The Ambassador in Chile (Culbertson) to the Secretary of State

No. 1401

Sir: With reference to sections 8 and 9 of enclosure No. 1 and enclosure No. 3 to my despatch No. 1366, January 25, 1933, and to enclosure No. 3 of my despatch No. 1374, January [February] 7, 1933,15 I have the honor to transmit copies of a series of communications exchanged recently between the Chilean Foreign Office and this Embassy15a on the subject of treatment for American commerce equivalent to that granted European states under the so-called compensation agreements. Mr. Cruehaga’s note (enclosures Nos. 1 and 2) stated that the Chilean Government is well-disposed toward reaching an agreement with the United States which will adjust the payment of pending commercial credits and consequently trade relations. It then requests a statement of the amount of American frozen credits in Chile. In reply we estimated these credits at approximately 21,000,000 dollars (enclosure No. 3). Mr. Cruchaga then requested further details (enclosures Nos. 4 and 5). In our reply we furnished the information requested and availed ourselves of the opportunity to emphasize again the fact that the American Government does not look with favor upon compensation agreements but looks to the results obtained by the commerce of other countries under compensation agreements and seeks equivalent treatment for American commerce.

The policy pursued by this Embassy is in full accord with the Department’s instruction No. 1461 of February 6, 1933. However, while indicating on the one hand, the unsound commercial policy which lies back of compensation agreements, we have, on the other [Page 118] hand, made it clear that Chilean commerce is now enjoying without restrictions in the markets of the United States the maximum advantages which it enjoys under the French compensation agreement and that in fact the advantages are in principle more than those enjoyed in the French market since no restrictions are placed on Chile which are not equally applicable to all other countries. We therefore have made it clear that American commerce should receive similar benefits to those which other nations have exacted through compensation agreements. This point of view was fully developed in our memorandum of January 24, 1933 (enclosure No. 1 of despatch No. 1366, January 25, 1933). In that communication we stated that the American Government considers the results obtained from compensation agreements under which Chile has surrendered her control over a portion of her foreign exchange by placing in the hands of foreigners the disposition of foreign currency created by Chilean commerce. We pointed out that foreign interests are thus at liberty to use this foreign currency to reimburse themselves for goods exported to Chile and for the payment of back commercial debts. Our objective has been to impress the Chilean Government with the fact that Chile obtains freely exchange created by the sale of its products in the United States and that no steps are taken in the United States to block any amount of this exchange, and that therefore Chile should look with favor upon requests made by American interests through the commission of International Exchange Control for exchange and for other relief which can be readily granted.

The Department’s instruction No. 1461 of February 6, 1933, refers to the “release of foreign currency deposits belonging to Americans”. Without minimizing the many annoyances and difficulties which this problem has and may still present, we have made progress in closing out the large accounts and the Government has given us strong assurances that it will facilitate the withdrawal of small deposits (despatch No. 1397, February 28, 1933). We have therefore thought it best to give less prominence to the release of bank deposits among the equivalents which we are seeking from the Government (enclosure No. 6). If in the future the understanding on this subject which we have with the Government does not work satisfactorily it will be necessary to include them within the scope of the general understanding now under negotiation.

Having rejected as a matter of principle the negotiation of a compensation agreement similar to that exacted by France from Chile, we find open to us the general policy of using concessions granted to France as arguments in favor of granting in Chile foreign exchange to American commerce and in other ways granting relief to American interests. It is evident that there will be difficulties in persuading the Chilean authorities to accept definite obligations in an exchange [Page 119] of notes, although Mr. Cruchaga has said to me in conversations that he is willing to discuss this point. We have no concrete quid pro quo to offer. In a sense we suffer from our very liberality in that Chile is now able to ship nitrates freely to the United States without quota restrictions and without the payment of any tariff. We therefore accord to Chile more liberal treatment than that given by France or any other country under compensation arrangements. If we could create some disadvantage for Chilean commerce in the United States, we then could use the removal of that disadvantage for bargaining for the release of frozen credits and for the allocation of exchange for new business.

Presumably the American Government would not find it feasible to pursue a restricted policy of this kind and I believe that our liberality toward Chile will ultimately result, if not in the exchange of notes, at least in the adoption of a more liberal policy by the Chilean Government in dealing with particular cases. We may even be able to use in this case the same procedure which we followed at the time of the successful negotiation for the exchange of notes establishing the modus vivendi of September 28, 1931.16 In our note in the present case we could state, in somewhat different form our willingness to continue to grant to Chilean commerce most-favored-nation treatment and point out that this commerce is now receiving freely from the United States more than the maximum advantages granted to it under any of the compensation agreements. In the Chilean reply we might expect to receive assurances covering more exchange for the current needs of American commerce and for the liquidation of various types of frozen credits.

In case it proves impracticable to include our understanding in the exchange of notes, the alternative is to continue the method which we are now pursuing with some success; namely, to press for relief in particular cases and with patience and perseverance to insist upon equal and fair treatment, first, between American interests doing business in Chile and Chilean interests, and second, between American nationals and the nationals of any other country.

Respectfully yours,

W. S. Culbertson
  1. Herein printed as enclosure 2, p. 114.
  2. None printed.
  3. Foreign Relations, 1931, vol. i, pp. 926927.