811.20 (D) E.D.B./1173

The Ambassador in Argentina (Armour) to the Secretary of State

No. 5103

Sir: I have the honor to refer to this Embassy’s strictly confidential despatch No. 4377 of March 11, 1942, discussing the need for a control of Chilean copper exports to Argentina.

Since the date of the above despatch the problem of copper has assumed increasing importance, both as to its reaching the hands of firms in Argentina, unfriendly to the United States, and as regards the supply now reaching this country which, if allowed to continue, will surpass even the normal needs of the market. I also wish to refer to cable No. 681 of May 5, 6 p.m., sent by our Embassy in Santiago to the Department, proposing assistance to the American copper companies in braking the excessive demands of Argentina for copper.

In view of the immediate importance of this particular subject, I took occasion to send a member of my staff, acquainted with the matter, on the regular diplomatic courier trip to Santiago on Saturday, May 9. He had the opportunity to discuss the entire question with Messrs. MacLean and Gray of the Embassy staff in Santiago, with Mr. Horace Graham, representative of the Metals Reserve Corporation and with Messrs. John R. Cotter and Frank N. May of the Anaconda [Page 55] Copper Corporation. It was agreed that the problem was twofold. First, the question of control over shipments of raw copper, principally in bar or ingot form, to the Argentine market to the end that this copper would not reach the hands of pro-Axis entities. The unanimous opinion regarding this feature was that Anaconda should continue to make sales only from New York and that these would receive the approval of the Embassy in Buenos Aires through their local representative before they were consummated.

The second factor has to do with the sales in Argentina of Chilean semi-manufactured copper by the Fábricas y Maestranzas del Ejército de Chile (Chilean Army Workshops). The practice in brief is as follows: By Chilean law the North American producing companies in that country are required to sell in Chilean pesos the copper needed by domestic industry. Presumably this means for domestic consumption. Consequently, the Chilean Army Workshops are able to buy from Anaconda and probably from Braden Copper Company, in those cases where fire-refined copper is satisfactory, all of their needs to meet the Chilean market demands. However, a very lucrative business both for intermediaries and the Chilean Army Workshops has recently developed by reason of the following practice. Since Anaconda will not sell in Chile and since in New York they will only sell to regular copper consumers, intermediaries dealing largely on a speculative basis are unable to make their purchases direct. Hence, they contract with the Chilean Army Workshops to purchase fixed tonnages of semi-manufactured copper. Occasionally this is in the form of wire of relatively large gauge, at other times it is in strip or sheets. Recently, however, since the income from the business is so attractive, it is understood that the greater amount of this copper is worked but very little, such as being rolled into very thick sheets or strips. Under this situation the Chilean Army Workshops have been able to purchase fairly substantial quantities of copper from Anaconda. They then work it as above indicated and sell it in turn to the intermediary, who exports the product to Argentina.

There is little or no control over the sales of this copper once it reaches the Argentine market and the practice is clearly an abuse by all of those engaged in the transaction.

Consequently, I venture to suggest that the Department may wish to advise the Chilean Government that it considers that future sales of semi-manufactured copper by the Chilean Army Workshops to intermediaries not normally consumers of copper and subsequent exportation of this copper to Argentina, should be discontinued inasmuch as:

The practice is detrimental to the war effort of the United States, as a) the United States needs every ton of Chilean copper available; [Page 56] and, b) there is no shortage of shipping space for its transportation to the United States, and further, c) the present practice of exporting this semi-manufactured copper to Argentina gives practically no control over its destination and allows it to reach the hands of firms or entities unfriendly to the United States.
The practice is detrimental to the economy of Chile, as a) the capacity of the Army Workshops is such as to require its complete use in meeting the local requirements of the Chilean market were it to dedicate itself to the production of the various copper items needed in that market, such as fine sheets, fine gauges of wire, strip, etc.
Argentina has no need of this material, as a) she has manufacturing facilities sufficient to perform all of the semi-manufacturing processes now performed by the Chilean Army Workshops; and, b) her present stocks of copper are sufficient probably to meet her minimum requirements for at least the rest of 1942; since (1) average normal imports of raw copper, brass and bronze are less than 6,000 metric tons. Argentina imported approximately 7,400 metric tons of electrolytic copper and 300 tons of brass and bronze in 1941. Imports from January to April inclusive during 1942 have been between 5,000 and 6.000 metric tons of electrolytic copper.

It is believed that the Chilean Government would be glad to cooperate as above suggested and it would also relieve the American copper companies of a constant problem as regards sales to the Chilean Army Workshops which they know are to be re-sold to speculator intermediaries for re-export to Argentina. I further believe that by this method an effective control over Argentine copper imports can be maintained and that at least no further shipments will reach the hands of Sema or other unacceptable firms.

Respectfully yours,

Norman Armour