Foreign Relations of the United States Diplomatic Papers, 1939, The American Republics, Volume V

611.2531/353

Memorandum of Conversations, by Mr. James C. Sappington III of the Division of Trade Agreements

[Washington,] August 10, 14, 15, and 17, 1939.

Participants:

Señor Gazitúa, Counselor of the Chilean Embassy; Señor Campbell, Commercial Counselor of the Chilean Embassy (attended the conversations on August 14, 15 and 17); Mr. Hawkins7; Mr. Duggan8 (attended the conversations on August 10); Mr. Deimel9 (attended the conversations on August 15 and 17); Mr. Stinebower10; Mr. Collado11; Mr. Sappington.

It was made clear that any informal trade-agreement conversations undertaken would be conducted on an ad referendum basis; Mr. Hawkins stated that he would report the results of the conversations to the Committee on Trade Agreements, and Señor Gazitúa (who is returning to Chile at the end of August) indicated that he would report to his Government.

It was pointed out that the discussion of a possible trade agreement could be divided into three parts: the general provisions, the concessions which would be requested of Chile, and the concessions which we might be able to grant to Chile. It was decided to discuss first Chilean export products to the United States. In this connection, it was explained that no commitment whatever could be given regarding any concession prior to notice and hearings in this country, and therefore we could merely indicate those Chilean products which, on the basis of preliminary study, might be considered for concessions in a trade agreement. Señor Gazitúa expressed interest in all products so indicated and, in addition, on the basis of data prepared by the Chilean Government, inquired about the possibility of considering tomatoes, celery, processed garlic (later Señor Gazitúa indicated that no garlic in paste, etc. is exported from Chile to the United States), cherries, and chick peas. He also inquired as to whether, if it should be found that duty reductions could be granted on peaches and prunes, such reductions might be considered in the case of peaches for the period January 1 to April 15 and in the case of prunes for the period December 15 to March 30. After consideration of these inquiries, Señor Gazitúa was informed that evidently imports from Chile into the United States of tomatoes and celery (the duty on which was reduced by 50 percent from April 15 to July 31 in the United Kingdom agreement) are negligible; that it might be possible to consider Chilean chick peas on the basis of size; and that the duty on fresh cherries had already been reduced by 50 percent in the Canadian agreement. Señor Gazitúa was also informed that it would appear that consideration could be given to the seasonal periods he suggested in regard to peaches and plums if it should be found possible to grant concessions on those products.

Señor Gazitúa inquired as to the major suppliers to the United States of limes and lemons during the period from June 1 to September 30 and the amounts supplied in that period. He also inquired—whether the manganese concession in the Brazilian agreement covers Chilean manganese; asked about glue for carpenters, the duty on soap bark cut in pieces; and indicated that Chile might be interested in baldo leaf.

Concerning copper, Señor Gazitúa was advised that further study was being given to that product. It was pointed out that the question of copper was an involved one and Señor Gazitúa indicated that the matter of a possible concession on copper would be largely left to our determination.

Señor Gazitúa indicated that in regard to a number of products, which our preliminary studies had not indicated as possible concession items, Chile was interested only in most-favored-nation treatment.

In regard to the question of tariff concessions by Chile, Señor Gazitúa was informed that we did not contemplate requesting drastic duty reductions which would worsen Chile’s exchange position. He was informed, however, that the United States would desire an improvement in or continuance of existing Chilean customs treatment on such American export products as automotive vehicles and parts, rice, lumber, raw cotton, radios, cotton yarn, refrigerators, typewriters, etc.

Señor Gazitúa referred to the possibility of a concession on automobiles on a weight classification basis, (mentioning particularly the new Crosley light-weight car), and to the fact that the development of rice production in Chile would make a concession on that product difficult. In regard to lumber, it was indicated that there were imports into Chile of Douglas fir and some imports of Southern pine. Señor Gazitúa stated that American typewriters encountered strong competition in Chile from German typewriters and that there is domestic production of parts in Chile. He also stated, in connection with cotton, that Chile had made tariff quota reductions in cotton cloth (Tacna cloth) to Peru. Señor Gazitúa also mentioned that articles, such as razor blades and cigarettes, which are now subject to smuggling into Chile might be considered as concession items.

Our position, as embodied in the pertinent general provisions, regarding internal and compensating taxes and charges (other than ordinary customs duties) imposed on the importation of scheduled products, was fully explained. Señor Gazitúa indicated no objection in regard to these matters. He stated that Chile has internal taxes only on tobacco, liquors and sparkling wines. In regard to the tax on tobacco, he said American tobacco was not now accorded equal treatment with Cuban tobacco and assumed that we would wish this adjusted under the internal tax provisions of an agreement.

The “standard” provisions concerning the bases and methods of determining dutiable value in the case of ad valorem rates were discussed and Señor Gazitúa requested an informal memorandum setting forth this Government’s construction of these provisions. He also requested an explanation of the method used by our Treasury in regard to determining the dutiable value of Chilean products subject to ad valorem rates. In this connection, he stated that the conversion rate used by our Treasury in the case of Chilean products was the Chilean official exchange rate, which is not used in Chile for commercial transactions, rather than the higher export draft rate, and that this resulted in the collection of a greater amount of duty on those Chilean products to which ad valorem rates apply. He also stated that the Chilean Government now converts currency for duty purposes in terms of the gold peso but might wish to change its conversion rate.

This Government’s position in regard to quantitative restrictions was explained at length in general discussion and on the basis of the pertinent articles. Señor Gazitúa indicated general concurrence both as regards the provisions and the explanation given him as to the method of administering quotas contemplated by those provisions.

Our position in regard to the imposition of quotas on scheduled products was carefully explained and the usual grounds on which quotas could be established on such products was outlined. In addition it was indicated, subject of course to the ad referendum character of the conversations, that an agreement might also permit the establishment of quotas for the protection of the exchange value of the currency of either country.

Señor Gazitúa indicated that Chile had established quotas on a number of products and stated that the present Chilean quotas on automobiles, while not imposed for any of the reasons which would permit a quota under an agreement, were established to benefit American automobiles as compared with German automobiles.

It was proposed to Señor Gazitúa that the Chilean Government, under a trade agreement with the United States, change from its present method of controlling imports by means of prior permits and exchange rates to a product quota system administered in accordance with the quota provisions proposed by this Government, the United States obtaining a proportional share, based on a previous representative period, of any quota established. It was pointed out that if this method of import control were adopted by Chile quotas could be established on any product, including scheduled products if necessary to maintain the exchange value of the Chilean currency.

Señor Gazitúa stated that a product quota system of this nature would mean a restriction of imports of products subject to quotas from countries with which Chile has compensation agreements even though compensation currency should be amply available to pay for such imports. He stated, however, that Chile’s compensation agreement with Germany is the only obstacle to the suggested method of import regulation since it would result in a curtailment of Chile’s exports to Germany. In this connection he stated that Chilean exports of lentils, apples and wine to Germany had increased; that these are additional and not diverted exports, and that the increased German demand for these products had caused artificially increased production in Chile. It was pointed out to Señor Gazitúa, that it is considered only fair that the control of imports be borne equitably by all supplying countries.

Although indicating that, under present circumstances, he would not recommend the suggested change in Chile’s import control system to his Government because he was convinced his Government would not accept it, Señor Gazitúa stated that Chile will eventually adopt such a system. He stated that he would strongly recommend to his Government that it endeavor to divert Chile’s export trade from compensation to free currency countries. Señor Gazitúa said that he realized that sales promotion work regarding Chilean agricultural products and manufactured novelties would have to be undertaken in this country. Señor Gazitúa referred to the high freight rates on Chilean shipments to the United States.

After discussing the question of exchange availabilities, Señor Gazitúa stated that Chile is doing well by United States trade now in the matter of exchange. He suggested that a trade agreement contain exchange provisions which would assure exchange coverage for normal United States exports to Chile, and provide that additional exchange would be accorded American products as it became available. This formula was objected to because of its bilateral character.

Señor Gazitúa later suggested that no exchange provisions be included in a trade agreement but that there be an exchange of notes, not included in the agreement and unpublished, assuring United States trade all exchange facilities available. The assurances contained in the proposed notes would look to the eventual elimination of Chile’s compensation agreements and provide that this Government, if it should not be satisfied with Chile’s treatment of United States trade, could terminate the agreement.

It was pointed out to Señor Gazitúa that, while there is no question of Chile’s good intentions, his proposal would leave United States trade without any assurances regarding competition from compensation countries. It was also pointed out that all notes are published by this Government and that any provisions providing for termination of the agreement would have to be a part of the agreement.

Señor Gazitúa said he would submit a draft of his proposal and was informed that any proposal he wished to submit would be carefully studied. He was also requested to give careful consideration to our standard exchange provisions and suggestions regarding the control of imports on a product quota basis.

7. Harry C. Hawkins, Chief of the Division of Trade Agreements.
8. Laurence Duggan, Chief of the Division of the American Republics.
9. Henry L. Deimel, Jr., Assistant Chief of the Division of Trade Agreements.
10. Leroy D. Stinebower, of the Office of the Adviser on International Economic Affairs.
11. Emilio G. Collado, of the Division of the American Republics.