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

611.2531/158a

The Department of State to the Chilean Embassy

Memorandum³⁹

A telegram has recently been received from the American Ambassador in Santiago which states that the Chilean Government has decided to refuse all exchange for the financing of imports of automobiles and radios as a means of preventing the depreciation of the peso, and that this measure will probably remain in force until a contemplated schedule of more or less prohibitive duties on certain types of automobiles and radios can be enacted. The Minister for Foreign Affairs has added that the refusal of exchange permits for automobiles, radios and other products of countries having compensation agreements cannot, he believes, be made so long as the total of such imports does not exceed that of Chilean products purchased.

The information supplied by the American Ambassador is of great concern to the American Government, since it appears that, contrary to the assurances expressed by the Chilean Government, provisional measures in restriction of trade are now to become permanent.

As will be recalled, following a series of protracted discussions concerning exchange matters, the Chilean Government during 1934 and the first four or five months of 1935 pursued a policy of freely according authorization for the purchase of export drafts and other suitable instruments of exchange, for financing the needs of current American trade, and for the repatriation of various types of American credits. However, about May, 1935, because of an alleged threatened shortage of exchange, this policy was changed. Measures were adopted which bore with particular hardship on the commerce and interests of the United States. These measures have included (a) the refusal to authorize the purchase of export drafts for the importation of automobiles and radios, and for a period of several months for the importation of automobile tires, (b) during a certain time the requirement that prospective importers exhibit shipping documents prior to the granting of authorization by the Exchange Control Commission for the purchase of export drafts, and (c) the refusal to grant exchange for American funds of various types awaiting transfer. In addition to the difficulties created by the formal measures referred to above, American commerce has been hampered by the policy of the Exchange Control Commission of delaying or obstructing action on requests (solicitudes) for exchange.

In response to inquiries by the American Embassy concerning the increasingly serious situation being created for American commerce, the Chilean Government, apparently recognizing the harmful effect of these measures, has heretofore replied that the restrictions were of a temporary character and that it hoped and indeed expected that they would be lifted in the relatively near future. It now appears that far from removing or lightening these impediments to trade it is contemplating maintaining them until a schedule of prohibitive duties can be imposed upon certain types of automobiles and radios.

The Chilean Government has stated that these measures are for the purpose of maintaining the value of the peso. With respect to the relation between the depreciation of the peso and Chile’s requirements for dollar exchange, it should be pointed out that while Chile’s monetary policies are matters for its own appropriate consideration, the American Government has every reason to expect that financial policies, whether adopted in defense of the peso or for other reasons, shall not be made of such a nature as to constitute in effect a commercial policy of discriminating primarily against the commerce of the United States and in favor of countries which are parties to a system of discriminating bilateral clearing and payments agreements. With regard to the measures under consideration, the Minister for Foreign Affairs has stated that the refusal of the granting of exchange will not extend to the products of countries having compensation agreements insofar as exchange is available for their needs through such agreements. Since, aside from countries having compensation agreements, the United States is the only important supplier of the products under discussion it is apparent that American commerce is asked to bear the brunt of the restrictions. Furthermore, in the event that, because of a fall in the value of the peso, the Chilean Government should pursue this principle still further, enlarging the group of articles on which restrictions are placed, it is apparent that the United States would obtain a diminishing percentage of its share of Chile’s trade since, under such conditions, an increasingly large proportion of exchange for imports would be supplied by funds accruing in blockage accounts of countries having compensation agreements.

With respect to the transfer of American frozen credits, it is pertinent to note that, in spite of the assurances made by the Minister of Finance to the American Ambassador, just prior to the former’s departure for Europe, that steps would be taken to release these funds, to date no substantial portion of such funds has been allowed to leave the country.

With regard to Chile’s proposal to place a prohibitive duty on certain articles preponderantly of American origin, the American Government can only view such a move as a distinct regression in the trend which is developing among the American republics of seeking tariff truces or, where possible, or reducing tariffs. Indeed, the Chilean Government itself has signified its concurrence in such a policy when, in setting forth suggestions for the agenda for the coming inter-American conference for the maintenance of peace, it advocated the elimination of the obstacles to inter-American commerce, stating that “it is impossible to ignore the direct influence exercised by disputes of an economic character on international relations” and that this fact “gave rise to the suggestions of the President of the Chilean Republic that the establishment of a policy of increasing exemptions to reciprocal commerce be undertaken with the object of preventing the conflict of economic interests”.

In giving consideration to the present representation and to the policy of the United States in seeking that its trade should receive equitable treatment in Chile, the Chilean Government will no doubt wish to consider not only the effects of lending support to policies broadly injurious to the world, but also the ultimate results from a narrower point of view of continuing specific practices which can hardly fail to prove prejudicial to the important trade of Chile with the United States. It is confidently expected that the Chilean Government will bear in mind the fact that under the régime of liberal multilateral trade favored by the United States, the products of Chile enter the United States without being subjected to quota, clearing, or exchange restrictions and that Chile finds a ready market for a very large proportion of its chief export, nitrate of soda, which, although competitive with American nitrates, is admitted to the United States free of duty. Furthermore, it is felt that the Chilean Government will also give consideration to the fact that it is now receiving, by specific proclamation of the President, the benefits of the tariff concessions which are being made by the United States in the trade agreements negotiated with various countries.

Washington, May 29, 1936.

39. A copy of this Memorandum was enclosed in instruction No. 93, June 3, to the Ambassador in Chile, with the request that it be left with the Minister for Foreign Affairs when a suitable occasion should arise.