611.2531/251

The Chargé in Chile ( Frost ) to the Secretary of State

No. 828

Sir: I have the honor to report that the Memorandum transmitted with my Despatch No. 825 of January 12, 1938, with regard to the entry into effect of the recently signed modus vivendi, reached the Embassy late on the evening of the 12th instant, so that there was barely time to copy and translate it for inclusion in the airmail pouch. On the 13th instant its implications were studied attentively both by the Embassy and the Commercial Attaché; and an interview was sought with don Desiderio Garcia, who had volunteered the memorandum in reply to my simple oral inquiry based on the Department’s telegraphic instruction No. 5, of January 11, 4:00 p.m.

The Embassy’s first thought was that the Chilean attitude indicated bad faith. Throughout the negotiation of the modus vivendi the Chilean officials unquestionably gave the impression that the agreement would be given provisional effect immediately, without hinting in any way at a distinction between those provisions which related to customs matters and those which relate to other matters. The net significance of the memorandum appeared to be that by giving effect to the most-favored-nation clause Chile placed herself in a position to grant the United States the French Treaty tariff rates and thus to avoid any sanctions which might otherwise have lain at the Department’s hand; while at the same time by withholding from legal effect the exchange clause, so desirable from the standpoint of the United States, Chile left her own position relatively free.

An examination of Law 5,142, however, and of the various trade agreements concluded between Chile and European countries confirms the assertions made by Señor Garcia and Señor Serrano12 that the contents of the Memorandum were intended merely to indicate the technical position and not to serve notice of intention on Chile’s part to exploit that position. Article 2 of the Law cited, as the Department has doubtless noted, reads as follows:—

[Here follows Spanish text.]

This may be translated as follows:—

“The President of the Republic is authorized to modify the rates fixed in the customs tariff schedules when the interests of the country render desirable the placing in effect of a commercial convention not yet ratified, and only until the ratification of the convention supervenes.”

[Page 427]

In the Embassy’s judgment this language does not appear to authorize the President to place in effect a commercial accord prior to its ratification; but only to place in effect the customs concessions, or such of them as his judgment dictates, embodied in an accord not yet ratified. By a series of precedents, nevertheless, the Foreign Office has established the Article as empowering the provisional placing in force of commercial accords. For example, in the case of the French Trade Treaty of January 16, 1936, a decree was issued on February 8, 1936, under authority of the Article, modifying the Chilean customs rates appropriately, and not referring to other provisions in the Treaty, but a year later, when it became necessary to prolong the provisional effectiveness of the treaty, a new decree was issued which undertook in its terms to renew for one year the previous decree “which put into provisional effect the Commercial Convention between Chile and France”. The German agreement of December 26, 1934, which contains provisions for the fixing of the exchange value of the German mark by banks, a matter which certainly has no customs aspect, was placed in provisional effect by a decree, theoretically under the authorization of the Article, and has been renewed by two subsequent decrees.

The officials of the Foreign Office maintain that these decrees, if they were challenged, would be officially stated to relate only to the customs aspects of the treaties; but they admit that the decrees have been taken by the public, and tacitly represented by the Government, as giving effect to all the provisions of the treaties.

Thus a condition has arisen under which Article 2 of Law No. 5,142 has come to be used to place in practical provisional effect trade agreements in their entirety of which only certain portions are related to customs; and this system has not as yet been challenged from any quarter. According to Señor Garcia and Señor Serrano (Señor Gazitúa13 is absent on leave) the Foreign Office Memorandum of January 12 was merely intended to furnish us with the legal elements underlying the effectiveness of the modus vivendi. The Decree to be issued by the Minister of Hacienda to place in effect the customs provisions of the modus vivendi as of February 1, 1938, will have the same practical effect as the decrees issued in the case of the French and German Agreements; i. e. it will in reality place the instrument in operation, although technically applying only to the customs sections.

The Chilean officials were very definite in their statements that those portions of the modus vivendi which can be carried out by simple administrative direction will be fulfilled at once and henceforward, and hinted that even for us to make an inquiry on this point was almost an [Page 428] impeachment of their good faith. I suggested that in view of the rather special technical and administrative situation, it might be well to have an exchange of information by notes from the Embassy to the Foreign Office and vice-versa; and to this Señor Garcia agreed. Accordingly, if the Department sees fit, the Embassy will address a note to the Foreign Office incorporating the inquiries contained in the Department’s telegraphic instruction No. 5 of January 11, 4:00 p.m.; and the Foreign Office will reply in a note containing the substance of its Memorandum of January 12, but also containing a declaration that those sections of the modus vivendi which can be given administrative effect, including the exchange clause, will receive such effect.

The Foreign Office has exhibited an earnest desire to secure an authoritative statement as to the time and manner in which the modus vivendi shall become effective from the American side. I have of course alluded to the fact that the American undertakings in the document merely confirm practices already legally prevailing on the part of the United States; but the Chileans feel that full information as to legal validity of the modus vivendi under American procedure should be at hand.

Respectfully,

Wesley Frost
  1. Alberto Serrano, of the Ministry for Foreign Affairs.
  2. Guillermo Gazitúa, official in the Ministry for Foreign Affairs charged with negotiations respecting the proposed Chilean-American trade agreement.