611.2531/228: Telegram
The Chargé in Chile (Frost) to the Secretary of State
[Received 10:34 p.m.]
85. Mail plane departure delayed until Thursday. For the Department’s information regarding modus vivendi, British signed on the 27th [26th] instant unconditional most-favored-nation arrangement44 [Page 422] to June 30 next, without exchange clause. In Comisión de Tratados on the 26th Urrejola, President of the Exchange Control Commission, insisted item 3 (b) our proposed modus vivendi be changed to terminate “higher than those which would be set for the general export draft rates.” Foreign Office realizes that the American Government could not sign an instrument recognizing export draft rates which are not universal or equal as to all currencies, and will probably be able to defend clause as offered last week. It telephoned to García who is being delayed at Buenos Aires and he confirmed this policy.
Meanwhile Foreign Office intimated to Embassy informally on the morning of the 27th through Gazitva its concern and irritation over increases in Grace Line freight rates on fruits and legumes. Without waiting to verify facts as Embassy suggested it handed a statement to the press at noon on the 27th beginning “In circles close to the Foreign Office” and denounced the rate increases as unwarranted and destructive to Chilean agricultural export sales to the United States. The statement intimated in plain terms that Chile is likely to be forced to suspend commercial negotiations and return to restrictive measures as result of diminished exchange availabilities arising from lower exports due to the increased freight rates. Embassy was disposed to regard this largely as an emotional display but Foreign Minister’s interview with me this morning (see my No. 84, November 30, 8 p.m.45) indicates that he intends to force the issue on the freight rates by every means within his power, although he did not specifically allude to the trade negotiations.