Chance for rubber pact

Chance for rubber pact

Last Friday's agreement between producers and consumers to
extend the deadline for signing the 1995 global rubber pact to
the end of July provides another chance for the pact to come into
force. The International Natural Rubber Agreement (INRA) III,
which was agreed upon in February, 1995, to replace the 1987
pact, could not be implemented from last January as scheduled
because the consumer members -- Japan and the European Union --
which have signed the new pact represent only 48 percent of the
demand, less than the required minimum of 75 percent.

The main stumbling block is the United States which accounts
for 28.8 percent of the demand. The United States, due apparently
to the recent government shutdown and budget crisis, missed the
Dec.28, 1995, deadline for signing. All the major producers --
Indonesia, Thailand, Malaysia and Sri Lanka -- which represent
almost 95 percent of the world's output have signed. If the new
deadline is met by the United States, INRA III will most likely
take effect early next year.

It would be a great loss both to consumers and producers if
INRA III, which was agreed after a series of negotiations under
the United Nations Conference on Trade and Development since
1993, failed to come into force only because of the United
States.

INRA III is most outstanding because it is virtually the only
commodity organization of both producers and consumers that
remains effective now. Similar commodity price-stabilization
schemes in sugar, coffee, tin and cacao have all failed.

It would indeed be encouraging if the 16-year-old INRA could
survive at a time when almost all countries are in favor of the
open market mechanism to form prices. The new agreement will last
for four years with provisions for two one-year extensions.

There are, we think, several factors which have contributed to
the success of the INRA which is administered by the
International Natural Rubber Organization.

First, the agreement groups producers which are responsible
for 97 percent of the world's natural rubber output and consumers
which account for more than 72 percent of global imports of
natural rubber. The high level of discipline of the three largest
suppliers -- Thailand, Malaysia and Indonesia -- who together
account for 90 percent of the global production has played an
especially crucial role in making the pact effective.

The second factor is the pragmatism and flexibility of the
reference price range set by both the producers and consumers as
the guidelines for the buffer stock manager in undertaking market
intervention either by releasing stocks at a time when prices
tend to rise steeply or by buying new stocks in a depressed
market. The price range, which is reviewed every 12 months, is so
pragmatic and flexible that it is highly responsive to market
forces.

The third factor is that the final round of negotiations for
the new agreement took place under strong market conditions with
natural rubber prices on the upward trend and the buffer stocks
nearly depleted. Given the economic recovery in almost all major
industrialized countries, the price rise may spiral way above the
price range.

Those factors have combined to further convince both the
producers and consumers that INRA should be renewed to guarantee
a steady supply of natural rubber and to curb wild price
fluctuations.

It is obviously much better for the consumers to have a
guaranteed supply at relatively stable prices, rather than having
to face an unpredictable market condition with wild price
gyrations.

Seen from the interests of the producers, relative price
stability is crucial for planning production and investments in
new estates to guarantee a steady supply.

The new agreement is obviously a boon to Indonesia, the second
largest producer in the world after Thailand. Rubber plantations
are especially important in the country because more than 90
percent of the 3.3 million hectares of rubber trees are owned by
smallholders. The commodity also is a major foreign exchange
earner, with annual exports of around 1.3 million tons worth $880
million.