611.2531/236: Telegram
The Chargé in Chile (Frost) to the Secretary of State
[Received 1:09 p.m.]
100. Department’s telegram No. 55, December 2, 4 p.m. García today accepts interpretation of item 3 b contained in my telegram No. 8049 except fourth sentence which he wishes to read as follows
“If the value of the free dollar rises further than is deemed safe in Chile recourse can be had to limiting by the system of quotas, in accordance with the terms of article 2 of the modus vivendi, the importation of specified articles whose payment may have been authorized with free exchange, or recourse can be had with the same purpose to other measures of general application.”
I suggested that if the definition were thus to be amplified it should also contain reference to increasing the draft rate as a means of meeting an exchange scarcity and to the possibility of using quotas of goods other than those which should previously have been made financeable by free market dollars. García replied that both of these possibilities are covered by “other measures of general applications,” and stated that I might officially inform the Department that the Foreign Office considers the phrase in question as covering inter alia export draft rate modifications and as quotas on any types of articles. With this oral understanding, reached definitely in the presence of the Commercial Attaché as well as Serrano and Gacitua, I believe the García sentence might be accepted.
García suggests that the Embassy address an informal aide-mémoire to the Ministry of Foreign Affairs and Commerce furnishing the text of the interpretation given in my telegram number 80, revised as to the fourth sentence to conform to his suggestion, and inquiring if the interpretation thus revised accords with the views of the Chilean Government. If such an aide-mémoire is received he will reply in the following terms;
“The Ministry of Foreign Affairs and Commerce has considered with great interest the explanations given by the Embassy of the United States to the Department of State at Washington in the telegram embodied in aide-mémoire of the Embassy of (blank date) regarding item (b) of article 3 in draft modus vivendi at present in study.
“The Ministry of Foreign Affairs and Commerce is in accord in general with the aforesaid explanations, provided the modus vivendi is in force for a short period, within which no fundamental modifications of the present conditions in the exchange market may be foreseen, with the understanding that, as the Embassy can comprehend, the draft modus vivendi does not import in reality a definitive solution [Page 429] of monetary difficulties regarding exchange which have been presenting themselves in the past.
In this understanding it cherishes the hopes that within brief time, perhaps no greater than that fixed by the terms of the recent provisional accord with Great Britain, the modus vivendi which is to be concluded with the United States should be replaced by a definitive treaty of commerce to contain provisions from which may be expected the assurance that there shall not recur the situations of scarcity of exchange for the needs of commerce which have caused the difficulties mentioned.”
This expression would open the way for a denunciation of the modus vivendi by either party if the trade agreement negotiations do not yield satisfactory results. I had previously orally informed García clearly of the purport of the last paragraph of the Department’s No. 55, and the above aide-mémoire which he is ready to send us is in a sense his statement. The Embassy is convinced that the Chileans wish to negotiate very seriously regarding a trade agreement when and if the modus vivendi is signed. The Embassy sees no objection to their insistence on prompt definitive negotiations; and feels that García’s aide-mémoire would have the tactical advantage for us of leaving us in almost as free a position, because the denunciation of the modus vivendi late next spring would be actively regarded by both parties as a possibility, to adopt defensive measures through our tariff rates, if a definitive exchange settlement cannot be reached in trade agreement negotiations, as though no modus vivendi were signed. Yet if we wished to continue the modus vivendi after failure of negotiations there would still be fair prospects for doing this.
The Embassy is disposed to feel that the Department would be in a better rather than worse position to protest against Chilean rearmament project if the modus vivendi were signed than if it were dropped. García and the Foreign Office would be more disposed to combat the objectionable features of the rearmament law to save a trade agreement than to save the modus vivendi. He claimed not to have studied the proposed bill, but stated that it manifestly will greatly affect the exchange problem and will have his immediate personal attention.