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

No. 1307

Sir: There is enclosed a list of the commodities allocated to Chile17 for the second quarter of 1942. Iron and steel products, and some other additional items, will be announced shortly.

The allocations, as shown, are based largely on the recommendations of your Mission; and in this connection the Department wishes to express to you and your staff its great appreciation of the reports on essential requirements which have been submitted by your office. It is hoped that the reporting officers will continue to spare no effort to supply the Department with this vitally important information. A questionnaire is being prepared for your guidance in collecting and analyzing the type of information of most value to the agencies in Washington.

The Department is aware that our Missions have been handicapped by lack of information as to the exact procedure followed in the War Production Board and the Office of Export Control with regard to allocations and the licensing for export of allocated commodities. The following is designed to explain the background of the allocations system and to give the Missions a picture of the situation as it exists today.

Last January it was necessary to announce allocations before the machinery to administer them was set up. Following their announcement, the War Production Board began trying to fit allocations into production schedules. This proved to be so complicated, in view of the rapid conversion of industries to war production, that in effect there was no fixed allocations procedure during the first quarter of the year. The War Production Board, conscious of the necessity of [Page 83] providing for the other American republics, proceeded on the basis of priority ratings, and it is gratifying to record that very substantial quantities of exports moved forward during a most difficult period.

During the first quarter, at the suggestion of this Government, the other American republics set up Certifying Agencies, most of which are now functioning. It has developed rather logically that in many countries the Certificates have become corollary to systems organized to supervise or control the equitable distribution and the price of the commodities upon arrival. Thus, as is evident from despatches received by the Department, the foreign governments are concerned as to the treatment accorded the Certificates by the Office of Export Control.

In the first quarter the Office of Export Control approved thousands of applications with and without accompanying Certificates of Necessity. The flow of production and export is a continuous process and could not be held up pending receipt of Certificates. The latter are only now beginning to arrive in substantial numbers. Many of the commodities so licensed have been shipped, others are at seaboard awaiting bottoms, while others are still awaiting their turn for manufacture. Statistics are in preparation to show how much of each allocated commodity was licensed or shipped to each country during the first quarter of 1942.

The large number of outstanding licenses not covered by Certificates presents a most complicated problem particularly in the matter of coordinating these licenses with the efforts of the Certifying Agencies and control systems in the other American republics. Attempt to recall or invalidate all outstanding licenses not covered by Certificates might result in interruption to the flow of manufacture and export. There must be a transition period during which, concurrent with the approval of licenses covered by certificates, the non-certified outstanding licenses can be worked off. The extent of this transition period cannot be determined at this time, but it may extend as long as through the second quarter, or until September 1, 1942.

These problems, and the questions they involve, have actively concerned the several interested agencies of the Government for several months; and the Department, the War Production Board, and the Board of Economic Warfare are still trying to work out a practicable allocations and licensing procedure for the second and subsequent quarters of the year. The successful merging of the existing unsatisfactory procedure and a new improved procedure constitutes an administrative problem of the first magnitude; the readjustment must be made while administrative processes carry on.

The Department is pleased to be able to inform you that the production phase of the allocations system is being worked out rapidly [Page 84] and satisfactorily by the War Production Board. An announcement will shortly be made of a procedure which will (1) require manufacturers of an allocated commodity to reserve a definite portion of their production facilities to accommodate foreign orders within the overall total of the allocation for the industry; (2) require manufacturers to accept foreign orders that have been licensed for export; and (3) help the agents in the United States of foreign customers to find a manufacturer in the event difficulty is experienced in placing the order. Owing to the complexity of modern industrial organization, the implementing of orders issued by the War Production Board may be slightly different as regards different commodities, and announcements will be made in the near future with respect to fixed booking dates, etc., for orders to fit into production schedules for certain forward periods.

As for the licensing procedure, and the relation of the Certificate of Necessity thereto, the administrative problem is especially difficult. It is nevertheless hoped that an announcement will soon be made of a procedure which will provide the following: (1) During the transition period of working off the outstanding un-certified licenses, and in order to give certain of the other American republics more time to organize their Certifying Agencies, the Office of Export Control will give definite preference to those license applications covered by Certificates; (2) After a certain date the Office of Export Control will approve only those new applications for license to export which are covered by Certificates of Necessity (Confidential: this is the position being urged by the Department but there is no definite assurance as yet that the Board of Economic Warfare will agree). Thus it is hoped that during the third quarter and thereafter there will be a close coordination between the issuance of licenses and the issuance of Certificates of Necessity so as to enable the other governments to plan effectively the most advantageous distribution of scarce commodities within their economic systems.

With regard to other aspects of the allocations and licensing system the Department desires to give the following information in answer to specific questions presented by the Missions:

The Certificate of Necessity is to be used only for allocated commodities. However, the Board of Economic Warfare has by Current Controls Bulletin No. 10 of March 5, 1942, authorized its use in connection with rubber and rubber products. To date this is the only exception authorized. Use may be authorized in connection with other very tight unallocated commodities, but only when specific instructions, as in the case of rubber, have been issued. In the latter case, instances of which will be very few, the Certifying Agencies should issue certificates with the greatest care and only for essential [Page 85] purposes. Such certificates will be considered in relation to the limitation orders affecting identical use in the United States.
The Certificate of Necessity will serve in lieu of a PD–1A form with regard to an allocated commodity. In this connection, however, the Certificate should contain full answers to the questions thereon, particularly as regards the end use of the commodity, existing inventories, and availability of substitutes. It is recognized that the Certifying Agencies in some of the other republics are still in process of organization and that all are not yet fully equipped to make the detailed investigations necessary to determine end use of allocated commodities for presentation on the Certificate form. Nevertheless, if such agencies, or any other agencies within the foreign governments, are to supervise the distribution of commodities after arrival they will eventually need to know such details. Thus the Missions are urged to encourage the agencies to persist in obtaining and recording such information, not only to comply with our requirements but also for their own future control purposes.

There are certain vitally important questions regarding allocations procedure which cannot be answered at this time. The first is whether the unused portion of a quarterly allocation will carry forward into subsequent quarters of the year. The problem is so involved that the Requirements Committee has not yet been able to work out a solution. The heavy industries of the United States are working against a strict forward time-table to satisfy the demands of the armed forces of the United Nations, and to attempt to telescope the unused portion of a quarterly allocation into production schedules for following quarters presents serious technical difficulties.

The second concerns the determination of what outstanding licenses shall be charged against first quarter allocations. For example, in many cases commodities licensed prior to January 1, 1942 are only now moving forward, while at the same time there are outstanding thousands of first quarter licenses for commodities that have moved forward only in part, and some not at all. The administrative problem of determining the exact status of the commodities that have been licensed, and checking them against factory production schedules and export shipments, is an extremely complicated one. However, the whole problem is receiving urgent attention and it is hoped that solution will soon be arrived at.

During the transitional period the Department appreciates that the position of the Missions in this matter will be a difficult one. However, the Missions should continue to cooperate as fully as possible with the Certifying Agencies and encourage the careful issuance of the Certificates, endeavoring to see that there is no cloaking, and that established trade channels, and in particular American firms, receive a proportionately fair share of the trade based on past performance.

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The Department believes it inevitable that as the issuance of Certificates progresses the responsibility of the Missions will increase. It is understood that practically all of the Missions have made informal arrangements with the Certifying Agencies to receive a copy of each Certificate as issued. Needless to say, should the Mission feel that any Certificate issued is not in the best interest of the United States, the Certifying Agency should be approached tactfully with a view to rectification. If the case is judged sufficiently serious to warrant intervention, as a last resort, the Mission can effectively nullify the Certificate by advising the Department in the premises.

There is evident a tendency in the other American republics to adopt forms of economic control that are perhaps more comprehensive than the situation warrants. The Department realizes, of course, the sovereign right of the other American republics to institute such controls as they deem necessary to maintain order in their economic systems. In this connection, the Missions should lend their friendly and informal counsel to prevent, if possible, the establishment of controls which appear unnecessarily extensive or impractical. The Missions should be prompt in reporting controls which adversely affect the treaty rights of the United States and its citizens abroad.

Very truly yours,

For the Secretary of State:
Dean Acheson
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