Foreign Relations of the United States Diplomatic Papers, 1937, The American Republics, Volume V

611.2531/206

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

No. 723

Santiago , October 1, 1937.
[Received October 7.]

Sir: I have the honor to advert to despatch No. 714 of September 17th last relative to the continuance of most-favored-nation treatment of American trade in Chile after the exchange of ratifications of the pending commercial agreement between Chile and France.

Not having received any word from the Minister of Foreign Affairs as a result of our conversation of September 16th, I mentioned the subject to him again on the 28th ultimo.

Señor Gutiérrez stated that the intervention of the annual ceremonies connected with the national celebrations following September 18th had prevented him from devoting his attention to the subject of my inquiries.

Today, the 1st instant, I sought another interview with the Foreign Minister and he handed me a memorandum of which I beg to transmit a copy and translation herewith. I have learned confidentially that this memorandum has been prepared for the Minister by Don Desiderio García, the Under Secretary of Commerce.

The document of February 19, 1936,³¹ mentioned in the above memorandum, confirms the extension of most-favored-nation treatment to American trade until the formal ratification of the Franco-Chilean commercial treaty of January 16, 1936.

Señor Gutiérrez said that, after consulting with his staff, he finds an exchange of notes to be the only practicable method of providing for the continuance of most-favored-nation treatment of American trade in the circumstances. He added some remarks as to the appreciation by his Government of the patient and friendly attitude of the Department and of myself throughout the situation by which Chile had been confronted during the past two years, and expressed the desire to arrive at a lasting solution of the existing difficulties prior to my departure from Chile.

I suggested to the Minister that some time may elapse before the final text of a commercial treaty is agreed upon by our Governments and that it might be preferable to refrain from employing the word “immediately”, mentioned in his memorandum, in the text of a proposed exchange of notes, and to state instead that most-favored-nation treatment will be mutually extended until the signing of a commercial treaty between them. At the same time, I suggested that the proposed notes might embody a mutual assurance to the effect that no discrimination will be practiced by either Government against the products of the other by the imposition of arbitrary exchange rates, or other exchange control measures.

Señor Gutiérrez said he would take my suggestions under consideration and that he would communicate with me shortly in regard to them.

I beg to report confidentially that the conversations of the Commercial Attaché to the Embassy with Don Desiderio García to which I have alluded previously seem to have reached a promising stage. The proposal by Señor García for a prompt abandonment of the existing arbitrary control of exchange rates was premised upon a means of continuing the purchases of Lavadero gold by the Government from Chilean producers at the present rate of 26.85 pesos to the dollar.

Obviously, this would be impossible when the flat rate of 25 pesos to the dollar goes into force. Señor García states that the maintenance of the Lavadero gold purchases is of very great necessity to the Government. In addition to the surplus required for actual gold purchases, the Government would require an additional sum of approximately 1.15 pesos to the dollar for the operating expenses of its Lavadero Gold Bureau—making a total of approximately three pesos to the dollar above the proposed rate, for all exchange, of 25 pesos to the dollar.

Señor García’s proposal consists of raising the import duties on automobiles to the basic rate which existed until some three years ago, or 33% per cent. It is estimated that such a step would increase the revenues by approximately ten million pesos annually and that this sum would enable the Lavadero Gold Bureau to continue its purchases of domestic gold at the existing rate. Should this step be decided upon, the Government could proceed at once to reduce the exchange rate of the gold peso to twenty-five to the dollar, and thus eliminate the objectionable control of exchange, without the long delay involved by its present system of gradual reductions at intervals of several months.

In effect, the raising of the automobile duties and the simultaneous elimination of the arbitrary exchange control would have the effect of greatly reducing the prices of American automobiles in this country and should stimulate these imports at the expense of those produced by the compensation treaty countries.

I may mention also, in this connection, that it has been reliably reported to me that the Government will most probably raise the customs duties on these and some other imports shortly, in any event.

The subject of Señor García’s proposal has been treated in strict confidence by the Embassy at his request. I understand that he has obtained the approval of the customs and other minor officials in its regard and that he is today submitting the proposal to the consideration of the Minister of Hacienda.

I beg to request an expression of the Department’s opinion regarding the enclosed memorandum from the Minister for Foreign Affairs.

I will at once communicate any new developments which may transpire in the matter of Señor García’s proposal.

Respectfully yours,

Hoffman Philip

[Enclosure—Translation]

The Chilean Ministry for Foreign Affairs to the American Embassy

Memorandum

On May 22, 1931, there was signed in Santiago a Provisional Commercial Convention with France which included a list of products of that nation which would enjoy a preferential tariff rate.

As no agreement existed with the United States which would enable it to benefit by these advantages, the Government of Chile, inspired by the object of avoiding that the commerce of the United States be placed under circumstances inferior to those of other nations, arranged with (the United States) a Commercial Modus Vivendi by an exchange of Notes dated in Santiago on September 28 of the same year.

In this Modus Vivendi, which is in force at this date, both Contracting Parties reciprocally granted each other most-favored-nation treatment, and the Republic of Chile grants the commerce of the United States, from the 22nd of May of that year, the reduced duties applied to merchandise produced in France by virtue of the Convention signed with that nation on that date.

The period for which the Modus Vivendi would be in force was established under its number 3) which states that it shall be in effect as long as the above mentioned Modus Vivendi with France is in force, reserving the right to denounce it voluntarily with 15 days notice.

Next, on January 16, 1936, the Government of Chile signed with the Government of France a Commercial Treaty which states in its 12th Article: “The provisions of the present Agreement replace those of the Modus Vivendi of May 22, 1931, which shall be derogated from the date on which the present Convention enters into effect.”

The Congresses of Chile and of France have already approved this Convention and it is now ready for the exchange of the respective ratification instruments, after which it shall definitely be in force and the Modus Vivendi with the United States, in accordance with the stipulations, shall no longer be effective.

When the Treaty with France was signed, a Memorandum dated February 19th was handed to the Embassy of the United States, pointing out the situation which would be created for the commerce of that nation once the existing instrument ceased to be effective and manifesting the willingness of the Government of Chile to negotiate immediately a Convention to replace it.

Undoubtedly unavoidable circumstances have kept the Government of the United States from achieving this end before now. The Government of Chile has desired to negotiate an Agreement of broader scope and of a permanent nature, as is fitting in view of the importance of reciprocal commercial traffic.

However, in view of the necessity of placing in effect the Treaty with France and the short time which this would leave for negotiations, it is believed that it would be most appropriate to establish, by an exchange of Notes, the continuation of reciprocal most-favored-nation treatment and the obligation of initiating immediately the negotiations for the formulation of a definite Commercial Agreement.

In this manner the commerce of the United States would not suffer the disadvantage in its competition in the Chilean market which would affect it once the existing Modus Vivendi is rendered ineffective by the enforcement of the new Treaty with France. Lacking an instrument, even though it be of the provisional nature suggested, the Government of Chile would have no means of giving the United States most-favored-nation treatment, and the latter consequently could not benefit by the preferential tariffs granted to third nations.

Santiago , September 30, 1937.

31. Not printed.