The Chargé in Chile (Scott) to the Secretary of State

No. 415

Sir: Referring to this Embassy’s despatch No. 395 of July 9, 1935, on the subject of discrimination against American trade, I have the honor to inform the Department that it has now been possible to clear up those questions of irritation and obstruction which do not conflict with the determination of the Chilean Government to harbour its exchange availabilities in the export draft market, and that concerning the questions which have not been solved at least a definite and clear cut statement of policy has been obtained.

After numerous conversations at the Foreign Office, in which no real progress was made, it was decided that the only way of satisfactorily dealing with the pending questions would be to arrange an interview with the Minister of Finance. Accordingly on Wednesday afternoon (July 24th), a conference was held at which were present Sr. Ross, the Minister of Finance, Sr. Vergara, the Undersecretary for Foreign Affairs, Sr. Garcia, the Undersecretary for Commerce of the Ministry for Foreign Affairs, Sr. Urrejola, the President of the Exchange Control Commission, Mr. Scott and Mr. Randall, the Acting Commercial Attaché. A memorandum of this conference is attached.9 Its results may be summarized as follows.

First a method of procedure was worked out for handling certain long pending cases involving the return of American merchandise sent to Chile on consignment. Sr. Ross stated that the Chilean Government had no interest in retaining this merchandise and in effect instructed Sr. Urrejola to find a formula by which such goods could be cleared from the country and still comply with the letter of the exchange law. Second there was an opportunity to bring up for discussion the needless hardship worked on our commerce because of the dilatory and obstructionist policy of the Exchange Control Commission. Taking advantage of the presence of Sr. Urrejola, attention was called to numerous examples of this practice and the atmosphere [Page 405] was thoroughly cleared on this point with assurances on the part of Sr. Urrejola of more businesslike and considerate treatment. Third, an understanding was reached concerning the status of orders for automobiles, tires and radios which were in transit prior to the application of the recent inhibitions. On this point there had been either a confusion of orders or a deliberate obstruction on the part of the Exchange Control Commission. Apparently firms importing automobiles had obtained funds for all pending orders, whereas certain other firms, such as those importing tires and other rubber goods, had not. In spite of the assurances of Sr. Urrejola that all these orders had been released, it was possible, by exhibiting actual proof of pending orders for the Goodrich Rubber Company for which authorization had not been granted, to show that Sr. Urrejola’s statement was in error. He was instructed very explicitly by the Minister of Finance to grant the necessary authorization for the purchase of export drafts to finance these orders. Fourth, a clearer understanding of the policy with regard to frozen credits was obtained. Sr. Ross stated definitely that all transfers of American frozen credits were being held up for the time being but that they would be allowed again in the future when the exchange situation became easier. So much for the points which could be cleared up. There now remained to be considered the new policy of restricting imports. Sr. Ross’ statement on this question may be summarized in the following point:

In view of the very great increase in the importation of certain types of luxury or semi-luxury articles, in particular automobiles, automobile parts, tires and radios, causing a corresponding drain on Chilean dollar exchange, the authorization for the purchase of exports drafts to finance such imports is being restricted.
This measure applies to all countries. (From a practical point of view this means very little as a preponderant number of these articles come from the United States. It may be noted that a possible 5% of the automobiles are of German make; about 25% of the tires are British and a few radios come from Holland.)
The Minister of Finance believes and hopes these measures will be of temporary character.
It is not desired to work an undue hardship against importers and therefore the measures are not to apply against pending orders, by which is meant orders which were already in transit or in the customhouse when the measures were put into effect; in other words, orders which could not be cancelled by the importers.
The restrictive measures are to apply equally against all firms.
No objection is raised to the importation of merchandise when the prospective importer can show he had the dollar exchange or credit (disponibilidades) available for such importations. (This would appear to contemplate only the cases in which the respective importer would indicate that his import was covered by a credit in the United States.) As no assurances would be given in advance, however, concerning the permission later to return blocked pesos to the [Page 406] United States, it would appear that under such conditions the American exporter would have to assume full responsibility as to the time in which repayment would be received.
The use of the bootleg market (Bolsa Negro) is definitely illegal. (The Minister admitted of course that its use was very general and would continue to be very general, but he made it clear that its use was illegal and unrecognized by the Chilean Government, and therefore at the full risk of the user.)

Before attempting to comment on and intelligently interpret the statements made by the Minister of Finance, it will be necessary to relate them very carefully to the estimates on which the Embassy is now working of Chile’s situation with regard to exchange availabilities as well as its position with regard to its international trade balance. This information, together with the Embassy’s carefully considered recommendations as to dealing with the present situation, will be embodied in a despatch which will be sent in the air mail on Wednesday, July 31st.

In the meanwhile, the Embassy believes that nothing is being lost by awaiting the results of a more careful study of the facts. As stated previously, it has been possible to clear up in a very satisfactory manner the more pressing matters of irritation and obstruction affecting our commerce and for the moment it is believed that Señor Ross’ statements as to the urgent necessity for conserving Chile’s dollar exchange availabilities and his desire that these restrictive measures shall be of a temporary nature, may be accepted as having been given in good faith.

Respectfully yours,

Winthrop R. Scott
  1. Not printed.