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

740.00112A European War 1939/12390

The Secretary of State to the Ambassador in Chile (Bowers)

No. 1922

Washington, August 12, 1942.

Sir: Reference is made to the Embassy’s despatch no. 3376, dated May 20, 1942⁹⁰ on the subject of possible representations to the Chilean Government with reference to the Proclaimed List, and also to the Embassy’s telegram no. 927, dated June 7, 1942 on the subject of the possible acquisition of Osram by Chilean interests. The Department and other interested agencies have reviewed fully the questions raised in these communications and have also discussed them fully with the British Embassy.

The persistent failure of the Chilean Government to cooperate in the implementation of the basic Resolutions adopted at the Rio Conference⁹¹ has produced a situation that cannot fail to be a source of danger to American solidarity and welfare. The following may be noted as typical of existing conditions:

1. Commercial and financial transactions are conducted without restriction by inimical firms and individuals in Chile (including those on the Proclaimed List), with the result that the objectives of Resolution V⁹² adopted at the Rio Conference are largely nullified. Cloaking operations are facilitated through this policy.

2. No prohibitions have been laid by the Chilean Government on the movement of goods, either direct or indirect, to and from Axis countries or Axis occupied territories.

3. No control has been exercised by the Chilean Government over radio and other communication with Axis countries and occupied territories. The danger from this source of the conveying of vital information to the enemies of the American republics cannot be overestimated. Ultimate communication to Axis submarines and other vessels of shipping movements may be cited as an instance.⁹³

4. Although foreign exchange transactions are technically under the supervision of an agency of the Chilean Government, questionable operations appear to be so freely conducted that inimical firms and individuals are able to carry on financial transactions with Axis countries and occupied territories.

These conditions, together with the continuance of diplomatic relations with the Axis powers, have the effect of facilitating the development of subversive activities and the dissemination of inimical propaganda in Chile.

The net effect of these factors is a menace to hemispheric defense which the Department and other interested agencies of this Government have viewed with growing concern. Alone among the American republics Chile has made no move to curb within her borders trading and financial transactions harmful to hemispheric interests or to prevent commercial intercourse with the Axis powers and at times has taken steps affirmatively beneficial to the enemies of the other American republics. In this latter connection there may be mentioned specifically the deliberate intervention of Chilean government agencies to compel the delivery to Proclaimed List firms of materials essential to their continued operation and also the numerous instances in which difficulty has been placed in the way of diverting shipments from Proclaimed List consignees.

The Department therefore agrees with the opinion expressed in your despatch no. 3376 that the time has come to take up with the Chilean Government the whole question of economic and financial control of Axis activities in Chile and the related problem of cooperation with our Proclaimed List policies, with specific reference to the implementation of Resolutions V and XL of the Rio Conference.⁹⁴ The time appears to be especially propitious since your representations would follow closely upon the recent Inter-American Conference on Systems of Economic and Financial Control⁹⁵ at which a strong program was adopted for dealing with Axis economic and financial activities in the American republics. A circular instruction⁹⁶ outlining the results of this conference is being sent to you concurrently with this instruction. Although the Chilean delegate to this conference made a general reservation to the resolutions which were adopted, such reservation stated merely that the “recommendations do not alter the obligations devolving upon my country as a result of Recommendation V” of the Rio Conference. For your information, the Department believes that the recommendations at the recent conference in Washington do not in any sense alter or extend the provisions of Resolution V of Rio, but that they merely specify in detail the manner in which the controls shall be placed in effect. Furthermore, the Chilean delegate made a general statement at the opening session of the conference in which he explained the reasons for Chile’s failure to adopt any legislation on the subject, and expressed Chile’s willingness to adhere to any recommendations made by the conference. A copy of this statement is enclosed.⁹⁷ It is hoped that this statement may be indicative of a more helpful attitude in the future than has been displayed in the past.

In agreeing with your observation that the time has come to review this whole question with the Chilean Government, the Department further agrees that in view of the factors outlined above, the problem can now be attacked by making representations directly to the Chilean Foreign Office about the over-all situation. However, it is suggested that, after the general representations have been made, the Embassy follow up such representations by continuing to discuss specific cases with the appropriate authorities. The Department’s experience in the field of economic warfare has shown the value of continued consultation on specific cases, particularly because of the educational value to the other government.

You are accordingly requested to take up the subject with the Chilean Foreign Office in such manner as you deem appropriate. In so doing you may make such reference as seems desirable to the considerations set forth in this instruction. You should also point out that while we have every desire to assist in maintaining the continued operations of firms essential to the Chilean economy, it is impossible for us to justify to the people of this country, who are being asked to make increasingly severe sacrifices, the furnishing of goods and materials that may fall into the hands of enemy firms or firms in which there is an enemy interest, so long as no local control is exercised over the commercial and financial activities of such firms. It should be emphasized that, in the absence of appropriate controls, the United States Government will be compelled in its economic and financial relations with Chile, and specifically in the allocation of materials and commodities and in the provision of shipping facilities, to recognize that the continuance of shipments from the United States to Chile contributes directly or indirectly to aid the enemies of this country and of the other American republics.

The situation in Chile has been discussed in detail with the British Embassy in Washington, and the British Government has been informed of the step which this Government is proposing to take as outlined in the present instruction. As a result of these discussions the British Government already has instructed the British Ambassador in Santiago to make similar representations. It has been emphasized that the action taken is to be independent rather than concerted. Naturally, no reference should be made in any document delivered to the Chilean Government as to the discussions with the British or as to their proposals for action along these lines.

With particular reference to Osram⁹⁸ it is obvious that a solution can be found by the Chilean Government if it so desires. This Government certainly cannot be expected to sympathize with the apparent Chilean wish not to offend the German Government or the German interests involved. The United States Government would be glad to see the German interests in the company taken over by Chilean, provided the proceeds accruing to the German owners from such a step could be effectively blocked. As you know, the International General Electric Company has inquired as to the attitude of this Government in regard to the acquisition of Osram by W. R. Grace & Company. Such a purchase would not be viewed favorably, although there would be no objection to the participation of American capital in any new company that might be formed or to the employment of American technical experience in the operation of the company’s plant.

With respect to Sociedad Lanera the position is essentially the same as with Osram. This Government would be pleased to see the company acquired by Chilean interests if payment is blocked.

In connection with the general question of taking over inimical firms in the other American republics by Government action, your attention is directed to Resolution VII adopted at the recent Inter-American Conference in Washington⁹⁹ and to the discussion thereof in the circular instruction concerning such conference which is being sent to you concurrently with this instruction. Particular reference is made to the statements therein concerning the general policy of this Government against removing enemy-owned firms from the Proclaimed List on the basis of provisional controls such as intervention. Our experience has shown that controls of this latter type are usually administered laxly, and they are subject to the further objection that they preserve intact the enemy interest.

You are requested to submit to the Department a copy of any note or Aide-Mémoire that may be transmitted to the Chilean Government in connection with the above matters, and to keep the Department fully informed of any developments.

Very truly yours,

For the Secretary of State:

Dean Acheson

90. Not printed.
91. For correspondence regarding the conference at Rio de Janeiro, see vol. v, pp. 6 ff.
92. For text, see Department of State Bulletin, February 7, 1942, p. 124.
93. For correspondence on efforts to counteract espionage activities in Chile, see vol. v, pp. 186 ff. passim.
94. Department of State Bulletin, February 7, 1942, pp. 124 and 140.
95. See vol. v, pp. 58 ff.
96. Dated August 4, 1942, ibid., p. 58.
97. Not printed.
98. See telegram No. 927, June 7, 5 p.m., from the Ambassador in Chile, p. 127.
99. Resolution VII of the Conference on Systems of Economic and Financial Control provided for the forced transfer, liquidation, or blocking of firms acting against the security of the American Republics; for text, see Pan American Union, Congress and Conference Series No. 39: Final Act of the Inter-American Conference on Systems of Economic and Financial Control (Washington, 1942).