[Congressional Record Volume 142, Number 134 (Wednesday, September 25, 1996)]
[Senate]
[Pages S11248-S11257]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           EXECUTIVE SESSION

                                 ______
                                 

              INTERNATIONAL NATURAL RUBBER AGREEMENT, 1995

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
go into executive session and proceed to the consideration of Executive 
Calendar No. 23, which the clerk will report.
  The legislative clerk read as follows:

       Treaty Document 104-27, the International Natural Rubber 
     Agreement of 1995.
       Resolved (two thirds of the Senators present concurring 
     therein), That the Senate advise and consent to the 
     ratification of The International Natural Rubber Agreement, 
     1995, done at Geneva on February 17, 1995, subject to the 
     following declaration:
       It is the sense of the Senate that ``no reservations'' 
     provisions as contained in Article 68 have the effect of 
     inhibiting the Senate from exercising its constitutional duty 
     to give advice and consent to a treaty, and the Senate's 
     approval of this treaty should not be construed as a 
     precedent for acquiescence to future treaties containing such 
     a provision.

  The PRESIDING OFFICER. Under the previous order, the pending business 
is the resolution of ratification. The previous order provides that the 
proposed declaration to the resolution is agreed to. Debate on the 
resolution is limited to 1 hour, of which 30 minutes is under the 
control of Senator Pell and Senator Helms, 30 minutes under the control 
of Senator Brown.
  Who yields time?
  Mr. HELMS. Would the Senator like to go first?
  Mr. PELL. The Senator should.
  Mr. HELMS addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Carolina is recognized.
  Mr. HELMS. I thank the Chair.
  Mr. President, please advise me when I have used 10 minutes.
  Mr. President, one of the most important responsibilities of the 
Senate Committee on Foreign Relations, and specified as such under the 
Senate rules, is to consider measures that ``foster commercial 
intercourse with foreign nations and safeguard American business 
interests abroad.''
  Throughout the 104th Congress, I have placed a high priority on 
measures that promote American commercial interests in the United 
States and overseas. During this Congress the Foreign Relations 
Committee has reported six bilateral tax treaties providing for reduced 
withholding tax liabilities and protection against the double taxation 
of American goods and services.
  During this Congress, the Foreign Relations Committee also reported 
nine bilateral investment treaties, or BIT's, as they are known around 
the world. BIT's between the United States and other countries can have 
an enormous impact in opening doors for American business in less 
developed markets. To date, the Senate has overwhelmingly approved all 
of the bilateral tax and investment treaties reported from our 
committee during the 104th Congress.
  Today, the Senate is considering yet another treaty that expands 
opportunities for U.S. business and protects American jobs. This 
treaty, the International Natural Rubber Agreement (INRA) is designed 
to stabilize product and prices of natural rubber. This agreement has 
been in effect for 16 years and has proved a useful tool for 
maintaining a relatively stable supply of natural rubber at a fairly 
consistent price. The pending treaty would extend the agreement for an 
additional 4 years.
  This commodity agreement essentially reauthorizes a buffer stock that 
stabilizes the price of natural rubber. The buffer stock is designed to 
buy and sell rubber in order to keep the price within 15 percent of a 
reference price established annually based on the market. The stock is 
financed by direct cash contributions from its members, who are both 
producers and consumers of natural rubber. Absent the development of a 
mature futures market for natural rubber, the agreement ensures 
predictable supplies of natural rubber priced at annual market rates.
  Virtually all Americans, whether aware of it or not, depend on rubber 
products every day of the week. Any American who drives a car, or rides 
a

[[Page S11249]]

bus, or takes a taxi to work relies on rubber products. Many Americans 
may not be aware that we are completely dependent upon foreign 
countries for our supply of natural rubber. In fact, synthetic rubber 
products still require some natural rubber.
  Here is the point. Seventy-five percent of all natural rubber is 
grown in only three countries--Malaysia, Thailand, and Indonesia. About 
80 percent of natural rubber is grown by small farmers, and it requires 
seven years for new rubber trees to reach full production level. Thus, 
a drastic reduction in rubber prices could force small farmers to 
convert their crops to more profitable commodities such as palm oil. 
Since natural rubber takes seven years to mature, valuable time could 
be lost before the market was once again provided with a reliable 
supply.
  In terms of jobs, the president of the Rubber Manufacturing 
Association testified before the Senate Foreign Relations Committee 
that the livelihood of more than 100,000 employees, and the thousands 
of suppliers to the rubber industry and its customers, depends on 
available supplies of natural rubber and the continued production of 
finished products. By keeping the cost of tires--and other rubber 
products that we all depend upon--relatively stable, U.S. consumers 
benefit directly from the agreement.
  Ensuring that small farmers will continue to grow rubber is therefore 
essential to ensuring an adequate supply level for the United States. 
One of the main reasons the United States signed the original 
agreement, it is known in short form as INRA--with broad bipartisan 
support--and its renewal in 1987, was to encourage producers to invest 
in planting new trees and to continue to harvest rubber to meet the 
projected increases in worldwide demands. Since the original INRA, 
production of natural rubber has doubled to keep pace with a similar 
rise in consumption of rubber products.
  Senate ratification of this treaty is essential to ensuring market 
stability as the United States and other consuming countries transition 
to a system that relies on private sector institutions to manage market 
risk. In a letter to me, dated January 22, 1996, the State Department 
said it ``shared industry's and labor's concern that a precipitous end 
to the accord would be disruptive.'' As we know all too well in 
Washington, private institutions do not replace public institutions 
overnight--much as we might like to see it be otherwise. INRA III will 
bridge the period of transition and decrease the potential for 
disruption of the natural rubber supply during the four year period in 
which the treaty will be in force.

  Membership in INRA has proved to be profitable to the U.S. Treasury. 
The original International Natural Rubber Agreement [INRA] was funded 
by the United States in 1980 with a contribution of $53 million. Since 
that time, the U.S. contribution has increased through profit and 
interest by $25 million and now stands at $78 million. Given this 
record it is evident that the U.S. Treasury will benefit directly from 
its membership in the International Natural Rubber Organization [INRO] 
in more ways than ensuring an adequate supply of natural rubber. When 
the U.S. contribution to the INRO is returned to the Treasury in four 
years, we can expect the U.S. share of INRO to have grown beyond its 
current level of $78 million.
  Commitment to INRA III will be funded without additional 
appropriations from the United States. According to the Office of 
Management and Budget, in a letter to me dated August 8, 1996, 
``because rolling over U.S. government resources currently in the INRO 
Buffer Stock Account will not require any legislation, ratification of 
INRA 1995 will not be subject to pay-as-you-go budgetary procedures, 
and will simply change the timing of the return of these assets to the 
U.S. Treasury.''
  According to the Office of Management and Budget, the proposed roll-
over of resources in the Buffer Stock Account from INRA 1987 to INRA 
1995 is based upon the provisions of INRA 1987, and the 1988 precedent 
of the Senate rolling over funds from INRA 1979 to INRA 1987. Some 
annual appropriations are necessary; specifically, the U.S. share of 
the administrative costs of INRO are estimated to be $300,000 per year.
  Finally, Mr. President, the administration, U.S. industry, and this 
Senator, agree that it is time to move toward a system which relies on 
private sector institutions to manage market risk. I agree with Senator 
Brown on that point. But, consequently, in correspondence with the 
Secretary of State and during a hearing of the Senate Foreign Relations 
Committee on June 20, 1996, I stated that industry must begin such a 
transition. So, this will be the last International Natural Rubber 
Agreement. However, industry needs sufficient time to create a 
mechanism and prepare for a smooth transition to such a system. Given 
the unique production challenges of natural rubber, ratification of 
INRA III will provide an adequate transition period.
  Mr. President, I ask unanimous consent that correspondence to me 
emphasizing the importance of this agreement be printed in the Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

         Executive Office of the President, Office of Management 
           and Budget,
                                   Washington, DC, August 8, 1996.
     Hon. Jesse Helms,
     Chairman, Committee on Foreign Relations, U.S. Senate, 
         Washington, DC.
       Dear Mr. Chairman: As you are aware, the Administration 
     strongly supports U.S. participation in the International 
     Natural Rubber Agreement (``INRA'') 1995 and has asked the 
     Senate to give this treaty prompt consideration and its 
     advice and consent to ratification. This letter is in 
     response to a request from the staff of your committee for 
     our views on the budgetary implications of U.S. 
     participation. In summary, because rolling over U.S. 
     government resources currently in the International Natural 
     Rubber Organization (INRO) Buffer Stock Account will not 
     require any legislation, ratification of INRA 1995 will not 
     be subject to pay-as-you-go budgetary procedures, and will 
     simply change the timing of the return of these assets to the 
     U.S. Treasury.
       The Administration proposes to roll over the current U.S. 
     share in the Buffer Stock Account, which totals approximately 
     $78.5 million, 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 Surplus Funds 
     Account, which is part of the Buffer Stock Account managed by 
     Rothschild Asset Management Ltd., Singapore.) We believe this 
     amount will be sufficient to cover all likely U.S. government 
     obligations during the life of INRA 1995.
       The proposed roll-over of resources in the Buffer Stock 
     Account from INRA 1987 to INRA 1995 is based upon the 
     provisions of INRA 1987, and the 1988 precedent of the Senate 
     rolling over funds from INRA 1979 to INRA 1987. Consistent 
     with the 1988 precedent, such a roll-over does not require 
     any authorizing or appropriation legislation, only treaty 
     ratification and U.S. government consent. Thus, a roll-over 
     of resources in the Buffer Stock Account is not subject to 
     pay-as-you-go procedures established by the Balanced Budget 
     and Emergency Deficit Control Act of 1985.
       The U.S. share of the administrative costs of running the 
     International Natural Rubber Organization are estimated to be 
     approximately $300,000 per year. These costs will require 
     annual appropriations, and the State Department's proposed 
     budget for FY 1997 includes money for this purpose in the 
     Contributions to International Organizations account.
       The Administration expects that at the end of the four-year 
     duration of INRA 1995, the objectives of INRA will be 
     achievable through the operation of free market mechanisms. 
     Therefore, INRA 1995 is intended to be the last such 
     agreement in which the United States participates, and the 
     U.S. share of the Buffer Stock Account (including buffer 
     stock trading profits and interest) will return to the U.S. 
     Treasury as miscellaneous offsetting receipts at that point. 
     The transfer of U.S. government assets from INRA 1987 to INRA 
     1995 will not affect the U.S. claim on those assets, but will 
     only change the timing of their return to the Treasury.
       Again, the Administration strongly supports U.S. 
     participation in INRA 1995 and awaits consideration of the 
     treaty by the full Senate. We appreciate the support that you 
     have given to this proposal and your expeditious action on 
     it.
       Please let me know if you would like any additional 
     information.
           Sincerely,
                                                     Jacob J. Lew,
     Acting Director.
                                                                    ____



                             Rubber Manufacturers Association,

                               Washington, DC, September 13, 1996.
     Hon. Jesse Helms,
     U.S. Senate, Dirksen Senate Office Building, Washington, DC.
       Dear Senator Helms: Withn the next week or so, the third 
     iteration of the International Natural Rubber Agreement will 
     be brought to the floor of the Senate for ratification.
       Supported by both industry and labor, INRA III is, in 
     essence, a routine extension of an Agreement (INRA I) which 
     has been in

[[Page S11250]]

     effect since 1979. INRA II, essentially a continuation of the 
     first, was submitted to the Senate by the Reagan 
     Administration and approved unanimously by a vote of 97-0. To 
     the extent INRA III differs from its predecessors, it does so 
     in a positive way, by making its economic provisions even 
     more market-oriented, and more automatic than discretionary.
       INRA, unlike other commodity agreements, has worked 
     successfully for more than 16 years.
       On behalf of the rubber manufacturing industry, I ask for 
     your support of this important Agreement.
           Sincerely,
                                                   Thomas E. Cole,
     President.
                                                                    ____

         United Steelworkers of America, Rubber/Plastics Industry 
           Conference,
                                    Akron, OH, September 11, 1996.
     Hon. Jesse Helms,
     U.S. Senate,
     Washington, DC.
       Dear Senator Helms: On behalf of the 97,000 members of the 
     Rubber/Plastics Industry Conference of the United 
     Steelworkers of America, I urge you to support ratification 
     of the International Natural Rubber Agreement (INRA III) when 
     it comes to the Senate floor in the near future.
       For the last 16 years, INRA has successfully met its 
     primary objective of assuring an adequate supply of natural 
     rubber for the world. In fact, since INRA began, global 
     natural rubber production has increased 50 percent. This is 
     especially important for the U.S. as the world's largest 
     consumer of natural rubber.
       Assured supplies of natural rubber are particularly 
     critical to the tire and rubber products industry and our 
     union members. To put it simply, you cannot manufacture such 
     products for our varied civilian and military transportation 
     needs--or provide jobs in this vital industry--without 
     natural rubber. Contrary to a common misconception, there is 
     no substitute for this critical industrial input. If future 
     supplies of natural rubber are inadequate, there can be no 
     question that job disruptions and losses among our members 
     would result.
       Also, consumers would be severely impacted. Every one cent 
     increase in the price of natural rubber costs the U.S. tire 
     industry $22 million on an annualized basis. Thus, consumers 
     could face tremendous price increases for tires and other 
     rubber products, and could very well face shortages.
       In the final analysis, the United States is one of the only 
     countries among the 28 nations covered by the treaty that has 
     not yet ratified it. We must do so by the end of this year or 
     the agreement that has served the world so well for almost 
     two decades will die. The Senate has previously recognized 
     the importance of INRA as reflected in the 97-0 vote in favor 
     of ratification when INRA was last renewed in 1988. I urge 
     your support on this matter of critical importance to our 
     union, its members and families--and the consumers who 
     purchase the products we produce.
           Sincerely yours,
                                                     John Sellers,
     Executive Vice President.
                                                                    ____



                                  Bridgestone/Firestone, Inc.,

                                   Wilson, NC, September 16, 1996.
     Hon. Jesse Helms,
     U.S. Senate,
     Washington, DC.
       Dear Senator Helms: I am writing on behalf of Bridgestone/
     Firestone, Inc. and the 2,200 employees of the Wilson Plant 
     to reiterate our strong support for the ratification of the 
     Third International Natural Rubber Agreement (INRA III), 
     which is scheduled for vote by the Senate this month. This 
     will continue a treaty that has effectively served the needs 
     of the U.S. tire industry.
       Natural rubber is a strategic commodity for the production 
     of tires as well as for a wide variety of other products. For 
     the past 25 years, the International Natural Rubber 
     Organization (INRO), which operated under the authority of 
     the INRA Charter, has helped ensure a stable price and long-
     term supply of natural rubber, benefiting both producers and 
     buyers of natural rubber. Without this stabilizing influence, 
     we believe that the international rubber market could easily 
     be disrupted, jeopardizing the availability of natural rubber 
     and long-term damage to the industry.
       INRA is different from many other commodity agreements. 
     First, it uses a ``buffer stock'' mechanism (rather than 
     export controls or market quotas) to dampen the swings in 
     market prices that can hurt both producers and consumers. 
     Second, the price intervention levels are directly and 
     automatically linked to free market trends. Third, and 
     perhaps the most important, it has worked.
       During the last several years, much time and effort has 
     been spent to achieve the consensus among producing and 
     consuming countries embodied by this new agreement. We 
     believe that a reasonable compromise among the parties has 
     been reached in the adopted INRA III document, and that its 
     ratification will serve the interests of the U.S. tire and 
     rubber industry.
       As a major U.S. tire manufacturer and an employer of 2,500 
     in North Carolina and nearly 35,000 nationwide, we urge you 
     to vote for the ratification of INRA III by the U.S. Senate. 
     We are eager to provide whatever assistance or information 
     may be required to assist you in attaining this goal.
           Sincerely,
                                                     John McQuade,
     Plant Manager--Wilson.
                                                                    ____



                                   Kelly Springfield Tire Co.,

                               Fayetteville, NC, January 26, 1996.
     Hon. Michael Kantor, Ambassador,
     U.S. Trade Representative,
     Washington, DC.
       Dear Ambassador Kantor: I have been working very closely 
     with Senator Jesse Helms on the International Natural Rubber 
     Agreement (INRA) since before Thanksgiving. Success in 
     getting the Agreement renewed is crucial to the future health 
     of North Carolina's large tire industry and our plant, in 
     particular, which is the largest in the world.
       It is my understanding that the Administration will sign 
     INRA III shortly and send it to the United States Senate for 
     its advice and consent. This would not have occurred without 
     your personal support and leadership.
       Thank you, Ambassador Kantor, for all your efforts in 
     moving INRA III forward.
           Sincerely,
                                                    J.R. Konneker.

  Mr. HELMS. In order for the United States to retain its membership in 
INRO, the United States must ratify INRA 1995 prior to the end of 1996. 
I ask that the Senate move expediently to a vote on this treaty.
  Mr. GLENN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Ohio. Who yields time? The 
Senator from Rhode Island?
  Mr. PELL. Mr. President, I yield 8 minutes to the Senator from Ohio.
  Mr. GLENN. I thank my distinguished colleague from Rhode Island.
  Mr. President, I rise today also to speak on behalf of Senate 
ratification of the third International Rubber Agreement, INRA III.
  As my colleagues are well aware, INRA III is a renewal of an existing 
commodity agreement. This is not new. It has been in existence between 
more than two dozen nations who are either producers or consumers of 
natural rubber. The first INRA was ratified in 1979. It was renewed in 
1987. INRA III was negotiated in 1994-95 with the very active 
participation of the United States. According to the Department of 
State.

       . . . 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.

  In the negotiations, the United States sought and achieved a number 
of improvements in the new agreement. After a very lengthy interagency 
review, INRA III was formally signed by the United States and sent to 
the Senate for our ratification.
  United States participation in INRA has been supported by Republican 
and Democratic administrations, including those of Presidents Carter, 
Reagan, Bush, and Clinton. So it has enjoyed broad bipartisan support 
in the Senate when INRA I and INRA II were considered.
  This year, the Senate Foreign Relations Committee recommended 
ratification of INRA III by a near unanimous and bipartisan majority. 
The agreement is strongly supported by the Rubber Manufacturers 
Association and by the Rubber/Plastic Industry Conference of the United 
Steelworkers.
  Mr. President, more than two-thirds of the world's production of 
natural rubber comes from just three countries: Thailand, Malaysia, and 
Indonesia. The purpose of INRA is very simple. It is to ensure an 
adequate supply of natural rubber at fair and stable prices without 
distorting long-term market trends and to foster expanded natural 
rubber supplies at reasonable prices.
  As Secretary of State Christopher points out in his letter of 
submittal accompanying the agreement:

       Prior to conclusion of INRA 1979, rubber prices had 
     historically been unstable with strong rises.
  This was particularly noticeable, Mr. President, in 1951, in 1955, in 
1960 and in 1973, 1974, followed by sharp and sudden declines. ``This 
behavior not only destabilized producers' incomes, but also contributed 
to inflation in industrial countries.'' That was a statement by 
Secretary of State Christopher.
  So those ups and downs in 1951, 1955, 1960, 1973 and 1974 are what 
led to INRA being passed in 1979.
  The Secretary continued:

       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.


[[Page S11251]]


  In other words, what that says in simpler terms is, it's good for the 
consumers of this country that we have this kind of supply arrangement 
that does not permit price fluctuations.
  In contrast with other commodity arrangements which have sought to 
control prices, INRA uses a buffer-stock mechanism to avoid severe 
price fluctuations which can injure both producing and consuming 
countries. Absent alternative institutions to manage market risk, the 
agreement represents the best way of assuring predictable supplies of 
fairly priced natural rubber. INRA III will provide a transition period 
needed to allow industry time to prepare for a free market in natural 
rubber and to allow for the further development of these alternative 
institutions.
  That is very important. I already pointed out why to my colleague 
from North Carolina, because the fact is this will be the last INRA. 
After this, we go to a free market, and this time period for this INRA 
that we are going to approve today, I trust, will provide for arranging 
for development of these alternative institutions.
  INRA has effectively discouraged cartel-like behavior on the part of 
the producing countries by supporting prices sufficient to ensure 
adequate production, as well as a fair return to the producer, while 
giving consuming countries an equal voice in how this unique commodity 
agreement is implemented.
  The best part about it is, Mr. President, it has worked, it has been 
successful. Over the life of INRA I and II, production has increased by 
50 percent to meet rising demand, yet prices have remained relatively 
stable. That is a great testament to the success of INRA I and II since 
they have been in effect. I repeat that. Over the life of INRA I and 
II, production has increased 50 percent to meet rising demand, yet 
prices have remained relatively stable.
  Natural rubber is a component of every tire and many rubber products. 
There is no substitute. The amount of natural rubber used varies 
depending on the type of tire or rubber product. All aircraft, as an 
example, however, including military planes, have tires which contain a 
high percentage of natural rubber.
  The economic impact on our whole Nation of ups and downs in the price 
of rubber is very real. A 1-cent-per-pound rise in natural rubber 
prices costs the United States an additional $22 million. Hence, the 
importance of price and supply stability is readily apparent. Short 
supplies or unreasonably high prices would be costly to American 
consumers and could be devastating to the tire and rubber industry in 
the United States.
  I will say, we have a very substantial part of this industry 
represented in my home State of Ohio.
  U.S. participation in INRA III should not require any additional 
money to cover our share of the buffer stock. It is my understanding 
the administration and the Senate are agreed that we will roll over 
moneys already invested in the buffer stock. This arrangement seems the 
simplest and most sensible means of addressing the financing question 
and is the same procedure which was used successfully for the 
transition from INRA I to INRA II.
  In closing, Mr. President, as the world's largest consumer of natural 
rubber, U.S. participation in INRA III is critical to the continued 
viability of the arrangement. I urge my colleagues to approve INRA III 
in the broad, bipartisan fashion which has characterized consideration 
of this issue to date.

  Mr. President, I yield back the remainder of my time to Senator Pell.
  Mr. PELL addressed the Chair.
  The PRESIDING OFFICER. The Senator from Rhode Island.
  Mr. PELL. Mr. President, I yield 3 minutes to the Senator from 
Maryland.
  The PRESIDING OFFICER. The Senator from Maryland is recognized.
  Mr. SARBANES. Mr. President, I thank the Senator.
  Mr. President, this is the second extension of a treaty that has 
already been approved by this body on two separate occasions: in 1980 
on a vote of 90 to 1, and in 1988 on a vote of 97 to 0.
  The purpose of this treaty is to stabilize the supply and price 
levels of natural rubber in the world market. Through a buffer-stock 
mechanism, the treaty assures that natural rubber will be available to 
the United States in sufficient supply and at reasonable prices.
  Mr. President, securing a reliable supply of natural rubber at fair 
prices is essential for our tire and rubber industry. As a letter from 
treaty supporters put it, ``you cannot manufacture such products for 
our varied civilian and military transportation needs--or provide jobs 
in this vital industry--without natural rubber. Contrary to a common 
misconception, there is no substitute for this critical industrial 
input. If future supplies of natural rubber are inadequate, there can 
be no question that job disruptions and losses would result.''
  This treaty is extremely important because 75 percent of the world's 
natural rubber supply is produced in just three countries--Thailand, 
Indonesia and Malaysia--and the United States is, by far, the world's 
largest importer of natural rubber. Since natural rubber is a commodity 
whose production is strictly limited by climate, without this treaty, 
the United States could be subject to great market volatility.
  On the one hand, one possible problem could be the formation of 
cartels that could push the price of rubber way up, almost beyond 
reach; on the other hand, at the other extreme is a danger that rubber 
production could become unprofitable, and there would be a disruption 
in supply. This treaty charts the way between these two extremes.
  The INRA addresses these issues not by eliminating market pricing and 
production, but by restraining some of the volatility. INRA's buffer-
stock mechanism goes into action only when prices move beyond 15 
percent above or below the reference price. That reference price is 
adjusted annually to reflect long-term market trends.
  Under the Reagan administration, the U.S. Trade Representative 
distinguished the rubber agreement from other commodity agreements by 
stating the following:

       Experience shows that most arrangements with economic 
     measures have not worked and often result in market 
     disruptions by attempting to support prices at unrealistic 
     levels.
       In contrast, however, the rubber agreement has been 
     successful in moderating price fluctuations through a market-
     oriented mechanism that operates consistent with market 
     trends.

  My colleague from Ohio put out a very important figure in terms of 
the impact of rapid price fluctuations. Every 1-cent increase in the 
price of natural rubber is estimated to cost the U.S. tire and rubber 
industry $22 million on an annualized basis.
  This agreement is strongly supported not only by U.S. tire and rubber 
manufacturers, but also by organized labor--the people who work in the 
tire and rubber manufacturing industry. It has been supported by four 
successive administrations: Presidents Carter, Reagan, Bush, and 
Clinton. We have the benefit of 16 years of experience with this treaty 
to know that it can and does work.
  Mr. President, it would be a great mistake if we did not take 
advantage of this opportunity to give our advice and consent to 
ratification of the International Natural Rubber Agreement. I urge my 
colleagues to do so. I yield the floor.
  Mr. HOLLINGS. Mr. President, I rise in support of the International 
Natural Rubber Agreement [INRA] and urge the Senate to ratify this 
agreement. This is the third INRA. The first two agreements were 
ratified by this body by overwhelming margins in 1980 and 1988. The 
third agreement merits that same level of support.
  Since entry into force of the first agreement, INRA has effectively 
met its basic purpose: to encourage cultivation of natural rubber by 
reducing market volatility and thus ensuring adequate supply. Unless 
INRA is ratified, we will return to the unstable price situation that 
characterized the period before the first INRA went into effect. Price 
volatility discourages investment in natural rubber production, which 
in turn affects supply. Rubber trees can only be grown in a few areas 
of the world and production does not begin until at least 5 years after 
the trees are planted. Therefore, a reduction in planting has a long, 
adverse effect on supply.
  As the world's largest consumer of natural rubber, the United States 
has a particularly strong economic interest in assuring stability and 
adequate supply for the future. Natural rubber is an essential product 
for which there is no

[[Page S11252]]

substitute. Seventy-five percent of the world's rubber production is 
used in the manufacture of tires. Every tire must contain some amount 
of natural rubber in order to meet required performance and quality 
specifications. If U.S. rubber manufacturing plants cannot obtain 
adequate supplies of natural rubber, jobs will be disrupted and 
consumers will face increased prices. In South Carolina alone, more 
than 10,000 workers are employed in the rubber manufacturing industry.
  The administration has proposed funding INRA by rolling over the 
existing U.S. share of the buffer stock. I endorse this proposal. A 
rollover is specifically permitted under the terms of INRA. This was 
the method used when the second INRA was ratified. Based on historic 
experience, these funds should be adequate to meet our obligations 
under the third INRA. And these funds will be returned to the taxpayers 
when the agreement terminates.
  I urge my colleagues to support the resolution of ratification.
  Mr. HEFLIN. Mr. President, I rise in support of the resolution of 
ratification of the third International Natural Rubber Agreement 
[INRA]. The purpose of INRA is to assure adequate supplies of natural 
rubber by stabilizing natural rubber prices without distorting long-
term market trends. It accomplishes this through the operation of a 
buffer stock which buys and sells natural rubber whenever the price 
falls outside of a market-based price band. The INRA benefits both 
producers and consumers of natural rubber.
  Natural rubber is a critical material used in virtually every tire 
and many rubber products made in the United States. There is no 
material that can serve as a complete substitute for natural rubber. 
The United States is the largest consumer of natural rubber in the 
world, and adequate supplies are critical to major U.S. manufacturers 
such as the automotive industry. For 16 years, the United States has 
benefited substantially from the market stability which resulted from 
the operation of the two previous INRA agreements. Failure to ratify 
the third INRA is likely to result in price volatility and supply 
shortages. This in turn will have serious adverse consequences for 
workers and consumers across the country and in my own State.
  Alabama is a major producer of tires and other rubber products. 
Companies manufacturing these products have invested an estimated $1.5 
billion in their Alabama facilities. They employ nearly 6,000 workers. 
The price volatility and supply shortages that would follow if INRA is 
not ratified would have an immediate impact on these workers. And the 
price effect of short supplies would soon be felt by consumers.
  INRA has the support of the Rubber/Plastic Industry Conference of the 
United Steel Workers of America as well as the tire and rubber products 
industry. Other major consumer and producer nations have already 
approved INRA. Our action today will allow this beneficial agreement to 
go into effect.
  Finally, the administration is not requesting an appropriation of 
funds to carry out this agreement. Rather it proposes rolling over the 
U.S. share of the buffer stock under the second agreement to carry out 
our obligations under the third agreement. This is precisely the course 
of action taken when the second INRA agreement was approved. When the 
agreement ends, these funds will return to the Treasury.
  Mr. President, I urge the Senate to support INRA.
  Mr. SHELBY. Mr. President, today the Senate is considering 
ratification of the International Natural Rubber Agreement. This 
agreement will impact large sectors of our economy, primarily those for 
which natural rubber is a vital interest.
  The first International Natural Rubber Agreement was ratified in 1979 
by all major rubber producing and consuming countries. The second 
agreement was ratified in 1988 and expired in December 1995. The 
purpose of renewing this agreement is to stabilize the price of natural 
rubber and to guarantee adequate supplies. The agreement accomplishes 
this through the International Natural Rubber Organization which 
maintains a natural rubber buffer stock from which the organization may 
purchase or sell natural rubber to help control the volatile price.
  Agricultural growth for natural rubber is limited to a small area 
around the equator, and it takes 5 to 7 years to cultivate this 
product. Seventy-five percent of the world's natural rubber is grown in 
just three countries--Thailand, Indonesia, and Malaysia. I generally do 
not favor Government intervention in the marketplace to stabilize 
prices, but failure to ratify this agreement could lead to a few small 
countries colluding to fix natural rubber prices. Even small 
fluctuations in the price of natural rubber have a significant impact 
on American industry; a one-cent increase in the natural rubber price 
costs industry $22 million. Sharp fluctuations in the natural rubber 
price will, in turn, impact American consumers heavily.
  Moreover, this program is not draining the taxpayers' money; the 
original U.S. contribution was $53 million and our share of the 
organization has grown to $78 million. When the INRA terminates, these 
funds will be returned to the Treasury.
  The Government should play a minimal role in regulating or 
controlling the price of any commodity. There are rare circumstances 
where, for the sake of American consumers, it is permissible for the 
Government to ensure the stability of certain commodity prices, and 
this is one of those circumstances. I urge my colleagues to support 
this agreement.
  Mr. ROBB. Mr. President, I rise in support of ratification of the 
International Natural Rubber Agreement [INRA III].
  For the last 16 years, INRA has provided the consuming nations of the 
world with a reliable supply of natural rubber at stable prices. The 
United States, as the world's largest consumer of natural rubber, has 
much to gain from the stabilization provided by the agreement. Many 
believe that the tires and other rubber products U.S. consumers use 
daily do not need natural rubber. But that is simply not the case.
  Natural rubber is, in fact, a critical material in the manufacture of 
most rubber products. Aircraft tires used by the U.S. military have a 
particularly high percentage of natural rubber and it just so happens 
the world's largest aircraft tire plant is located in Danville, VA. At 
least a third of the plant's production provides aircraft tires to the 
U.S. military, and this production depends on the availability of 
natural rubber.
  U.S. consumers and workers also have much to gain from renewal of 
INRA. Every one-cent rise in the price of natural rubber costs the U.S. 
tire and rubber industry $22 million on an annualized basis. Such cost 
increases will inevitably lead to higher prices for consumers and 
possible shortages and potential job losses.
  On behalf of the nearly 4,000 workers in Virginia that are employed 
in the tire and rubber industry and for the broader economic and 
defense preparedness interests of the United States, I urge the 
favorable consideration of the International Natural Rubber Agreement.
  In closing, I ask unanimous consent that a letter I sent to National 
Security Adviser Anthony Lake be printed in the Record, as well as his 
return reply.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                  U.S. Senate,

                                    Washington, DC, June 12, 1996.
     Hon. W. Anthony Lake,
     Assistant to the President for National Security Affairs, The 
         White House, Washington, DC.
       Dear Tony: I wanted to convey my strong support for the 
     International Natural Rubber Agreement [INRA], and urge that 
     the National Security Council expedite its review of the 
     accord and submit it to the Senate for its advice and 
     consent.
       The INRA serves an important purpose in ensuring an 
     adequate supply of rubber to U.S. corporations using this 
     product in bulk in their manufacturing operations. The 
     Chairman of Goodyear Tire & Rubber Company, Mr. Stan Gault, 
     visited my office yesterday to emphasize that very point and 
     explain how important extension of the rubber pact is to his 
     corporation. Should the pact not be renewed, our industrial 
     base would face serious production and supply shortages, and 
     the American consumer would ultimately be forced to pay 
     higher prices.
       The Senate supported renewal of INRA in 1988 by a wide 
     margin, 97-0, and I believe there is a consensus to support 
     extension of the pact once again. I hope the White House can 
     submit the accord to the Senate in short order so that we can 
     move ahead.
           Sincerely,
     Charles S. Robb.
                                                                    ____


[[Page S11253]]

                                              The White House,

                                     Washington, DC, July 3, 1996.
     Hon. Charles S. Robb,
     U.S. Senate,
     Washington, DC.
       Dear Chuck: I am writing in response to your letter urging 
     support for renewal of the International Natural Rubber 
     Agreement (INRA). I fully agree with you on the importance of 
     providing adequate natural rubber supplies, at reasonable 
     prices, for U.S. manufacturers to ensure U.S. consumers pay 
     reasonable prices for rubber-related products.
       I am pleased to report that on June 19, President Clinton 
     transmitted the INRA to the Senate for advice and consent. 
     The new agreement incorporates improvements sought by the 
     United States to help ensure that the INRA fully reflects 
     market trends and is operated in an effective and financially 
     sound manner. We believe that renewal of the agreement will 
     provide the transition period necessary for the industry to 
     prepare for a free, open market in natural rubber.
       We appreciate your interest in this important matter.
           Sincerely,
                                                     Anthony Lake,
         Assistant to the President For National Security Affairs.

  The PRESIDING OFFICER (Mrs. Frahm). Who yields time?
  Mr. BROWN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Colorado is recognized.
  Mr. BROWN. Madam President, I yield myself 20 minutes.
  Madam President, the advocates of this treaty have come to the floor 
with the suggestion that this measure has been considered and approved 
by large margins in the past. That assertion is correct. It has been. 
They have come with the assertion and the implication that the American 
companies that buy rubber products support this agreement. Madam 
President, I believe that assertion is largely correct as well.
  They have come to the floor with the assertion that this measure has 
broad support of rubber producers. And I believe that assertion is 
correct as well. They have come to the floor and suggested that, 
implied that the labor organizations that work for the big rubber 
companies may support this agreement. Madam President, I believe that 
assertion as well is correct.
  This country has had experience with cartels. It is not new. It is as 
old as commerce is itself. It is perhaps a most natural inclination 
that could come about. One who reads Warren Buffett's books, in terms 
of investing, is quickly impressed with his understanding of the 
market. And one of the things he looks for is markets where there is 
not competition or there is reduced competition, where it is possible 
for the industry to have a greater margin because of the limited 
competition--or the franchise, as he refers to it.
  The simple fact is, if you have a very competitive commodity market, 
margins, that is, profits, tend to be less than they are if it is a 
somewhat protected market. It is natural and understandable that 
businesses and entrepreneurs would seek to limit competition, would 
seek to minimize risk. That is human nature. And it is a way to 
maximize profits.
  Madam President, I think our responsibilities go further than simply 
responding to big labor or to big business or to large producers of 
rubber. Our responsibilities go to the consumers of this country and 
the citizens of this country as well. We have had experience in recent 
years with cartels. When we have a limited number of producers, and 
they organize and they work together to control prices, we have seen 
what happened.
  The lessons of the 1970's in dealing with the oil cartel was a 
dramatic reminder to the Americans of what happens when competition is 
reduced. The oil cartel was an association of oil-producing companies 
that conspired together to dramatically increase oil prices; and they 
did it. It had a dramatic and shocking impact on the consumers of 
America, and, as a matter of fact, the economy of the entire world.
  We have a number of other examples where countries have talked about 
developing cartels. Thankfully, they have been resisted. As a matter of 
fact, the distinguished chairman of the Foreign Relations Committee is 
one who has been a key fighter in the effort to eliminate many of these 
cartels. I think Members and American citizens will be surprised to 
learn that many of these cartels' efforts to control the market had the 
blessing of the Federal Government.
  The coffee association. Ironically, this country produces very little 
coffee, but we have been a member of what was an attempt to develop a 
coffee cartel. One can understand why the producing country would want 
a coffee agreement that would limit competition of their product, but 
why in the world would the United States want to be a member of it? We 
import coffee.
  The distinguished chairman of the committee played a key role in 
helping us eliminate the coffee cartel. Imagine taking American 
taxpayers' money to participate in a cartel that had the impact of 
boosting the price Americans have to pay for coffee.
  When that agreement was proposed by administrations--and it had been 
proposed by administrations in the past--it was not the American 
taxpayer they were looking out for. They were responding to the special 
interest groups that had found a way to limit competition. I do not 
condemn people for looking out for their own economic interest, but I 
do think it is wrong for American legislators to think that their 
responsibility goes only to respond to those special interests.
  This Congress in the last few years has played a key role in 
eliminating some of these cartels or efforts to limit competition. 
International organizations designed to help control, manipulate the 
price of coffee or jute or other products that we import have fallen by 
the wayside, and great progress has been made when we focus on them.
  Now what comes to the floor is an agreement on rubber. Madam 
President, some facts are painfully clear. One, the United States does 
not produce rubber. We are an importer. We are a consumer of rubber. Is 
rubber important? It has been alleged so. The answer by the advocates 
of this treaty is yes. Madam President, I agree completely. Of course 
natural rubber is important, important in the world economy and 
important in our economy.
  They have alleged that the rubber agreement will help producing 
countries. Madam President, I agree. It will help the producing 
countries because it will help them get a better price for their 
product.
  They have alleged that the rubber agreement will help the tire 
companies and the rubber processors in this country. And, yes, I agree, 
it will help them.
  It will bail out rubber producers by protecting them against lower 
prices, because, you see, the way the agreement is set up is, we put up 
the money with other countries, and when prices get lower or are 
attempted to be dropped, the association will step in and buy rubber at 
a low price. That does help the producers. It will help the tire 
companies. They have a huge investment in inventory. That investment in 
inventory is at risk because it can drop. By stabilizing the price, 
keeping it from getting too low by buying up inventory when there is a 
big supply, it will help those tire companies from ever suffering a 
loss on that inventory or at least some of the dangerous suffered loss 
on that inventory.
  It will also protect them against competition because when they are 
out there trying to maintain a high price, and the price of rubber 
falls, someone else can come in and produce the product and undersell 
them in the market. So I agree, it is in the interest of the big rubber 
companies to maintain a restriction on competition, as this agreement 
implies.
  But, Madam President, it is also true that America is the biggest 
consumer. It is in our interest to have low prices, not high prices for 
rubber. How in the world do you justify taking taxpayers' money--in 
this case $78 million of money--to be used to guarantee that prices do 
not get too low?
  Are we standing up for the American taxpayer when you do that? I do 
not think anyone can seriously suggest we are. Yes, I talked to some 
Members who tell me with great earnestness that if we do not have this 
agreement, if we do not guarantee the producers against the 
possibilities of low prices, that maybe nobody will produce rubber at 
all. Madam President, if they believe that--and I believe many of them 
who said that are sincere; I do not count the chairman of the committee 
in that group--but there are Members who do believe that the market 
system would not work without Government controls and without 
Government assistance and that indeed people might go out of business 
in producing rubber and we would not have any rubber at all if we did 
not have Government interference. And if they believe that, they will 
want to support this agreement.
  But, Madam President, the history of economics is quite clear. When 
the economic system provides rewards and a good price, people want to 
produce it because they want to make money. And when it does not, they 
drop production and cut back. And that responsiveness is what makes the 
market system work. And the reality is, that

[[Page S11254]]

product after product after product that is produced in the American 
marketplace responds to market incentives, and that far from going out 
of business, this will make it more healthy if we eliminate the 
agreement.
  Madam President, I hope as Members vote they will ask themselves some 
questions. Will producers not produce without Government subsidies? The 
advocates of the treaty will tell you yes. I think the facts are quite 
clear, in the industries across our land, production is not dependent 
on Government subsidies. It is a function of the marketplace and 
marketplace incentives. Will tire producers not process tires without 
Government subsidies?

  The advocates of this agreement, some of them, will tell you yes, 
that there is a danger of people not producing tires in America--or, 
for that matter, around the world--to meet the market demand unless we 
have a Government program to subsidize them and stabilize them. Those 
who believe that will want to support this agreement.
  Madam President, the facts belie that allegation. The fact is that a 
strong, healthy, vibrant economy thrives on competition and is stifled 
by Government controls and Government subsidy programs. Will buying up 
rubber supplies lower the price? Here is an interesting question. Will 
buying up the supplies of rubber, when there is a surplus on the 
market, increase price or lower price?
  The advocates of this treaty have come to the floor and said this 
agreement will help give us lower prices. If you believe that buying a 
product in the marketplace will lower its price, then you will want to 
support this treaty. Madam President, anybody who believes that ought 
to take Economics 101 or simply use common sense. Buying the product 
props up the price. That is why the producing countries are interested 
in this agreement. They want higher prices. That is why they fought so 
hard for this.
  This treaty is simple logic. This treaty is a simple question: If you 
want to be responsive to the big rubber companies who want to stabilize 
their product and avoid risk with their inventory, you will want to 
vote for it; if you want to please big labor who works for those 
companies and is concerned about the potential of outside competition 
in their marketplace, you will want to support the treaty; if you want 
to help out the producers of rubber, who are all overseas, you will 
want to support the treaty.
  But, Madam President, if you are concerned about competition in our 
economy, you will be concerned about a treaty that reduces competition; 
if you are concerned about consumers in America, you will want to be 
concerned about a treaty that guarantees they will not have low prices, 
because that is the purpose of this measure. Madam President, if you 
are concerned about the taxpayers of this country, you will have some 
misgivings about taking $78 million of our taxpayers' money and giving 
it in subsidies or putting it out in subsidies for these big producers.
  This is a vote that people should have no doubt about because the 
sides are very clear. Big labor, big business, lobbyists for importers, 
all favor the treaty; people who are concerned about the taxpayers of 
this country and about the consumers of this country will want to vote 
against the treaty.
  I was concerned particularly about the lesson it sends and the 
message it sends with regard to our economy. If there is one hallmark 
of the American economy, it has been a concern about the concentration 
of power and a commitment to a competitive economy. Our very existence 
of the antitrust laws comes out of an experience when you had cartels 
and restrictions on competition. The Sherman Antitrust Act and the 
Clayton Act and other measures that have come forth in this area have 
focused on our efforts to ensure we continue to have price competition 
in products just such as rubber.
  In that effort, I sent an inquiry to the Congressional Research 
Service, the American Law Division. Madam President, I ask unanimous 
consent to have their entire response to my letter, along with my 
letter, printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                  U.S. Senate,

                                    Washington, DC, July 11, 1996.
     Hon. Janet Reno,
     Attorney General of the United States, Department of Justice, 
         Washington, DC.
       Dear Madam Attorney General: Your answers to the questions 
     below concerning the application of United States antitrust 
     law and practice to an organization's business practices 
     would be greatly appreciated.
       (1) Under United States antitrust law, is it permissible 
     for 26 competing producers and purchasers of a particular 
     commodity to form a single organization for the purpose of 
     regulating their business interests or activities?
       (a) Would the fact that three of the producers provide 92% 
     of the commodity affect your answer to question 1?
       (b) Would the fact that three of the purchasers buy 77% of 
     the commodity affect your answer to either question 1 or 1a?
       (2) Under United States antitrust law, can an organization 
     of producers and purchasers be formed for any of the 
     following expressed purposes:
       (a) To achieve a balanced growth between the supply and the 
     demand for a commodity in order to alleviate difficulties 
     arising from shortages or surpluses of that commodity?
       (b) To stabilize a commodity price in order to avoid 
     excessive price fluctuations that might adversely affect the 
     long-term interests of both producers and purchasers?
       (c) To stabilize the earnings of the producers of a 
     commodity and to increase their earnings based on expanding 
     the commodity supply at fair and remunerative prices?
       (d) To ensure an adequate supply of a commodity to meet 
     purchasers' needs at a ``reasonable price'' (determined by 
     the organization)?
       (e) To take feasible steps to mitigate members' economic 
     difficulties in case of a commodity surplus or shortage?
       (f) To expand international trade in, and market access 
     for, products derived from the commodity?
       (g) To improve the overall competitiveness of a commodity 
     by supporting research and development of commodity-related 
     products?
       (h) To facilitate the efficient development of a commodity 
     by improving its processing and distribution?
       (f) To promote international cooperation and consultations 
     regarding commodity supply and demand and to coordinate 
     commodity research?
       (3) Under United States antitrust law, can an organization 
     of producers and purchasers of a particular commodity set a 
     reference price which establishes a permissible price range 
     for that commodity?
       (4) If members of an organization of producers and 
     purchasers of a particular commodity were to contribute 
     substantial funds to establish a large buffer stock of that 
     commodity to enable the organization to intervene in the 
     market to stabilize the supply of that commodity and to 
     defend the organization's reference price, would that violate 
     United States law?
       (a) Specifically, would it be permissible under United 
     States law for an organization of producers and purchasers of 
     a particular commodity to establish a buffer stock?
       (b) Specifically, would it be permissible under United 
     States law for an organization of producers and purchasers of 
     a particular commodity to use the buffer stock to intervene 
     and regulate the market?
       (5) Under United States law, can an organization of 
     producers and purchasers of a particular commodity defend its 
     reference price--support its minimum price--by buying any 
     market surplus of that commodity that causes the commodity 
     price to drop 15% below the organization's reference price?
       (6) Under United States law, can an organization of 
     producers and purchasers of a particular commodity sell some 
     of its buffer stock to cover a commodity shortage?
       (7) Under United States law, whenever the commodity price 
     is 15% above the reference price, can an organization of 
     producers and purchasers of a particular commodity sell some 
     of its buffer stock to decrease the market price?
       (a) If the answer to question 7 is no, please discuss fully 
     what aspects of United States law are violated by the 
     organization's behavior in question 7?
       (8) Under United States law, is it permissible for an 
     organization of producers and purchasers of a particular 
     commodity to decide what grades of that commodity are 
     eligible to be included in its buffer stock?
       (9) Under United States law, may an organization of 
     producers and purchasers of a particular commodity penalize 
     members for failing to meet their obligations to contribute 
     to the buffer stock by suspending their voting privileges in 
     that organization?
       (10) Under United States law, is it permissible for an 
     organization of producers and purchasers of a particular 
     commodity to conduct an annual financial audit of its 
     activities?

[[Page S11255]]

       (a) Would the behavior in question 10 tend to suggest 
     anticompetitive practices? Please explain.
       (11) Under United States law, is it permissible for an 
     organization of producers and purchasers of a particular 
     commodity to require all its members to accept as binding its 
     decisions regarding the market for that particular commodity?
       (12) Under United States law, is it permissible for an 
     organization of producers and purchasers of a particular 
     commodity to have its members formally agree not to limit or 
     undermine in any way the organization's decisions concerning 
     that commodity?
       (13) Under United States law, can an organization of 
     producers and purchasers of a particular commodity limit the 
     potential liability of each of its members for the 
     organization's activities to the amount each member 
     contributes to the administration of that organization and to 
     the creation of a buffer stock?
       (14) Before supporting the development of a more efficient 
     supply of a particular commodity, is it permissible under 
     United States law for an organization of producers and 
     purchasers of that particular commodity to consider the 
     development's financial implications to all of its producers 
     and purchasers?
       (15) Under United States law, is it permissible for an 
     organization of producers and purchasers of a particular 
     commodity to encourage and facilitate ``reasonable freight 
     rates'' as determined by that organization for the purpose of 
     providing a more efficient and regular supply of the 
     commodity?
       I thank you in advance for your assistance and 
     consideration of this matter.
           Sincerely,
                                                       Hank Brown,
     U.S. Senator.
                                                                    ____

                                   Congressional Research Service,


                                      The Library of Congress,

                                    Washington, DC, July 24, 1996.
     To: Senate Committee on the Judiciary, Subcommittee on 
         Constitution, Federalism, and Property Rights, Attention: 
         Jack Saul
     From: American Law Division
     Subject: Partial Answers to Some Questions About the 
         Antitrust Implications of Forms/Activities of Certain 
         Business Organizations
       You have requested that we provide you with answers to 
     several hypothetical questions concerning some activities of 
     business organizations or associations. As we indicated in a 
     conservation with your office, however, many or most of the 
     questions you have submitted cannot be answered definitively 
     by us; we will attempt, therefore, to set out some of the 
     considerations which would be relevant to decisions by (1) 
     the Antitrust Division of the Department of Justice to 
     investigate or prosecute an activity, or (2) a court hearing 
     a complaint (Government or private), and which require us to 
     answer most of the questions with either ``it depends'' or 
     ``probably not.'' A small number of your questions can be 
     answered with probable ``Okays.''\1\
---------------------------------------------------------------------------
     \1\ Footnotes to appear at end of article.
---------------------------------------------------------------------------
       Your first question--``Under United States antitrust law, 
     is it permissible for 26 competing producers and purchasers 
     of a particular commodity to form a single organization for 
     the purpose of regulating their business activities?''--is 
     the basis for all those which follow. Certainly the act of 
     forming an organization comprised of members with like 
     interests is neither unheard of nor automatically (per se) 
     unlawful; that is precisely the rationale for the formation 
     of trade associations or other cooperative activity among 
     competitors that is meant to enhance their business or 
     professional positions. Because the antitrust laws are 
     concerned with competition and not competitors, they are not 
     generally invoked to challenge the existence of 
     organizations, only organizational behavior or activities 
     which may disadvantage consumers (i.e., the ``market''). (For 
     the same reasons, an organization such as the one posited 
     in Question 2 (one formed for the purpose of carrying out 
     the specific purposes set out in Questions 2a-2i), would 
     not likely offend any of United States antitrust laws, 
     although, as we discuss below, and the enclosed article 
     illustrates, the actual carrying out of some of them may 
     constitute violations of those laws.) \2\
       Market share data is most generally used with respect to 
     the likely consequences of a merger or acquisition, i.e., 
     with whether the ``effect of [the transaction] may be 
     substantially to lessen competition, or to tend to create a 
     monopoly.'' \3\ Accordingly, the information contained in 
     Questions 1a and 1b (three producers in the proposed 
     organization supply 92% of the commodity in question; three 
     purchasers in the proposed organization buy 77% of the 
     commodity) would not likely affect the lawfulness of the 
     formation or existence of an organization or association. 
     Those market-share numbers could, however, be determinative 
     of the lawfulness of several of the activities described in 
     your subsequent questions. Because the use of market power 
     has the potential to harm consumers, it has been suggested 
     that the market power of the participants in an organization 
     may be an appropriate starting point in an antitrust analysis 
     of the organization's actions: an examination of an agreement 
     among competitors, for example, should focus on determining 
     whether the agreement's (organization's) provisions ``enrich 
     the participants by harming consumers'' (i.e., ``whether the 
     participants have an incentive to behave in anticompetitive 
     ways'').\4\
       Using such a test, and assuming the market-share numbers 
     you offer in Questions 1a and 1b, agreements or by-laws 
     expressing the purposes you set out in Questions 2a-2i, any 
     concerning the establishment or use of ``buffer stocks,'' as 
     well as any that spell out a participant's obligation to act 
     in accordance with organization-designated rules designed to 
     maintain a stable market price for the commodity at issue, 
     would be ideal candidates for close antitrust scrutiny. In 
     addition, use of ``buffer stocks'' to influence or stabilize 
     prices, as would any agreement or action directly or 
     indirectly affecting price, would constitute price fixing 
     under Section 1 of the Sherman Act (15 U.S.C. Sec. 1). 
     Notwithstanding its decision in Broadcast Music, Inc. v. 
     Columbia Broadcasting System that seems to suggest a 
     tolerate for at least some agreements that technically fix 
     prices,\5\ the Supreme Court has stated innumerable times 
     that
       ``The aim and result of every price-fixing agreements, if 
     effective, is the elimination of one form of competition. The 
     power to fix prices, whether reasonably exercised or not, 
     involves power to control the market and to fix arbitrary and 
     unreasonable prices. The reasonable price fixed today may 
     through economic and business changes become the unreasonable 
     price of tomorrow. Once established, it may be maintained 
     unchanged because of the absence of competition secured by 
     the agreement for a price reasonable when fixed.''\6\
       Situations similar to those described in questions 4b (use 
     of ``buffer stock'' to ``intervene and regulate the 
     market''), 5 (use of a ``reference price'' and ``buying any 
     market surplus * * * that causes the commodity price to drop 
     15% below the organization's reference price''), and 7 (sale 
     of some of ``buffer stock'' to cause market prices to 
     decrease when they are 10% above the reference price) have 
     been addressed by the Court in, e.g., United States v. 
     Socony-Vacuum Oil Co.\7\ In that case, the Court declared 
     unlawful a program pursuant to which gasoline companies 
     effectively placed a ``floor'' under prices by purchasing 
     surplus gasoline on the spot market. Noting that the program 
     was instituted in order to prevent gasoline gasoline price 
     from dropping sharply, the Court stated that even if the 
     agreeing companies ``were in no position to control the 
     market, to the extent that they raised, lowered, or 
     stabilized prices they would be directly interfering with the 
     free play of market forces'':
       ``[U]nder the Sherman Act a combination formed for the 
     purpose and with the effect of raising, depressing, fixing, 
     pegging, or stabilizing the price of a commodity in 
     interstate or foreign commerce is illegal per se.''\8\
       As the enclosed article notes, the Court has also taken the 
     position that per se price fixing occurs even when the 
     agreement attempts to decrease a commodity's price (the 
     situation described in Question 7):
       ``The respondent's [competing physicians who agreed to 
     limit fees charged to certain patients] principal argument is 
     that the per se rule is inapplicable because their agreements 
     are alleged to have procompetitive justifications. The 
     argument indicates a misunderstanding of the per se concept. 
     The anticompetitive potential inherent in all price-fixing 
     agreements justifies their facial invalidation even if 
     procompetitive justifications are offered for some.''\9\
       Question 9 (re whether an organization of producers and 
     purchasers of a particular commodity may ``penalize members 
     for failing to meet their obligations to contribute to the 
     buffer stock by suspending their voting privileges'') is one 
     of the few to which the answer is ``Probably yes'' if the 
     organization rule violated is not one found likely to have an 
     anticompetitive effect.\10\ Suspension of organization voting 
     privileges probably does not violate the antitrust laws,\11\ 
     and is certainly not likely to considered as a per se 
     violation of them.\12\ On the other hand, any organization 
     rule directed at maintenance of a ``buffer stock'' is, as 
     noted above, likely subject to antitrust scrutiny; further, a 
     finding that full access to the organization was necessary in 
     order for the denied member to effectively compete in the 
     market could also affect the antitrust lawfulness of a 
     suspension of voting rights.
       An annual financial audit of an organization's activities 
     (Question 10) would probably not present an antitrust problem 
     so long as the audit were conducted in a manner that would 
     not permit organization members to achieve any competitive 
     advantage over other members: an audit conducted by a third 
     party, and in which any reported data were aggregated so as 
     not to indicate the source of any particular information 
     would probably pass antitrust muster (Question 10a).
       We do not know of any antitrust reason that an organization 
     would be required to support an activity/development it 
     considered not to be in its best interests; accordingly, 
     there would not seem to be any antitrust reason that would 
     prevent an organization from ``consider[ing]'' the 
     ``financial implications to all of its producers and 
     purchasers'' of the ``development of a more efficient supply 
     of a particular commodity'' (Question 14).
       Depending upon what is meant by ``encouraging'' and 
     ``facilitating'' ``reasonable freight rates,'' such an 
     activity could subject an organization of producers and 
     purchasers of the commodity to be shipped to antitrust 
     sanctions. If, for example, ``encouragement''

[[Page S11256]]

     and ``facilitation'' translated to an organization-sponsored 
     or -enforced boycott of shippers whose rates the organization 
     did not consider ``reasonable,'' the organization could be 
     considered as a combination in restraint of trade in 
     violation of Section 1 of the Sherman Act;\13\ endorsement or 
     encouragement or sponsorship of various pricing schemes in 
     which freight costs are included in the price paid by buyers, 
     on the other hand, have received varying treatment by the 
     courts.\14\
                                                  Janice E. Rubin,
                                             Legislative Attorney.


                               footnotes

     \1\ We are also supplementing this memorandum with a copy of 
     an article, ``The Future of Horizontal Restraints Analysis,'' 
     by James T. Halverson, reprinted in Collaborations Among 
     Competitors: Antitrust Policy and Economics, Fox and 
     Halverson, eds., Section of Antitrust Law, American Bar 
     Association, 1991, at 659-674. The article discusses at 
     length virtually all of the cases mentioned in our July 22 
     conversation with your office.
     \2\ ``The law of horizontal restraints has undergone 
     considerable change in recent years. Starting with the 
     Supreme Court's decision in Broadcast Music, Inc. v. Columbia 
     Broadcasting System,  441 U.S. 1 (1979), the courts have 
     become increasingly reluctant to apply a strict rule of per 
     se illegality predicated on particular characterizations of 
     conduct at issue. Instead, the courts have been more willing 
     to explore the economic effects of collaborative conduct 
     between and among competitors under the rule of reason 
     approach. The retreat from the per se rule has led to the 
     development of new legal rules for analyzing horizontal 
     restraints and of more sophisticated microeconomic models to 
     guide the application of those rules.'' Collaborations Among 
     Competitors (note 1) at 655.
     \3\ 15 U.S.C. Sec. 18 (Section 7 of the Clayton Act). See 
     also the Horizontal Merger Guidelines promulgated jointly by 
     the Department of Justice and the Federal Trade Commission on 
     April 2, 1992 (reprinted in a Special Supplement to 62 
     Antitrust & Trade Regulation Report (April 2, 1992)).
     \4\ Collaborations Among Competitions (note 1) at 801.
     \5\ 441 U.S. 1 (1979).
     \6\ United States v. Trenton Potteries, Co., 273 U.S. 392, 
     397 (1927).
     \7\ 310 U.S. 150 (1940).
     \8\ Id. at 221, 223 (emphasis added).
     \9\ Arizona v. Maricopa Medical Society, 457 U.S. 332, 351 
     (1982).
     \10\ ``[T]he courts have long recognized that every 
     association must have some type of limiting rules, criteria, 
     or disciplinary procedures which, when invoked, restrain 
     trade at least incidentally. In determining whether such 
     rules . . . constitute unlawful horizontal concerted refusals 
     to deal, courts typically have examined whether the 
     collective action is intended to accomplish a goal justifying 
     self-regulation and, if go, whether the action is reasonable 
     related to the goal. It also has been considered significant 
     that the members actually making the decision to exclude were 
     not economic competitors of the excluded party.'' ABA 
     Antitrust Section, Antitrust Law Developments (3d ed. 1992) 
     at 86-87 (citations omitted).
     \11\ But see, Fashion Originators' Guild of America, Inc. v. 
     Federal Trade Commission, 312 U.S. 457 (1941), affirming a 
     Commission cease and desist order pursuant to which the Guild 
     was prohibited from carrying out its plan to penalize (via a 
     boycott of them) Guild members (textile and garment 
     manufacturers) who sold to retailers who sold ``style-
     pirated'' garments: ``In addition to [violating the edicts of 
     the Sherman and Clayton Acts concerning concerted refusals to 
     deal, and ``narrowing the outlets'' to which garment 
     manufacturers may sell and from which retailers may buy, and 
     requires each manufacturer to ``reveal to the Guild the 
     intimate details of their individual affairs''], the 
     combination is in reality an extra-governmental agency, which 
     prescribes rules for the regulation and restraint of 
     interstate commerce, and provides extra-judicial tribunals 
     for determination and punishment of violations, and thus 
     `trenches upon the power of the national legislature''. 312 
     U.S. at 465 (citations omitted).
     \12\ Northwest Wholesale Stationers Inc. v. Pacific 
     Stationery & Printing Co., 472 U.S. (1985). There, the Court 
     refused to find a per se antitrust violation in the expulsion 
     from membership of a member that had refused to abide by the 
     rule of the subject organization (a buying cooperative). The 
     case is discussed is the enclosed article, at page 666.
     \13\ See note 11 discussion of Fashion Originators' opinion.
     \14\ See enclosed material copied from ABA Antitrust Law 
     Developments (full citation in note 10).
  Mr. BROWN. Madam President, the first question--and I will read a 
portion of their answer because I think it is quite relevant to this 
question of this treaty's impact on reducing competition. The question 
is, under the U.S. antitrust law, is it permissible for 26 competing 
producers and purchasers of a particular commodity to form a single 
organization for the purpose of regulating their business activities?
  That was an effort to sum up in a question what this rubber treaty, 
this rubber agreement, is designed for. The American Law Division, I 
thought, would have a good handle on what U.S. law is, and if this 
happened outside of the support of the U.S. Senate in the treaty 
arrangement, would this agreement be legal under antitrust laws? Is 
what we are about to approve something that is legal under the 
antitrust laws? Or are we, by approving this treaty, making something 
that is illegal permissible?
  Their answer will be in depth in the Record, but I want to quote 
briefly from their response because I think it is direct and to the 
point. This is from the American Law Division of the Congressional 
Research Service:

       Because the use of market power has the potential to harm 
     consumers, it has been suggested that the market power of the 
     participants in an organization may be an appropriate 
     starting point in an antitrust analysis of the organization's 
     actions: an examination of an agreement among competitors, 
     for example, should focus on determining whether the 
     agreement's [that is, the organization's] provisions ``enrich 
     the participants by harming consumers'' (i.e., ``whether the 
     participants have an incentive to behave in anticompetitive 
     ways'').
       Using such a test, and assuming the market-share numbers 
     you offer in Questions 1a and 1b, agreements or by-laws 
     expressing the purpose you set out in Questions 2a-2i, any 
     concerning the establishment or use of ``buffer stocks,'' as 
     well as any that spell out in participant's obligation to act 
     in accordance with organization-designated rules designed to 
     maintain a stable market price for the commodity at issue, 
     would be ideal candidates for close antitrust scrutiny.

  Madam President, in other words, the agreement we are considering 
today would be an ideal candidate for close antitrust scrutiny.
  If Members have a doubt about how to vote, they ought to be concerned 
that the very kind of agreement we are putting forth here would be a 
candidate for close antitrust scrutiny. Those are my words which I have 
interjected.
  Continuing:

       In addition, use of ``buffer stocks'' to influence or 
     stabilize prices, as would any agreement or action directly 
     or indirectly affecting price, would constitute price fixing 
     under Section 1 the Sherman Antitrust Act.

  Let me repeat that, Madam President: ``* * * would constitute price 
fixing under Section 1 of the Sherman Antitrust Act.''
  Anybody who votes on this treaty who thinks they are stocking up for 
the American consumers ought to think about that, because there is real 
indication here that what we are about to do would violate the 
antitrust laws if it were considered on its own merit without the 
blessings of the U.S. Senate in the treaty format.
  They go on to quote from the Broadcast Music versus Columbia 
Broadcasting decision by the Supreme Court. I will quote their passage 
that they have selected from the Supreme Court decision:

       The aim and result of every price-fixing agreement, if 
     effective, is the elimination of one form of competition. The 
     power to fix prices, whether reasonably exercised or not, 
     involves power to control the market and to fix arbitrary and 
     unreasonable prices. The reasonable price fix today may 
     through economic and business changes become the unreasonable 
     price of tomorrow. Once established, it may be maintained 
     unchanged because of the absence of competition secured by 
     the agreement for a price reasonable when fixed.

  Madam President, I am under no illusions that this treaty will be 
ratified today. I am cheered by recent progress, though, of eliminating 
some of these international cartels, and I am cheered greatly by the 
distinguished chairman of the committee and a commitment that this will 
be the last time this kind of measure comes before the U.S. Senate with 
regard to rubber. His plea for a phaseout period is a reasonable and 
thoughtful argument. I appreciate the great support he has given to 
American consumers as he has dealt with this issue in the past.
  Madam President, as Members consider this issue, I hope very much 
they will ask themselves if they are comfortable in taking $78 million 
of taxpayers' money to be used to stabilize prices.
  The PRESIDING OFFICER. The Senator has used 20 minutes.
  Mr. BROWN. I yield myself an additional 5 minutes.
  The PRESIDING OFFICER. The Senator is recognized.
  Mr. BROWN. Madam President, I hope they will ask themselves if they 
are comfortable taking $78 million of taxpayers' money to help out the 
big tire companies and the other special interests that will benefit by 
this. I hope they will ask themselves if they are comfortable in 
passing or ratifying something that appears to violate our very 
antitrust laws, if they hadn't put it in the form of a treaty. I hope 
they will ask themselves whether or not they are comfortable in telling 
consumers that we are going to protect them against lower prices.
  Madam President, this agreement is an embodiment of special 
interests. There isn't anybody lobbying against the treaty. There have 
been tire companies lobbying on the hill for it. There have been people 
interested in higher prices for rubber lobbying for it. There have been 
representatives of corporations and labor on the hill lobbying for it.
  Madam President, there hasn't been anybody lobbying against it. The 
taxpayers don't really have a lobby. The

[[Page S11257]]

consumers don't really have a lobby. No one pays people to come up here 
and speak for them--except one group. You see, the people who sent us 
here believed and thought that it was our obligation to stand up for 
them. I think most of them would be surprised to know that sometimes 
when they don't have a lobbyist, that voice goes unheard.
  Madam President, this agreement is wrong. It is wrong because it is 
anticompetitive. It is wrong because it is a response to the special 
interests. It is wrong because it is a misallocation of taxpayers' 
money. And it is wrong because it sets the bad example for what a 
competitive economy is all about. At a point in our world's history 
when the rest of the world is waking up to the advantages of free 
enterprise and competition, it is a shame to see the United States 
consider and enact this kind of anticompetitive agreement.
  Madam President, I yield the floor and retain the balance of my time.
  The PRESIDING OFFICER. Who seeks recognition.
  Mr. PELL. Madam President, how much time do I have?
  The PRESIDING OFFICER. The Senator has 8 minutes 47 seconds.
  Mr. PELL. Mr. President, I rise to express my strong support for the 
third International Natural Rubber Agreement, which was reported 
favorably by the Foreign Relations Committee 3 months ago. After 
holding a hearing on this important measure, our committee agreed that 
it would clearly serve the interests of the United States and ordered 
it reported favorably on a voice vote.
  I believe that the Natural Rubber Agreement is a clear example of the 
way in which both producing and consuming nations of a major natural 
resource can work together to ensure adequate supply and stable prices. 
Its primary purposes are to encourage investment in rubber production 
in order to assure adequacy of supply, and to set up a mechanism to 
prevent excessive volatility in prices. These functions are 
particularly important because the United States is the largest 
importer of natural rubber, while just three countries--Thailand, 
Indonesia, and Malaysia--control 75 percent of the world's production. 
Without a mechanism like the INRA, U.S. tire and rubber manufacturers 
as well as consumers would be more vulnerable to cartel-like behavior 
that raises prices and creates uncertainty of supply.
  U.S. participation in INRA has been supported by four successive 
administrations, Democratic and Republican alike, and has received the 
advice and consent of the Senate on two previous occasions. The 
original agreement was adopted in 1980 by a vote of 90 to 1, and the 
first extension in 1988 was approved unanimously, by a vote of 97 to 0. 
The United Steelworkers of America has called ratification of this 
treaty ``a matter of critical importance to our union, its members and 
families--and the consumers who purchase the products we produce.'' If 
the United States fails to ratify this treaty by the end of this year, 
it could mean the end of an agreement which has served to the benefit 
of the United States and the world for the last 16 years.
  Mr. President, during the course of my service in the Senate I have 
risen many times in support of treaties that have come under attack. 
There are currently a number of extremely important treaties pending 
before the Senate that I deeply regret have not been taken up during 
this session. The Chemical Weapons Convention is only the most recent 
example, but several other agreements such as the U.N. Convention on 
the Law of the Sea, the Convention on Biological Diversity, and the 
Convention on the Elimination of All Forms of Discrimination Against 
Women, should also be taken up at the earliest opportunity. I welcome 
the chance to consider the International Natural Rubber Agreement 
today, and I urge that it be followed expeditiously by the other 
treaties I have mentioned.
  In closing, let me say that a failure to approve this treaty now 
would be a great mistake. The objections that have been raised are not 
borne out by our experience with this agreement, and I urge my 
colleagues to join me in giving their advice and consent to its 
ratification.
  I yield the floor.
  The PRESIDING OFFICER. Who seeks recognition?
  Mr. BROWN. Madam President, my distinguished friend from Rhode Island 
has summarized the case well, and, as is always the case, he is a very 
accurate describer of events and facts. In this case, I find myself 
coming to an opposite conclusion. But I continue to admire his 
commitment to a sound presentation.
  Madam President, I want to indicate that I think he is right that 
both Democratic and Republican administrations in the past have 
supported the agreement. I indicate that he is right. I think both the 
large corporations and the unions--at least it is my information--
support the agreement. But, Madam President, I want to invite the 
Members' attention to what happens if this agreement is not ratified, 
the specter that the distinguished Senator has raised. What happens? If 
the agreement is not ratified, $78 million goes back in the Treasury 
that would be used to prop up prices of natural rubber. In other words, 
the taxpayers of this country get a $78 million break.
  Second, if this agreement is not ratified, we will have lower prices 
for rubber than we would if the agreement is ratified.
  Third, if the agreement is not ratified, we will have greater 
competition in the marketplace.
  Finally, I think if the agreement is not ratified, we will have set 
an example that this country is serious about competition and its 
antitrust laws, and we will have renewed a commitment to our consumers. 
My sense is that returning money to the Treasury, lower prices for 
consumers, increased competition in the marketplace are good things, 
and that saying no to the special interests is appropriate as well. So 
at least in this Senator's judgment, we have a responsibility to vote 
against the treaty.

  I retain the balance of my time.
  The PRESIDING OFFICER. Who seeks recognition?
  Mr. PELL. How much time remains?
  The PRESIDING OFFICER. There are 5 minutes 30 seconds.
  Mr. PELL. I am happy to yield that back.
  The PRESIDING OFFICER. The Senator from Colorado.
  Mr. BROWN. I yield back all time as well.
  The PRESIDING OFFICER. The question is on agreeing to the resolution 
of ratification.
  Mr. PELL. Madam President, I ask for consideration of the resolution 
before the Senate by a division vote.
  The PRESIDING OFFICER. A division is requested. Senators in favor of 
the resolution of ratification will rise and stand until counted. 
(After a pause.) Those opposed will rise and stand until counted.
  On a division, two-thirds of the Senators present and voting having 
voted in the affirmative, the resolution of ratification is agreed to.
  Mr. BYRD. Madam President, is the Senate in executive or legislative 
session?
  The PRESIDING OFFICER. It is in executive session.
  Mr. BYRD. Madam President, I ask unanimous consent that the President 
be notified of the approval of the treaty.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________