85%ofworldoutput,ofwhichthefirsttwoalonesome70%.
Otherproduction areasoutsideAsiaIncludecertainWestAfricancountries,
IndiaandBrazil.
(1)SeeAnnex2

Some 65-70% ofNRisproduced bysmallholders ;the remainder on
estates .However significant differences exist between thevarious countries ;
smallholders nowaccount forsome 67%ofMalaysian output ,77% inIndonesia
and95% inThailand ,while thebulk ofWest African output isonestates .As
aconsequence ofthese structural differences (andthevery impressive research
results achieved byMalaysia inparticular )productivity andconsequently costs
vary greatly between producers <1),asdoes theability to"regulate "output
bychanging tapping schedules andtree Inputs ,which ismostly only possible
onestates .
Tomaintain their share oftheexpanding world market ,theNRproducing
countries must undertake thenecessary large scale investments which will only
becarried outagainst areasonably stable economic background ,particularly
asregards prices .
Synthetic rubber (SR)isontheother hand largely produced indeveloped
andcentrally-planned countries ,itbeing important inthepresent context to
distinguish between three types ofSR :thehighly specialised SR'swhich do
notcompete with NR,general-purpose SBRwhich isthemain current competitor
ofNRinawide variety ofuses ,andthenewer cis-polyisoprene ,which 1sNR's
most dangerous potential competitor ,being analmost perfect substitute .
2.2 International Trade
With relatively little rubber manufacturing facilities intheNRprodu­
cing countries ,world exports ofNRgenerally constitute about 90%ofworld
production ,andfollow closely thesame pattern ,Malaysia andIndonesia being
thedominant suppliers .With their long coastlines ,both countries (and
Thailand ),however ,ship some proportion oftheir exports through Singapore ,
giving the latter 'smarket asignificant role inthedaily price formation ,
and indeed ,itshould benoted ,inanyregulating mechanism which mayeven­
tually beagreed .Intotal ,Malaysia (1.58 million tons ),Indonesia (811.000
tons ),Thailand (373.000 tons )and SriLanka (137.000 tons )provided about
90%ofworld netexports in1976 ,Brazil andIndia consuming alltheir NR
output intheir ownindustries .Export earnings averaged some t2.25 billion
in1976 ,ahigh-price year ,ofwhich Malaysia t1.2billion ,Indonesia nearly
20.5billion andThailand 20.25 billion .These sums represented about 23%,
5Xand8%oftotal export earnings forthethree countries respectively .
(1)National average yields inS.E. Asia alone vary between 350and900
Kqs/hectare

Major importers ofNRare theCommunity <23% of1976 world total of
3.1million tons ),USA £22% ),Japan (9%),USSR andChina (7%each ).Trade
inSRissmaller (1.9million tons in1976 ),especially incomparison with
itsproduction ,butcanhave asignificant Impact onprices Ingiven coun­
tries .
•
2.3 Prices
The long-term tendency ofNRprices wasgenerally downwards formany
years until .theoilcrisis of1973 ,although considerable variations took
place around thetrend ,with peaks in1966 and1969 .Since 1973 ,following
therise inoilprices which lettobigincreases inSRprices ,NRprices
appear tohave moved toanewhigher level ,despite theslackening Indemand
forNRowing totheworld recession .
Prices ofrubber have nevertheless continued tofluctuate considerably
■from yeal *toyear ,andalso from month tomonth .Year toyear changes <1)
over thepast sixyears have forinstance been asfollows :
Average monthly prices inthe latest full year 1976 also fluctuated con­
siderably between alowand ahigh 31%apart ,within thespace of5months .
Price fluctuations arethus ofmuch greater significance than forSRwhose
prices normally move within amuch narrower range .
The rubber market hasgenerally been anentirely free market although ,
in1974-5 ,Malaysia succeeded byaseries ofsupply control measures ,mainly
affecting itsestates andextending over anumber ofmonths ,inwithdrawing
sufficient supplies from themarket topush prices tomore renumerative
levels .Itwastnis success which gave birth totheANRPC 'sbuffer stock
idea .
(1)Basis RSSI fobKuala Lumpur

-5-
%
2.4 Consumption andCompetition between MRandSR
Consumption ofelastomers canbegenerally broken down into tyre and
non-tyre uses .This ishowever aconsiderable simplification justified only
bythescarcity oftheavailable statistics .Estimates indicate thot about
75%ofworld consumption ofelastomers 1sfortyres andother transport
equipment theremainder fornon-tyre uses .Most NRgoes Into tyre construc­
tion ,particularly Into heavy-duty aircraft ,truck andtractor tyres ,and
thenew longer-lasting radial passenger-car tyres ,the latter requiring
higher proportions ofNRthan traditional cartyres ,which arenowmostly SR.
NRalso has amajor share ofthepharmaceutical ,hygienic andcertain other
markets ,butthegreat bulk ofthenumerous other non-tyre uses 1staken by
general-purpose andspeciality SR's.
Jnmost uses ,substitution between NR1sprobably more dependent on
technical factors than onprice ,except when price differences areperceived
'.'to belarge and/orexpected tobelong-lasting .Butthesituation 1smore
complex than this .Certain high-cost SR'shave specialised uses forwhich
NRisnot suitable .NRalso hasvery much Itsown market 1nheavy-duty tyres
andhygiene articles ,subject only towhat 1sstated below forpolyisoprene .
Thearea ofclose price competition between NRand SRisthus relatively
small .NR'spresent main competitor 1sthe cheaper general purpose SBR .
synthetic rubber ,although this does nothave allNR'sproperties .However ,
NR'smost dangerous potential substitute 1sthesecond-generation SR,c1s-
polylsoprene ,(which almost exactly reproduces NR'sprincipal properties ),
though the latter 1snotquite competitive with NReven atthe current rela­
tively high price ofNR.ButIncreases inNRprices beyond certain levels
could stimulate heavy newinvestment inSRandespecially polyisoprene capa­
cities ,andthus lead tosignificant replacement ofNRIncertain end-uses .
Theexistence ofpolyisoprene thus sets anupper limit ,In^the longer-term ,
tothepossible levels which NRprices could reach .
¥
Guidelines for aCommunity position
3.1Thepurpose ofthisCommission Communication istoestablish the
main lines ofacommon position with aviewtotheforthcoming workon
rubber Inthecontext oftheUNCTAD Integrated Programme .
4

.Inviewoftheleadtakenbytheproducercountries/whoseproposals
foraninternational agreementonthestabilization ofnaturalrubberprices
wereputforwardmonthsago,theCommunity-liketheothermajorconsumer
countries-findsitselfobligestosettlerapidlyonapositionwithaview
totheadoptionearlyinDecember1977ofpracticalrecommendation forthe
thirdmeetingofthePreparatory Committeeonrubber,whichisscheduledto
beheldfrom27Februaryto3March1978.
Theadoptionofsuchapositionatthisstageoftheworkisobviously
withoutprejudiceto:
-thecontinuedexaminationoftheeconomicandtechnicalproblems
involved,whichwillhavetobestudiedindepthinanycasebefore
anegotiating conferenceiscalled.Inthisconnectionthefollowing
maybecitedasexamples,ontheassumptionofadraftagreementbased
onaninternational bufferstock:thesize,composition andlocation
ofthestock;pricelevelsandthewidthofthepriceband;thedeter­
minationofanindicationpricerepresentative ofthemarket;pri'ce
»
differentials accordingtothequalityandtypeofrubber;themachi­
neryforbufferstockintervention withinthepriceband;thedesira­
bilityandnatureofanysupplyrationalization measures;thepowers
ofthebufferstockmanager;financing;
thedefinitivesolutionstotheaboveproblemswhich,giventheirim­
portance,willforthemostparthavetobedealtwithinthenegotia­
tionsthemselves.
3.2Therearealreadyanumberofconsiderations onwhichaCommunity
positioncouldbebased:
a)amongofthecommoditieslistedinResolution93(VI)whichwillbe
suitableforstabilization throughaninternational agreementbasedona
bufferstockrubberisindisputably theoneonwhichthepreparatory work
calledforinthatResolutionisfurthestadvancedanditwillthereforecons'
tituteatestcasefortheimplementation oftheIntegratedProgramme;

factthattheworldnaturalrubbermarkethasformanyyearsbeen
subjecttowidepricefluctuations-whichnotonlycauseserious
economicandsocialproblemsfortheproducercountriesbuthave
beenacknowledged bytheconsumercountriesatpreviousmeetings
ofthePreparatoryCommitteeandelsewhere-andthisisareason
formakinganefforttostabilizeprices;
(c)theCommunity'swishtocontributetothecarryingoutoftheaction
programmeregardingtheestablishment ofanewinternational econo­
micorder;
(d)theCommunity'sobjectiveasstatedonanumberofoccasionsinin­
ternational fora/particularly inthecontextofCIECtoconclude
inappropriate casesinternational agreementsbetweenproducersand
consumerswithaviewtostabilising worldcommoditymarkets;inthe
particularcaseofrubberthereisalsoanobviousinterestinavoiding
theunilateralimplementation byproducingcountriesthemselvesofthe
DjakartaAgreement,whichtheywishtoseereplacedbyaninstrument
ofinternational cooperation withinthecontextoftheUNCTADInte­
gratedProgramme;
(e)the situationofthemainproducercountriesconcerned,
theirroleasmoderatinginfluencesinSouthandSouth-EastAsiaand
theireconomicanddemographicsignificance intheGroupof77-nearly
200millionpeopleinthefourcountrieswhichproduce85%ofnatural
rubber(plusIndia).Allthesefactorsareofgreatinteresttothe
Communityandtotheotherindustrialised consumers,particularly the
UnitedStatesandJapan.
3.3TheCommunityshouldthereforebeabletoacceptrecommendations
openingthewaytonegotiations foraninternational agreementonthe
stabilization ofnaturalrubberprices.
AtthisstageofCommunitythinkingandinthelightofthestudies
carriedoutincertaincountriesandtheviewsalreadyclearlyexpressedby
theproducercountriesandbyconsumercountriessuchasJapanandtheUSSR,
theCommissionconsiders,subjecttotheobservations madeinparagraph3.1
above,thatthenegotiations shouldbeconcernedwithaninternational buffer
stocksystem,whichwouldappeartorepresentthebestpossiblesolutionin
thecaseofrubber.
*TheConference onInternational EconomicCooperation

Supportmeasuressuchassupplyrationalization mechanismscouldbe
workedoutinthenegotiations,whetherinvolvingrestrictive measures
(exportorproduction quotas)ormeasurestoboostsupply(releaseofstocks
andproductionpolicy).
UmProposals
ItIsthereforeproposedthattheECshouldbepreparedtoacceptas
ntheoutcomeoftheworkoftheInter-Governmental TaskForceonNaturalRub­
berconclusions andrecommendations totheThirdUNCTADPreparatory Meeting
onthefollowinglines:
1.'arecommendation fornegotiationstoestablishaformdinter-governmen-
talcommodityagreementbetweennaturalrubberproducingandconsuming
countrieswiththeobjectiveofcontributing toareductionofthe
fluctuations 1nthepriceofnaturalrubberaroundthelong-termmarket
treftd;
»
2*thatsuchanintergovernmental commodityagreement bebasedeitherona
pureInternational bufferstockastheinstrumenttoreducepricefluc­
tuationsoranInternational bufferstocksystemsupportedbysupply
rationalisation measuresasacontingency mechanism;
3.thattheguidelinesfortheIntervention ofthemanageroftheinterna­
tionalbufferstocktodefendthecellingpriceshouldmirrorthosefor
thedefenceofthefloorprice;
4.thatwhileconsumingcountriesshouldacceptfinancialobligations
equaltothoseImposedonproducingcountriesforthefinancingofthe
•international bufferstock,thequestionofagreeingtoanoverallbalance
ofrightsandobligations-if thisistakentomeantheacceptance by
consumingcountriesofanyresponsibility forthecostofsupplyratio-
nalisation measuresaswell-shouldbeapproachedwiththegreatest
reserve;

that itIsrecognised that anumber ofimportant aspects ofsuch a
possible intergovernmental commodity agreement still require further
examination and/ormayonly besettled eventually ifnegotiations
take place ,including inter alia :
a)thevolume ,composition andlocation ofabuffer stock ;
b)thecriteria forestablishing floor andceiling prices andthe
price bands between them ,composition oftheIndicator price(s )
andtheactual price trigger points ;
g)theprecise nature ofsupply rationalisation measures ifany;
d)methods offinancing ;
9)the internal organisational structure andthedecision making
procedures within theCouncil established toimplement anyAgree *
•. »
ment .

ANNEXI
ELEMBTT3OPAPOSSIBLE COMMODITY AGREEMENT EXAMINED
BYTHEINTERGOVERNMENTAL TASKFORCE
ThoelementswhiohhadbeenidentifiedbytheIntergovernmental
WorkingOroupasthoseonwhichGovernments shouldfooustheirattention
andundertakemoredetailedworkinolude,interaliai
(a)Themeohanismswhiohoouldeffeotivelycontributetothestabilization
ofnaturalrubberprioes;
(b)Theeizetcomposition,managementofaninternationalbufferstock
asacentralfeatureofapossibleoommodityagreementfornatural
rubber;
(o)Theoriteriaforestablishingfloorendceilingprioes(uswellasthe
innerprioebands)undereuohanagreement;
(d)Thedetermination ofanindioatorprice(orprioes);
(e)Thenatureanduseofsupplyrationalization measuresasoontingency
supportforbothfloorandoeilingprices*
Otherfactorsrelatingtonaturalrubberwhiohshouldreceiveequally
detailedattentionandworkinolude,Interalias
(a)Meansforassuringincreasedproductivityinthenaturalrubber
industry,includingappropriatetransferanddissemnination of
technicalknowledge;
(b)Financialrequirements ;
(c)Thedeoision-makingprocesswithinapossiblecommodityagreement;
(d)Effeotiveexchangeofstatisticalandeoonomioinformation among
produoingandconsumingcountries;
(β)Anyothermeasureswhiohoancontributetotheaooeptedgoalof
increasedprioestabilityinnaturalrubbermarkets*

ANNEX2
EXTRACTFROMREPORTOPTHEFIRSTMEETINGOPTHEINTER­
GOVERNMENTAL TASKFORCE(10-20OCTOBER1977)
Announcingafullerappreciation of"someofthemajorfactorsrelevant
tonaturalrubbersupply-demand ,thedesirability ofprioestabilization ,
themechanismsourrentlyproposedtointroduoeandmaintainameasure
ofpricestabilityandvariousparametersofapossibleinternational
agreement",andthatinaohievingaolearerunderstanding ofvariousmechan­
ismsandtheirapplicability ,theTaskForcehadbeenabletodisoerndear
directionsonwhichconsensusmightbeoonsideredpossibleandpraotioable.
Theseinoludedinteralia.
"(a)apureinternational bufferstockastheinstrumentofprice
stablization ,oraninternational bufferstocksycterasupported
bysupplyrationalization measuresasacontingency meohanism;
(b)thesizeofabufferstookshouldbeouchastoensureitseffective­
nessasaprioestabilization mechanism;'
(o)astabilization prioerangewhichwouldberemunerativetoproducers,
fairtoconsumers,ensureadequatesupplies,andwideenoughtoserve
thepurposesofthepossibleagreement;
(d)abalanoebetweenproduoersandconsumersofrightsandobligations
andbenefits,inanypossibleinternational stabilization agreement
onnaturalrubber*"
Itwasreoognisedthatmanyofthefaotors,includingthoseimplicitin(a)
-(d)above,wouldrequirefurtherconsideration andwould,inanyoase,be
subjecttonegotiationifandwhenadeoisionistakentonegotiateanintex^-
nationalpricestabilization agreement# However,itwasagreedthatthe
progressinachievingagreaterunderstanding ,aswellastheadditional
discuGsionrattheDecembermeeting,shouldenabletheTaskForceatits
DecembermeetingtomakeoonoreterecommendationstotheThirdPreparatory
Mooting.

BASICSTATISTICS ONRUBBER
WorldNRProduction
WorldSRProduction
NRaa#Total
WorldNREbcports
Mayalaia
Indonesia
Thailand
WorldNRImports
*
EEC
USA
Japan
USSR
China
WorldSRImporta
Prioc3
RSS1fobK.Lumpur1974 1975
OCX)MT
2Mal./Ton
rm 132Lmi
3570
7758
3180
1591
842
368
£28
731
628
366
260
265
1928
iß*
a)1977*First7months:2004;4.11.77*2060.
Souroe:IRSGStatisticalBulletin.September1977*