611.2531/174: Telegram

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

6. Your despatch No. 497 of February 10, 1937. Although our modus vivendi of September 28, 1931, will apparently continue in force for some time, in deference to the express wishes of the Chilean Government, reiterated by the Chilean Ambassador here on two occasions, for the conclusion immediately of a new modus vivendi, this Government is willing to proceed with negotiations.

Taking the Chilean draft enclosed with your despatch No. 490 of January 30, 1937 as a basis, you are instructed to prepare the following text and present it to the Foreign Office as a counter proposal:

Strike out all of the language in the opening paragraph after the word “negotiation” and insert in lieu thereof the following: “of a [Page 385] more comprehensive commercial agreement or of a definitive treaty of commerce and navigation”.

Article I, paragraph 1, is acceptable.

Omit all of the language appearing thereafter and insert in lieu thereof numbered paragraph 3 of the draft modus vivendi enclosed with the Department’s instruction No. 69 of March 26, 1936.14 Then add the following paragraph:

“The Government of Chile agrees to impose no restrictions or delays on payments for any future imports from the United States.”

Add to the foregoing, numbered paragraphs 5 and 6 of the draft modus vivendi enclosed with the Department’s instruction No. 69 of March 26, 1936, and complete the text with the following paragraphs:

“The agreements between the United States of America and the Republic of Chile signed September 28, 1931, shall terminate on the day on which the present agreement comes into force.

The present agreement shall come into force as of this day and shall continue in force until superseded by a more comprehensive commercial agreement or by a definitive treaty of commerce and navigation, or until denounced by either country by advance written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 30 days”.

It is noted that the draft provisional agreement submitted by the Chilean Government restricts most-favored-nation treatment to tariffs alone. This draft is sufficient to assure equality of treatment for Chilean exports to the United States because this Government does not impose exchange restrictions. On the other hand, this draft does not insure corresponding equality of treatment for American exports to Chile because Chile does impose exchange restrictions which, moreover, are being applied at the present time with severe discrimination on certain categories of American goods. An undertaking by the Government of Chile to impose no restrictions or delays on payments for future imports from the United States would extend the equality of treatment to American exports, which this Government extends and desires to continue to extend to Chilean exports. It should be noted that this Government in suggesting such an undertaking is not seeking exclusive exchange advantages. It is assumed that in pursuance of this undertaking the Chilean Government would remove restrictions on exchange for imports from other countries which do not impose exchange restrictions against Chile. It would not affect the authority of the Exchange Control to restrict non-commercial remittances to such countries. Such a free system was apparently contemplated by the Chilean Government in the memorandum exchange proposal submitted by the Minister of Hacienda under date of March 27, 1934.15

Hull