611.2531/247
The Chargé in Chile (Frost) to the
Secretary of State
[Extract]
No. 816
Santiago, January 8, 1938.
[Received
January 14.]
Sir: Confirming my telegram en clair, I have the honor to report that the new modus vivendi to replace that between Chile and
the United States of September 28, 1931,2 was
duly signed at noon on January 6, 1938,3 in conformity with the terms of the Department’s
telegraphic instructions Nos. 52, 55 and 67 of November 19, December 2
and December 31, 1937.4
There is transmitted herewith a copy of the Spanish text of the Chilean
Note incorporating the modus vivendi, in
compliance with the Department’s telegraphic instruction No. 25 (which was received here
bearing the date of January 3, 1938, 7 PM, but which was apparently
despatched from Washington January 4, 7 PM, 1938). The original Note
from the Chilean Foreign Office will be retained here pending the
Department’s directions as to whether it should be forwarded to
Washington.
The English text of the Note incorporating the modus
vivendi which I addressed to the Foreign Minister of Chile is
identical with that transmitted to the Department under cover of my
despatch No. 789, dated December 15, 1937;5 with the correction of the word “national” in
Clause 1 and the word “ammunitions” in Clause 5. (The words “confirms
its declarations and reiterates” at the beginning of Clause 3a had been previously approved by the Department
in the first sentence of its telegram No. 52 dated November 19,
1937.)
There are also transmitted herewith a copy of the Aide-Mémoire which I delivered to the Foreign Office on
January 3, 1938 in accordance with the Department’s telegraphic
instruction No. 67 of December [Page 422]
31, 1937, 6 PM; and a copy and translation of the Aide-Mémoire in reply delivered to me on January 4, 1938, in
pursuance of the procedure approved by the Department’s instruction just
cited. These documents have been kept confidential.
. . . . . . . . . . . . . .
Respectfully yours,
[Enclosure 1]
The American Embassy
to the Chilean Ministry for Foreign
Affairs
Aide-Mémoire
In connection with the interpretation of item (b) of Paragraph 3 of the proposed modus
vivendi between Chile and the United States, the Department
of State by telegraph requested the American Embassy at Santiago to
furnish certain explanation. In its telegraphic reply, dated
November 22, 1937, the Embassy supplied the Department of State at
Washington an explanation subsequently modified to meet your views
and which now reads as follows:
- “1) Item b) of suggested
exchange provision creates a condition such that only
one rate, the export draft rate, now 25 pesos to the
dollar, will be applied to all American imports (from
January 1st forward) so long as exchange availabilities
remain adequate. If stringency occurs certain of our
imports could later be made financeable by free or black
market dollars at supply and demand rate. None could be
obliged to be financed by dollars at higher rates. 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. The rate or rates on American
imports will be the same as on imports from other
non-compensation countries. Chile cannot denounce her
compensation agreements offhand, and is not undertaking
in the present relatively simple modus
vivendi to negotiate comprehensively on this
aspect of the thorny exchange question.
- “2) Commercial Attaché supplies following explanation:
While present system exchange control in effect at least
two dollar sterling markets inevitable, namely export
draft and free markets; and until compensation trade
eliminated arbitrage impossible except between
non-compensation currencies. Therefore rate inequalities
between currencies will continue to feature local
exchange market. When dollar sterling export draft
exchange plentiful only one rate contemplated. Item (b) is designed to outlaw another
arbitrary gold rate situation but to allow her use of
exchange insufficient to cover demands for American
products. Free exchange can be obtained only at free
rates, while export draft exchange has been kept within
range of 24 to 26 pesos per dollar.”
[Page 423]
The Embassy would be very grateful for a statement as to whether the
foregoing interpretation accords with the views of the Chilean
Foreign Office.
[Enclosure 2—Translation]
The Chilean Ministry for
Foreign Affairs to the American
Embassy
Aide-Mémoire
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 embodied in the Aide-Mémoire of the Embassy of January 3,
1938, regarding Item b of article 3 of the
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 of
the difficulties regarding exchange which have been presenting
themselves in the past.
In this understanding it cherishes the hope that within a brief time,
perhaps no greater than that fixed by the terms of the 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.
Santiago, January 4,
1938.
