Foreign Relations of the United States: Diplomatic Papers, 1942, The American Republics, Volume V

811.20 Defense (M) Bolivia/313

Memorandum by the Acting Chief of the Division of Defense Materials (Finletter)⁶⁴

[Washington,] May 26, 1942.

Your instructions are requested on the following question. Under a contract dated November 4, 1940 Metals Reserve Company agreed to purchase from certain Bolivian producers 18,000 tons of tin annually for a period running five years from July 1, 1940. The price for the first year ending July, 1941 was 48½ cents per pound c.i.f. United States ports. Thereafter the price was to be determined by a formula which has become inoperative by reason of the Japanese conquest of the Eastern Straits tin producing area. Metals Reserve Company has continued to pay the 48½ cents price since the formula became inoperative.

The Bolivians have asked for an increase in the price by reason of the fact that the price formula has been rendered inoperative. They point to increased costs both in the machinery needed for the mining operations and in the general standard of living. Dawson of the Legation at La Paz and the American economic mission in Bolivia advised in February that in their opinion a price of 57 cents per pound c.i.f. United States ports would compensate for the increase in costs since the signing of the contract. This price was offered, but the Bolivians insisted on a price of 60 cents f.o.b. Chilean ports. The Bolivians thus were asking for (a) an absolute increase in the price from 48½ cents per pound to 60 cents per pound; (b) the assumption by Metals Reserve Company of transportation and insurance costs from the Chilean ports to the United States ports, or an estimated additional 2.35 cents per pound; (c) the assumption by Metals Reserve Company of the risk of increases in shipping and insurance costs; and (d) the assumption by Metals Reserve Company of the risk that ships may not be available to carry the tin from West coast South American ports to United States ports.

These demands of the Bolivians have met with serious resistance both from the Metals Reserve Company and the Board of Economic Warfare. The English, whom we consulted by reason of the fact that their contract with the Patiño Company provided that they were obligated to pay the same price as that paid by Metals Reserve Company, were also opposed to the increase. Allan Dawson at La Paz, in consultation with the Bohan mission, opposed the payment of this 60 cents f.o.b. Chilean ports price. There seemed, however, to be important reasons for making this concession. The Bolivian Ambassador made a strong case in terms of the political situation in Bolivia. Furthermore, the need of this country and Great Britain for tin is such that it seemed desirable to err on the side of an overpayment. Accordingly, due to the insistence of the Department, the Metals Reserve Company, the Board of Economic Warfare, and the English agreed to the payment of the 60 cents f.o.b. Chilean ports price. They even agreed to make this price retroactive to January 1, 1941 [1942?]. The Department and Metals Reserve also agreed, at the insistence of the Bolivian Ambassador, to abandon the plan (which had previously been determined upon, with the approval of Mr. Duggan) for making the tin price conditional upon the reaching of a favorable agreement with Bolivia as to rubber. The only demand which was made was that the contract run until December 31, 1943, that is for a period of about nineteen months.

This was communicated to the Bolivian Ambassador who reported that the producers felt that the contract should run for only seven months, that is to December 31, 1942. His reason for this was that he felt that increasing costs in Bolivia rendered it unwise to extend the contract further than that date. We pointed out to him that recently the Office of Price Administration has fixed ceiling prices on exports for substantially all machinery and equipment and that this should prevent any substantial increase in the cost of mining operations to the producing miners in Bolivia. The Ambassador, however, after consultation with the producers, stated that he could not accept the offer and insisted that nothing less than a contract at 60 cents f.o.b. Chilean ports, price retroactive to January 1, 1942, and running only to December 31, 1942 would be accepted.

I reported this to Messrs. Clayton (RFC)⁶⁵ and Rosenthal (BEW).⁶⁶ They agreed to consider it and have now reported that they desire to refuse this demand of the Bolivian Government. I told them that I would refer the matter to you for your decision. My own opinion is that the demand should be refused, in the absence of political factors in Bolivia with which I am not familiar.

Thomas K. Finletter

64. Addressed to the Adviser on International Economic Affairs (Feis), who indicated agreement as to immediate negotiating procedure; to the Executive Secretary of the Board of Economic Operations (Collado), who agreed with Mr. Feis; and to the following who indicated no opinion: Chief of the Division of the American Republics (Bonsai), the Adviser on Political Relations (Duggan), the Assistant Secretary of State (Acheson), and the Under Secretary of State (Welles).
65. W. L. Clayton, Assistant Secretary of Commerce; the Reconstruction Finance Corporation was transferred to the Department of Commerce February 24, 1942.
66. M. S. Rosenthal, Assistant Executive Director, Board of Economic Warfare.