[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]
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.
____________________