Memorandum by the Legal Adviser (Hackworth)

The Bolivian Minister and the First Secretary of the Legation, Señor de Lozada, called on the Secretary this morning regarding the embargo on the sale of arms. Mr. Welles and Mr. Hackworth were present.

The Minister was disturbed by the conclusion said to have been reached by the United States District Attorney, Mr. Conboy, in New York, that, even though goods had been purchased and paid for by Bolivia, the transaction could not be regarded as a completed sale prior to the President’s Proclamation of May 28, where delivery to the Bolivian Agent had not taken place prior to that date. He produced certain canceled checks showing that the supplies had been paid for either in whole or in part; that in some cases the goods had actually been manufactured and were ready for delivery, while in other cases they were in process of manufacture at the time the Proclamation was issued.

It was suggested to the Minister that this Department would recommend to the Department of Justice that, in those cases where the goods had actually been manufactured and paid for, an exception should be made. He then raised the question as to the status of goods which had only been partially manufactured or partially paid for. He mentioned in particular cases in which the manufacturer had, on the basis of orders placed, purchased or contracted for materials, and expressed the view that such contracts should not be interfered with; that if, for example, Bolivia should, because of the establishment of peace or for other reasons, decide that the supplies were not needed, the manufacturers would undoubtedly have a legal right to contend that Bolivia was bound nevertheless to take the goods because of the contracts. He expressed the view that likewise Bolivia should be entitled to require deliveries in such cases.

The Minister also pointed out that the embargo was not having the effect intended by the United States, for the reason that it is operating against only one of the belligerents; that Bolivia has been depending upon the purchase of munitions in the United States, whereas Paraguay has been obtaining and can now obtain all needed supplies in Europe; that the European countries have not placed an embargo on the sale of munitions; that Italy in discussing the matter in the League of Nations stated that if an embargo is placed by that country an exception will be made with respect to existing contracts, and that, under the circumstances obtaining, Paraguay could, on the basis of supplies already purchased and contracted for, continue the war for a period [Page 294]of five years, whereas Bolivia, because of her financial condition and other reasons, could not obtain materials from other sources, and that if the embargo is enforced in line with the views expressed by the District Attorney, the action of the United States will fail in its purpose. He thought that the practical side of the situation should be borne in mind.

Finally, the Minister observed that our action in interfering with the contracts will have a very bad effect upon the general commercial relationship between the two countries. He expressed the hope that the position of his Government would be carefully considered.

The Secretary explained that he had endeavored in various ways, both at Montevideo and subsequent to that conference, to bring about some concerted action that would restore peace in the Chaco; that it was obvious that expressions of desire for the restoration of peace without some concrete action, such as the prevention of the sale of munitions, were futile; and that the only way by which this Government could show in a concrete manner its genuine desire for the restoration of peace was to prevent the sale of munitions and try to persuade other Governments to do likewise; that while he could well appreciate the views expressed by the Minister, it was of course well recognized that any drastic step looking to the bringing about of conditions of peace must necessarily be displeasing to some of the parties and may seemingly work a hardship, but it having developed that no other method holds out any hope for peace, resort to this measure would appear to be the only alternative. He was mindful of the cordial relations that exist and have existed between the two countries, and was desirous of promoting them in every possible legitimate way and would give most careful consideration to the views expressed by the Minister.

Green H. Hackworth