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

No. 454

Sir: I have the honor to refer to this Embassy’s despatch No. 423 of July 31, 1935, concerning the discriminatory measures taken against American trade and to enclose herewith a copy of the note (with translation) dated August 23, 1935, which has been received from the Foreign Office in reply to the Embassy’s note on this subject, dated August 13th, which was sent in accordance with the authorization contained in the Department’s telegram No. 49 of August 13, 7 P.M., and a copy of which was submitted in despatch No. 423 referred to above.

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As will be seen, the reply of the Foreign Office does not change in any essential respect the more specific statement of policy which was embodied in the Chilean Government’s memorandum dated August 2nd, enclosed in despatch No. 430 of August 6, 1935. We may note the following points:

The note definitely states that the restrictive measures are limited to automobiles and radio sets, spare parts for same not coming within their purview (the restrictions were originally applied against spare parts, tires and rubber goods, but were liberalized subsequent to the drafting by the Embassy of our note). As previously stated, in discussing the question with the Foreign Office, the Embassy offered to delete from our note references to the commodities which had been liberated from restriction, but the Foreign Office did not deem this particularly important.
While not setting a time limit to the restrictions, it states in a rather definite way the intention of the Chilean Government that they be of a temporary nature.
Attention is called to the alleged fact that importers are left free to provide themselves with their own exchange availabilities, to finance imports of automobiles and radio sets.
The note draws the conclusion that the explanations furnished in the Memorandum referred to and in the note itself make it unnecessary for the Chilean Government to take note of (presumably reply to) the affirmation made with regard to the acquiescence on the part of the American Government concerning the policy of the Chilean Government.

No special comment is necessary with regard to points a) and b) above, except perhaps to state that it is satisfactory to obtain again specific assurances that the measures are limited to only two commodities and that the Chilean Government anticipates that they will be of a temporary character. With regard to point c), somewhat more extended comment is necessary. As has been pointed out, the Chilean Government takes a thoroughly inconsistent, illogical and unsatisfactory point of view with regard to the bootleg market. On the one hand, Señor Ross, the Minister of Hacienda, who is in a position to speak more authoritatively than anyone else in Chile, states most categorically that the bootleg market is illegal and that users of this market do so at their own risk. On the other hand, in seeking to apologize for the measures restricting American trade, the Foreign Office reiterates the fact that after all, importers have little to complain of since they can always finance their importations in the bootleg market. Obviously this is an anomalous situation and the fact that as a practical matter many importers have, during recent months, had recourse to the bootleg market does not serve to regularize a status quo which is thoroughly unsatisfactory. The effect is merely to introduce a new discrimination in favor of small concerns or more unscrupulous [Page 419] firms against those who are unwilling to engage in illegal operations as a matter of principle or who, because of their size or the nature of their organization in Chile, are afraid to do so. Among firms of the latter type may be mentioned particularly the Ford Motor Company and the RCA Victor. The Ford company assembles its cars in Chile and can not pass on to its clients the responsibility of carrying on bootleg operations to purchase its products. The RCA Victor Company is in a somewhat similar situation through the nature of its business as a wide distributor of radio sets in various lots and quantities throughout the country. The result is that neither of these organizations finds it practicable or dares to avail itself of the bootleg market. As a matter of fact, the Embassy understands that protests in Washington against the present situation are contemplated by representatives of both of these firms in the near future. When the Foreign Office has suggested the feasibility of the use of the bootleg market, the Embassy has always pointed out the illogical character of this suggestion and proposes to maintain this same position making reference again to this point on a suitable occasion when exchange matters are being discussed.

In the Embassy’s opinion, while the reply of the Chilean Government is not particularly satisfactory, it is not suggested that a further formal communication on our part be made at this time. The Embassy’s note has served its purpose in making it clear that we are not disposed to be indefinitely quiescent with regard to a situation which constitutes a de facto discrimination against American trade. As has been reported in other despatches, the situation of the Government is critical at the present moment and it is possible that there may be a rather radical change in the composition of the Administration in the near future. In this case, it is quite possible that new orientations with regard to Chile’s trade policies may involve the consideration of questions much more important than those with which we are now dealing. However, in the event that the present Administration recovers its control of affairs, it is believed that it is its sincere desire to do away with the restrictions as soon as possible. In addition to these considerations, should it be found feasible to enter into a commercial treaty with Chile, such a treaty should of course provide a satisfactory solution for the problem of the treatment of American commerce. For these various reasons, the Embassy believes that further formal action should not be taken for the moment unless our present difficulties are aggravated by other restrictive measures on the part of the Chilean Government.

Respectfully yours,

Winthrop R. Scott
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The Chilean Minister for Foreign Affairs ( Cruchaga ) to the American Chargé ( Scott )

No. 5694

Mr. Chargé d’Affaires: I have pleasure in replying to your note of the 13th of the current month, in which you found occasion to refer to the measures adopted by the Government of Chile for the limitation of authorizations for the purchase of export drafts covering the importation of automobiles, automotive parts, and radios and parts. You state that you have taken note of the reasons on which those measures are based and that, under instructions from your Government, you desire to make clear “that it would not be possible to acquiesce in a policy of reserving exchange availabilities for an indefinite period or for an extended period, thus sacrificing trade in articles which are for the most part of American origin; nor would it be possible to accept a policy which had the effect of paralysing indefinitely the transfer of frozen American credits”. You conclude expressing appreciation for the cooperation of this Government in matters affecting the commerce between our two countries.

I must at once reiterate to you the views set forth in the Memorandum which this Ministry addressed to you on August 2nd, in which the various aspects of Chilean-American commerce were analysed in relation to the measures to which you have alluded. As that document says, the restrictions include only automobiles and radio sets, without affecting the spare parts for either. Furthermore, they are transitory, although a definite period can not be fixed because the causes which gave rise to such measures are themselves not determinate; and finally, although it is true that by the application of these measures the importation of certain articles, in part of American origin, may be diminished, the importer is left free to provide himself with his own exchange availabilities or to import, with the same export drafts, other American merchandise.

These and other explanations in the Memorandum under reference make it unnecessary for me to take note of your affirmations with regard to the acquiescence or acceptance by your Government of the policy adopted by the Government of Chile in defense of that which is regarded as of vital importance for its internal economy and for the normal development of its foreign trade.

In the spirit of cooperation alluded to by you, which really exists and which, reciprocally, it has given me great pleasure to manifest in any measure which it has been necessary to take up with the Government [Page 421] of Washington, I venture to trust that the ample comprehension of your Government will eliminate any possible difficulty concerning this problem.

I reiterate [etc.]

Miguel Cruchaga T.