File No. 862.85/535

The Chargé in Peru ( Smith) to the Secretary of State


For your information and for Page, Shipping Board:

Negotiations concluded and ready to sign, approval delayed by State Department cable August 2 [1], 6 p.m.1 Contract gives to Shipping Board unrestricted use of Sierra Cordoba, Luxor, Rhakotis and the four sailing vessels. Anubis and Uarda, after repairs, to trade between Peru, England, France or the United States as Peru may request with cargo which may be licensed by the United States. If not sufficient cargo at the port ready for loading Shipping Board have right to send the ship elsewhere to obtain full cargo and have right to substitute other steamers same as Uruguayan contract. Shipping Board will set aside in the United States pre-war sound value of ships. Their estimate of sound value 549,098 pounds sterling. [From] this will be taken, as due, cost of repairs. … Shipping Board will pay as advance charter an amount equal to 6 per cent per annum on sound value of 549,098 pounds sterling on such part of that amount as is not used for payment repairs as those [Page 715] repairs may become due. Peru reserves Marie for their own use. We finance repairs and deduct value of same from charter hire of all the steamers. In the same way we make repairs to their steamer Constitution if on examination she is found to be worth repairing. We agree to charter three [thousand] ton ship as soon as possible for service between Callao, San Francisco and Australia to carry only licensed cargo.

Shipping Board will have option to purchase these ships six months after the war for the price fixed by the Peruvian Government for their expropriation in accordance with Peruvian law No. 2696. Price fixed is the sound pre-war value less repairs which will make price practically nothing. Under the law as we understand it, however, Germany can have the boats back by paying cost of repairs plus other charges such as cost to Government of keeping boats, protection of same, port charges, and all other incidental expenses including claims arising from the sinking of the Lorton and damage to Peruvian trade through unrestricted submarine campaign. The value of our option depends on fulfillment of these or your understandings. Aside from that in my opinion it has a problematical value hope you approve. In any event the best trade we could make, and I consider it most advantageous, ships could not be purchased now under their present laws. This is purely a commercial contract and contains no agreement or guarantees binding the United States Government. The success of these negotiations is due to the assistance and cooperation of Mr. Smith and Lieutenant Hufnagel.1

As [Foreign Minister?] is to be interpellated in Congress upon the question of ex-German vessels, he earnestly requests that these negotiations be terminated at the earliest possible moment, and we urge approval of this contract. Gardner.

  1. Telegram of Aug. 1 not printed.
  2. Lieut. Luis F. E. Hufnagel, assistant naval attaché in Chile and Peru.