825.506/8: Telegram
The Ambassador in Chile (Collier) to the Secretary of State
[Received August 2—3:15 p.m.]
97. My telegram number 64, May 13, 5 p.m. and despatches 1079, May 21st, and 1135, July 16th en route,32 with enclosures to the last. I report that insurance bill, modified and made more drastic, was sent recently to Congress with urgent message requesting immediate passage in form presented. This draft of law limits insurance business in future to nationally organized companies and requires that all reinsurance be effected through the caja of reinsurance. However, it permits foreign companies now doing [business?] in Chile to reorganize as national companies. Minister of Hacienda tells me that the general provision that two-thirds of stock must be owned by citizens or residents of Chile does not apply to last-mentioned case and that existing foreign companies may reorganize and stock may be held by foreigners in the same proportions as at present. Agents for American companies dread requirement of reorganization as national companies because of great powers given to Superintendent of Insurance who may not only fix rates but determine amount of risk that may be carried and dictate with what company reinsurance may be effective. Nevertheless agents of American companies believe that the grant of such powers to Superintendent of Insurance, although apt to be exercised capriciously for the purpose [of] driving foreign insurance out of business, cannot be questioned in principle as violative of international or constitutional right. Proposed legislation does not appear confiscatory unless refusal to allow continuance of a business which has acquired a goodwill value can be so considered.
In order to prevent insurance from being written by foreign owners of property located in Chile in foreign companies, the act as now drafted in section 59 imposes tax on such policies equal to half of premium that would be charged by Chilean national companies and imposes very heavy fines in addition to [for?] failure to pay. Prior to incorporation of this provision in the bill, the big American business interests had expected to avoid hardships of the law by insuring in New York with New York companies and the foreign insurance doing business in Chile had hoped this possibility of the insurance business being thus diverted from Chile to foreign countries would convince the framers of the bill of the inexpediency of the proposed legislation.
All are greatly perturbed by new provision and wish assistance of our Government.
[Page 544]I have had three opportunities to discuss matter directly with Minister of Hacienda who earnestly advocates this legislation. I got him to withdraw the request for urgent action by Congress but matter has been referred to a joint committee of House and Senate and it is possible that measure will be rushed through notwithstanding he assured me his purpose in withdrawing urgency request was to permit me to communicate with you and obtain instruction.
There have been intimations that article 59 would be stricken out if we would not oppose rest of legislation. Best-informed agent for American companies believes this will be the maximum which we can accomplish and that if this section is eliminated it will result in either abandonment of the bill or eventual repeal.
I know of no treaty obligations preventing Chile from limiting insurance business to its own citizens. I request Department’s instructions as to any principles of international Jaw that may be invoked. I have made representations to Ministry of Foreign Affairs that proposed law is injurious to mutual commercial interests, inconsistent with fundamental idea of insurance to spread loss and that it is particularly hazardous to Chile to seek to insure itself, considering possibility of catastrophe by earthquake with enormous incidental loss.
I have told Minister of Hacienda that in my opinion section 59 infringes upon sovereignty foreign countries and trespasses upon right of foreigners to make legitimate contracts in foreign countries with other foreigners. I believe he is impressed by this reasoning and that it is for this reason there have been intimations that he may change this provision especially if optional provisions were withdrawn. But I have specifically declared that I have no authority to compromise in this manner and that I await your instructions. British, French and German colleagues, who have been cooperating, are much pleased with my success in getting Minister to notify Congress that measure may not be considered urgent.
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Foreign Chamber[s] of Commerce in Chile have all or practically all petitioned Government not to pass measure and some Chilean business interests are expressing doubt as to wisdom of legislation and it is said that some national insurance companies fear workings of law but hardly dare oppose it.
I have been careful to say nothing that indicates possibility of any retaliation afterward and other so-called nationalistic legislation intended to promote Chilean industry.
[Paraphrase.] If the Department believes it wise to point out that this legislation which is intended to exclude foreigners or to limit unorganized opportunities is undesirable, I recommend that it be done through conversations between you and the Chilean Ambassador to the United States.
[Page 545]I have conversed with two vice presidents of the National City Bank of New York, now in Santiago, and with Doctor Kemmerer and we agree that the proposed legislation is likely to be detrimental to the real economic interests of Chile but [omission?] because of official or business relations with the Chilean Government. Instructions requested. [End paraphrase.]
- Despatches not printed.↩