611.2531/212: Telegram
The Acting Secretary of State to the Chargé in Chile ( Frost )
48. Your 65 and 69 of October 29 and November 2, 1937.
(1) The Chilean substitute text for paragraph 3 is not acceptable for inclusion in the modus vivendi because it would appear to constitute recognition by this Government of inequitable treatment of American trade. You are therefore requested to continue negotiations with a view to reaching the best agreement possible in respect of exchange which does not embody a recognition of discriminatory treatment.
The Chilean Government has repeatedly given assurances orally and in writing that it intends to abolish exchange restrictions on trade with the United States as soon as conditions permit. It would appear incidentally that it would have a good effect on public opinion in the United States, particularly among the financial and export [Page 413] communities, were the Chilean Government to make in the modus vivendi a clear declaration of its intention to abolish exchange restrictions on trade as soon as may be possible. If you believe that a better exchange provision cannot be agreed upon, you are requested to seek as paragraph 3 of the modus vivendi the following, which is merely a repetition of previous assurances:
“The Government of Chile undertakes to abolish as soon as possible all forms of exchange control affecting the transfer of payment for articles the growth, produce or manufacture of the United States.”
It should be clearly understood that the foregoing proposed provision does not cover the question of the exchange treatment which this Government expects from Chile pending the abolition of exchange control.
(2) Considering that the provisions of the proposed modus vivendi are particularly limited in their scope, this Government does not believe that it would be advisable to make provision for a joint committee similar to the committees established by Chile and Peru and Chile and Ecuador. This Government would be glad, however, to give appropriate consideration to any definite proposals in this respect which the Chilean Government might later wish to communicate.
(3) In regard to the recommendation of the Treaty Commission of the Foreign Office that the treatment accorded three frontier countries be excepted from most-favored-nation treatment granted other countries in future agreements, this Government considers that to accept this proposal would establish a precedent for new exceptions to the most-favored-nation principle such as to undermine its entire liberal trade policy including its trade agreements program. The existing modus vivendi does not provide for such exceptions. Señor Pereira, First Secretary of the Chilean Embassy, in a conversation with officers of the Department on October 21 indicated that his Government would be disposed to omit in the modus vivendi exceptions on the part of Chile. If, however, the Foreign Office should be insistent in the matter, you may offer the following counter proposal: Strike out the period after the word “Agreement” in numbered paragraph 4, and insert in lieu thereof a semicolon and the following:
“and this Agreement shall not apply in respect of advantages now accorded or which may hereafter be accorded by the United States of America or the Republic of Chile to adjacent countries in order to facilitate short frontier traffic.”
Please communicate orally to the Foreign Minister the Department’s position concerning the points mentioned above and keep the Department informed of further developments by telegraph.