811.20 Defense (M) Bolivia/207
The Secretary of State to the Ambassador in Bolivia ( Boal )
Sir: Reference is made to the Department’s telegram no. 397 of June 26, 1942, and to the Embassy’s despatch no. 41 of June 6,69 regarding a proposed agreement with Bolivia for the purchase of cinchona bark. There are enclosed two signed copies of this proposed agreement.70 If agreeable to the Bolivian Government, please have the appropriate authority sign both copies, retaining one and returning the other to the Department.
The Department hopes that the Bolivian Government will agree to the proposed agreement in its present form. A preliminary draft which was presented to Señor Alberto Crespo, Bolivian Minister of National Economy, on July 8 had been drawn up in the light of the Embassy’s despatch under reference as well as supplementary data made available by Mr. William Pennock71 in conversations with officials of the Department. At Señor Crespo’s suggestion, Department officials discussed the draft agreement in the light of changes suggested by Señor Crespo, Señor Dr. Don Luis Fernando Guachalla, Bolivian Ambassador, and Señor Don René Ballivian, Commercial Attaché of the Bolivian Embassy here. Señor Ballivian has read the present draft and has stated he believes that it embodies all of the important suggested changes, and that it is possible his Government may sign it in its present form.
The principle underlying the proposed agreement is that for a three-year period the United States will buy all cinchona bark and quinine products produced in Bolivia, with certain exceptions, in return [Page 550] for Bolivian restriction on their export to countries other than the United States. The Defense Supplies Corporation,72 or its agent, would be the sole purchaser of bark and products in Bolivia. It would purchase not only for its own account, but its agent would purchase also for the account of the Bolivian plant, as well as for the account of those authorized to export to Argentina and Chile. It is thought that the provisions of paragraph 1 (a), regarding the requirements of the Bolivian plant, and of paragraph 7 (b), have met the objections of the Bolivians to the provisions of earlier drafts relating to the bark supply of the Bolivian plant and the legitimate anti-malarial needs of neighboring countries.
Through the option granted Defense Supplies for the purchase of bark containing less than two percent quinine sulphate, the United States will be in a position to assist in the exploration of this undeveloped part of Bolivia’s cinchona resources. This can be done through improving the extraction process of the Bolivian plant enabling it to process this low-content bark efficiently. The technical expert which Defense Supplies promises to make available to the Bolivian plant will work on this problem.
It is hoped that Bolivia will agree to the prices included in paragraphs 2 (a), (b), and (c) and to the methods of payment provided in paragraphs 2 and 3. In arriving at these prices, an attempt has been made to set a figure for the aggregate product, in its raw and finished forms, which will be of the utmost benefit to Bolivia and the United States in the present emergency and at the same time does not overlook the possibility that Bolivia at some undetermined future date may again have to compete with the former Dutch monopoly. Furthermore, the acknowledged needs of large parts of Bolivia’s population as well as of our own for quinine and quinine salts have been kept uppermost in mind in arriving at these suggested prices.
With these considerations in mind, the Embassy may, if necessary, urge upon the Bolivian Government the advantage of judging these prices in terms of the aggregate yield rather than focusing attention on one price considered separately from the others. The bark price of $12.50 per kilogram of sulphate content is less than the present market and, considered by itself and without relation to the sulphate price in paragraph 2 (b) and the alkaloid prices in 2 (c), would seem to be disadvantageous to Bolivia. When considered in connection with the prices for sulphate and the other alkaloids, however, and particularly when it is recalled that efforts will be made to expand the production and distribution of the alkaloids, the bark price offered seems reasonable. In this connection, the Embassy is advised that [Page 551] the Defense Supplies Corporation is purchasing 500 kilograms of the 15-percent by-product mass resulting from the processing of the bark at the Bolivian plant, the purpose being to make an analysis of this product here.
As regards the price of $23.50 per kilogram offered for quinine sulphate, it is equivalent to the United States price less an item of 13½ cents added as a surcharge by the Dutch Kina Bureau. By an odd coincidence, it equals what are understood to be the costs of shipping, insurance, etc., between Arica, etc., and the United States. As regards the prices offered for the alkaloid by-products of the extraction process, they are in the same proportion to the price obtained by the Bolivian plant as the respective weights of the by-products are to the total mass.
It is not believed that the other paragraphs of the proposed agreement need elaboration. The reasons for offering the services of a technician to study and make recommendations for the improvement of the processing at the Bolivian plant are obvious. Likewise, it is clear why the services of a plant pathologist are needed and why it is believed to be to the advantage of Bolivia to accept this offer. The provisions of paragraph 6 for experimental plantings and for their enlargement, in case they are successful, are for securing the future supply of cinchona bark not only for the Bolivian plant but also for the Western Hemisphere generally.
The Bolivian representatives expressed a desire for a longer term for the proposed agreement than the thirty-six months provided in paragraph 11. Their attention was drawn to the option which Defense Supplies would have in the event that the war had not come to a conclusion at the end of three years. In proposing a purchase agreement for even three years, the United States is taking some risk, and by the same token Bolivia is relieved of market considerations during this same period. While it is not possible to state in advance that Defense Supplies would exercise its option at the end of three years, the continuance of the emergency war situation, which calls for the agreement in the first place, would suggest the likelihood that it would do so.
Simultaneously with the despatch of this instruction, the Bolivian Embassy here is transmitting a Spanish translation to its Government in La Paz. The Embassy is urged to exert its best efforts without delay to obtain the agreement of the Bolivian Government. Please do not fail to keep the Department informed of the progress of the negotiations.
Very truly yours,