611.2531/313
The Ambassador in Chile (Armour) to the Secretary of State
[Received December 30.]
Sir: I have the honor to acknowledge receipt of the Department’s instruction No. 100 of December 5, 1938, with regard to an exchange article for use in a possible trade agreement between the United States and Chile and in general to our Government’s attitude in connection with negotiations looking toward such an agreement.
On receipt of the instruction, and in my absence from Santiago, the Counselor of the Embassy called on Don Desiderio García, Under Secretary for Commerce, and brought the contents of the Department’s instruction together with its enclosure to his attention. At the same time Mr. Frost explained to Don Desiderio that he was leaving shortly for Lima and he felt sure that the Secretary of State and other officials of our Government interested in this question would be glad to know the Chilean Government’s reaction to the proposals set forth in the Department’s instruction.
On December 21 last, following my return, I called myself on Don Desiderio, accompanied by the Counselor of the Embassy, and discussed this matter further with him. Señor García showed a deep sense of appreciation of the careful study and consideration given by the Department to this matter and in particular to the attitude of our Government in recognizing that compensation currencies in a large measure are imposed on Chile and not contrived by her. Señor García stated that he believed that the position taken by our Government as set forth in the above instruction opens the way for negotiations of a trade agreement, although, to be sure, it is not yet known, and I think Señor García himself does not know, whether he will continue on under the new government in his present position.
During our conversation we discussed the exchange provisions clause by clause. On clause (a) he is worried by the possibility that when there is exchange shortage, and export draft exchange is not immediately available for American imports, the resulting “delay” might be construed to have been “imposed” by Chile. As a matter of fact Señor García pointed out that the delay will arise merely from shortage, and it would be impossible for Chile to avoid it. In clause (b) he mentioned the word “controlled” which in Spanish, as the Department is aware, means regulated, whereas in English it means dominated. The compensation currencies in Chile are fixed by supply and demand, but the manner in which the supply and demand operate is regulated, or “controlada”, by their convenios. Señor García assumes that clause (b) refers to rates of exchange which are dominated [Page 461] or fixed by Chile, and not those which are fixed by supply and demand, without any domination, albeit under regulation. As to clause (c) Señor García feels that Chile, as well as the United States, must have in mind the possibility that the supplies of free exchange,—dollar, sterling, kroner, etc.,—may fall so low that it will be impossible to do more than provide for Chile’s indispensable imports from the United States, such as petroleum, cotton, etc.
The exchange shortage in Chile is growing worse, and is going to present a difficult problem during the next few weeks. It is possible that there will be no free exchange for American automobiles, radios and silk stockings for a time, although Señor García admits that this is not imminently probable. Under clause (c) Señor García would be interested in learning whether Chile would be forced, if she denied or cut down exchange for American non-necessary articles, to deny or greatly cut down exchange for such articles from the compensation countries. It is assumed that our Government would not take such a position as Chile would have no possibility of allocating or controlling the exchange from the compensation countries.
Respectfully yours,