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.