Foreign Relations of the United States Diplomatic Papers, 1936, The American Republics, Volume V

611.2531/155

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

No. 69

Washington , March 26, 1936.

Sir: Referring to your despatches No. 67 of January 8, No. 71 of January 11,¹⁵ and No. 86 of January 24, 1936, you are requested to discuss with the Chilean Minister for Foreign Affairs the desire of this Government to effect a temporary commercial agreement by an exchange of notes which would maintain our commercial relations with Chile on an unconditional most-favored-nation basis from the day on which our modus vivendi of September 28, 1931, is automatically terminated by reason of the termination of the modus vivendi between Chile and France of May 22, 1931.

You are authorized to propose the conclusion of a new modus vivendi to become effective on the day on which our existing provisional agreement of September 28, 1931, is terminated; and if you perceive no good reason to the contrary, you may present to the Minister a note based on the enclosed draft as a basis for negotiations.

Inasmuch as your despatch No. 86 of January 24, 1936, indicates that our present modus vivendi will be terminated on the day of the exchange of ratifications of the Franco-Chilean Convention of January 16, 1936, and your telegram No. 16 of February 4, 1936, is to the effect that our modus vivendi will remain in force “until the date of formal ratification” of the Franco-Chilean Convention, the Department is not clear as to which of the two or more dates referred to is correct. Please report the correct date in your next despatch on the subject.

As you will note, the draft agreement is broader than our agreement of September 28, 1931, in that it covers the subject of most-favored-nation treatment in more detail, and makes special provision for such treatment in respect of import quotas. Also the draft agreement would prohibit Chile from imposing any restrictions or delays in respect of private exchange transactions between the two countries, and provides that purchasers of articles the growth, produce or manufacture of any country with which Chile maintains a clearing arrangement shall not be accorded legal access to foreign exchange sold in the export draft or other exchange markets.

In connection with the paragraph relating to exchange, reference is made to the tentative agreement on this subject which was embodied in the memorandum of [to] the Chilean Government of March 27, 1934, transmitted with the Embassy’s despatch No. 77 of March 28, 1934,¹⁶ wherein it is stated that “The Chilean Government agrees to lift as soon as possible all exchange control and trade restrictions as concerns American commerce and interests.”

It will be noted that the provisions of numbered paragraph four are not intended to obtain preferential treatment for American interests. It is assumed that the recent relaxation of restrictions on exchange transactions which were reported by the Embassy apply to all countries, with the exception of those which have chosen to conduct their trade with Chile on a basis of bilateral clearing, and that Chile would wish to generalize the freedom of exchange transactions which the paragraph under reference contemplates to the other countries which do not apply restrictions to Chilean trade.

The objectives of the provisions relating to exchange are to insure future Chilean-American exchange transactions against restrictions, to preclude delays occasioned by administrative tactics of the exchange control authorities, and to reserve the export draft and other exchange markets solely to importers of goods from those countries which have not entered into clearing arrangements with Chile.

It is especially desired that the quota and exchange provisions set out in the enclosed draft be included in the new agreement, but the Department is prepared to suggest other provisions on these subjects, particularly in respect of exchange, should Chile steadfastly refuse to agree to the provisions under reference.

If negotiations are now in progress for a commercial agreement between the United Kingdom and Chile, you are requested to endeavor to ascertain discreetly the nature of the provisions relating to exchange being proposed by the British and report thereon.

In your discussions with the Minister for Foreign Affairs, you may find it useful to point out that the proposed modus vivendi would assure to Chile all of the benefits of tariff reductions, bindings of duties, and guaranteed free entry on imports into the United States of products included in trade agreements between the United States and foreign countries (except Cuba). You may refer further to the fact that the United States so far has extended to Chile the benefits resulting from all of such trade agreements entered into by this Government.

Very truly yours,

For the Secretary of State:

Francis B. Sayre

[Enclosure]

Draft of a Note To Be Presented by the American Ambassador ( Philip ) to the Chilean Minister for Foreign Affairs ( Cruchaga )

Excellency: With reference to the contemplated expiration of the Agreement between our two Governments, effected by exchange of notes, signed September 28, 1931, providing for reciprocal unconditional most-favored-nation treatment in customs matters, I have the honor to inform you that my understanding of our recent conversations in behalf of the Government of the United States of America and the Government of the Republic of Chile, with respect to the treatment which each Government shall accord to the commerce of the other, is as follows:

1. These conversations have disclosed a mutual understanding between the two Governments which is that, in respect to import, export and other duties and charges affecting commerce, as well as in respect of transit, warehousing and other facilities, the United States of America will accord to the Republic of Chile, and the Republic of Chile will accord to the United States of America, its territories and possessions, unconditional most favored nation treatment.

2. Accordingly, it is understood that with respect to customs duties or charges of any kind imposed on or in connection with importation or exportation, and with respect to the method of levying such duties or charges, and with respect to all rules and formalities in connection with importation or exportation, and with respect to all laws and regulations affecting the sale or use of imported goods within the country, any advantage, favor, privilege or immunity which has been or may hereafter be granted by the United States of America or the Republic of Chile to any article originating in or destined for any third country, shall be accorded immediately and unconditionally to the like article originating in or destined for the Republic of Chile or the United States of America, respectively.

3. In the event that the Government of the United States of America or the Republic of Chile establishes or maintains any form of quantitative restriction or control of the importation or sale of any article in which the other country has an interest, or imposes a lower duty or charge on the importation or sale of a specified quantity of any such article than the duty or charge imposed on importations in excess of such quantity, it shall allot to the other country during any quota period a share of the total quantity of any such article permitted to be imported or sold or permitted to be imported or sold at such lower duty or charge which is equivalent to the proportion of the total importation of such article which such other country supplied during a previous representative period, unless it be mutually agreed to dispense with such allocation.

4. The Government of the Republic of Chile agrees (a) to impose no restrictions or delays in respect of transactions in foreign exchange between the Republic of Chile and the United States of America, and (b) that any purchaser of an article the growth, produce, or manufacture of any country with which Chile maintains a clearing arrangement of any kind shall not be accorded legal access to foreign exchange sold in the export draft or other exchange markets of Chile.

5. It is understood that the advantages now accorded or which may hereafter be accorded by the United States of America, its territories or possessions, the Philippine Islands, or the Panama Canal Zone to one another or to the Republic of Cuba shall be excepted from the operation of this Agreement.

6. Nothing in this Agreement shall be construed as a limitation of the right of either country to impose on such terms as it may see fit prohibitions or restrictions (1) imposed on moral or humanitarian grounds; (2) designed to protect human, animal or plant health or life; (3) relating to prison-made goods; (4) relating to the enforcement of police or revenue laws; or (5) relating to the control of the export or sale for export of arms, ammunitions, or implements of war, and, in exceptional circumstances, all other military supplies.

7. The present Agreement shall come into force on the day on which the Agreement between the United States of America and the Republic of Chile, effected by exchange of notes, signed September 28, 1931, shall terminate, and shall continue in force until superseded by a more comprehensive commercial agreement or by a definitive treaty of commerce and navigation, or until denounced by either country by advance written notice of not less than thirty days.

Accept [etc.]

15. Neither printed.
16. Foreign Relations, 1934, Vol. v, p. 18.