825.5151/134: Telegram

The Ambassador in Chile (Sevier) to the Acting Secretary of State

7. To confirm our understanding, the substance of the Department’s telegram No. 13, January 16, 6 p.m. was discussed fully at the Foreign Office. The Under Secretary stated that an [in?] order legally to permit purchases of American goods and remittances to the United States the Chilean Government would modify either by virtue of an international treaty or appropriate legislation the monetary law under which the Exchange Control Commission now operates. This measure would remove exchange control and import and export restrictions with countries such as the United States, not imposing similar restrictions. However, control would be retained on transactions with countries having compensation agreements or imposing restrictions on Chilean trade.

Your paragraph[s] 2 and 3. The proceeds of sales to countries not imposing restrictions would not be turned over to the Commission but would be available in the free market. Importers of American goods or those transferring funds to the United States would still have free access to any available unblocked exchange arising from transactions with countries imposing restrictions. It is understood that the bank acceptances of the nitrate industry will be practically liquidated by March and it is estimated that $2,500,000 will be returned to Chile during the present year which will be available in the export draft market. Specifically then the purchaser of American goods would have a legal right without any restriction to make purchases desired. Today they have no right, the recent liberality of the Commission being due exclusively to Government convenience in view of the excess supply of exchange availabilities.

Your paragraph 4. Chile is not in a position to make a formal commitment that the amount of exchange available to American interests as indicated above will not be diminished by new compensation agreements. In order not to lose its European markets it has already been and is still being forced to conclude such arrangements. However, even though Chile should refuse to make any others it would result in no gain to us in current business since the countries denied [Page 7] such arrangements would undoubtedly prohibit imports from Chile. This would mean not only the reduction of Chile’s purchasing power abroad and a direct loss to American copper and nitrate industries but the possible impairment of our enormous stake in Chile. We must therefore take into consideration the special aspects of our problem. Obviously some exchange would be removed from the free market through the conclusion of new compensation treaties. On the other hand as indicated above there will be important new sources of exchange. It is believed that exchange availabilities will be sufficient to cover American goods within Chile’s very limited import purchasing power.

Stated in my telegram No. 1, January 5, 6 p.m. is that our frozen commercial assets would not be liquidated at the preferential rate created through blockage arrangements. In this connection it would be pointed out that in the German Treaty about to be signed2 the term commercial credits has been extended to include unliquidated government and municipal public works contracts.

While the Chilean offer to us on the eve of concluding further compensation agreements would appear paradoxical, in reality it indicates only too clearly the strong pressure being exerted on this country and which the Foreign Office itself admits it is unable to resist. To be effective therefore our attack against compensation systems should be centered even more in Europe than in Chile.

The British Embassy to receive instructions from London next week. In the meantime it is sending copies of its cables to the British Embassy in Washington.

  1. Signed December 26, 1934; Germany, Reichswirtschaftsministerium, Deutsches Handels-Archiv, 1935, p. 532.