Monday, Oct. 13, 1958

Controls Are No More Than First Aid

THE METALS MALADY

THE United Nations General Assembly reverberated last week with protests from the world's tin-producing nations against Russian dumping of tin on the world market. Delegates from tin-rich Bolivia, Malaya, Indonesia and Thailand complained bitterly that a price slump caused by Russian dumping threatened to undermine their economies. The trouble was not confined to tin producers; for many a nation economically dependent on a single metal or commodity, fluctuations in price and demand have become an economic nightmare.

As the biggest user of many raw materials, the U.S. has not only a vested interest but a heavy responsibility in the matter of fluctuating world markets. Any dip in the U.S. economy can mean a big income drop for nations that count heavily on exports to the U.S.--as the U.S. recession proved. Russia's all-out economic war has aggravated the situation, made it more important than ever for the U.S. to help stabilize the free world's metals markets, now suffering from an overproduction stomachache.

One answer is international agreements to control production and exports. Though the U.S. still considers "cartel" a dirty word, it has been forced to change its ideas about cartel-like marketing agreements simply because drops in raw material prices can easily undo all the good of U.S. foreign aid programs. The U.S. is a member of the International Sugar Council, which has tried to stabilize sugar prices since 1954 by setting up export quotas for 25 nations. It has reluctantly led the way in trying to set up an international stabilization plan for coffee to save the world market from the results of coffee-planting binges. Last week 15 Latin American countries signed an agreement restricting coffee exports, but, by failing to curb overproduction, their real problem, left open the question of how long the agreement would work. Now the U.S. is also taking the lead in setting up a study group to plan a stabilization board for the world's hard-pressed lead and zinc producers. It favors these plans in the hope that they may replace unpopular import quotas that have alienated friends, such as the quotas put on lead and zinc imports to protect domestic producers.

The stabilization plan for sugar has worked reasonably well. But restrictions on metals present greater problems, largely because of wide variances in production costs. Canada is reluctant to enter a lead and zinc cartel because her mining economy is booming, would prefer a free market in which high-cost producers, such as in the U.S., would be eliminated. Says W. S. Kirkpatrick, executive vice president of Canada's Consolidated Mining & Smelting: "The only real cure is to reduce output by closing down the high-cost producing mines. The natural economic law of supply and demand should be allowed to work without interference from governments."

One argument against metals controls is that agreements tend to set prices too high, make quotas too rigid. Furthermore, metals controls are easily frustrated by the discovery of new or cheaper sources of supply--or by the market dealings of a maverick. The International Tin Council ran out of cash trying to support prices in the face of Russian dumping because it set its floor price at an unrealistic level of 91 1/4-c- per lb. With the council out of support funds, the price dropped to 80-c- per lb., is now firming up.

To protect Bolivia and other friendly nations, the U.S. buys no tin from Russia; last week Canada decided to buy its tin only from members of the International Tin Council. Since there is no guarantee that Iron Curtain countries will abide by any metals agreements, Western nations can make stabilization programs work only by standing together in restricting purchases from Russia.

U.S. economists consider stabilization plans only short-term, stopgap methods of straightening out world markets, are convinced that they are as harmful as farm price supports--and will work no better in the long run. Says Simon D. Strauss, vice president of American Smelting & Refining Co., the world's largest smelter and refiner of lead, zinc and copper: "Such agreements, in the short run, would restore order to the market. But, for the long run, metals restrictions are useless. They usually protect the weakest, least efficient party to the pact."

Most businessmen believe that the best and quickest way to cure the glut in many commodities is not a governmental plan but voluntary agreements to trim output and bring supply in line with demand. The copper industry has shown how producers can solve many of their own problems. Copper producers voluntarily cut back production in the face of a big supply and falling prices. The market stabilized itself without any artificial controls, and last week copper prices were moving up.

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