811.20 Defense (M) Bolivia/1055: Telegram

The Secretary of State to the Ambassador in Bolivia (Boal)

739. For Hall from Allen Rubber Development Corporation. Your 943 May 19, 957 May 21 and 974 May 26.84 We are in accord with your view that we should firmly maintain the position that the Government of Bolivia should carry out in good faith not only the express provisions of the rubber agreement but likewise the plain intent of the agreement. As regards the Larecaja-Caupolicán area the agreement clearly contemplates the ascertainment of excess production costs in that area and the establishment of a proper cost differential. We have formally offered to the Bolivian Government a cost differential which we understand is entirely satisfactory to the producers and which is more than adequate, based upon the experience to date of the only actual producer.

We feel that the only question at issue is the determination of a reasonable and proper cost differential and that any attempt by Bolivia to take into consideration the prevailing Argentine price should be firmly resisted as contrary to the plain intent of the agreement. Owing to absence of Peñaranda we were unable to make representations suggested in your 943.

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We approve your entering into individual contracts on the basis of our proposal to the Bolivian Government providing the Embassy concurs and providing in your opinion and that of the Embassy we could not be charged with bad faith toward the Government of Bolivia in so doing, and it being understood that such contracts will be made at the standard Bolivian prices, with a separate clause providing for payment of a cost differential at the rate and for the period specified in our proposal to the Government. It might be well to state in the contract that this cost differential is being paid in accordance with clause 3 [?] of the agreement between Bolivia and Rubber Development Corporation. If the individual contracts are drawn in this manner we do not believe that clause 6 of your standard purchase contract would be brought into operation.

The fact that all of the principal producers have been willing to enter into contracts with us will be the best possible proof that the cost differential we have proposed is adequate. If it should be found undesirable or impractical to make individual contracts, we feel that the potential production in the Larecaja-Caupolicán area is so small that we can, if necessary, afford to stand firmly upon our position and await such response as the Government of Bolivia may make to our proposal.

In view of the fact that our proposal would appear to be more advantageous to the Banco Agrícola than the plan proposed by the Bolivian Government could we not obtain some support from the Banco Agrícola? Send airmail text of proposal outlined in your cable 797 of April 26.85 [Allen.]

Hull
  1. None printed. Telegram No. 974 contained the recommendation that purchase contracts with individual producers should be negotiated since the producers were unwilling to wait for Bolivian governmental action.
  2. Not printed; this was essentially a compromise proposal, the important provision of which was the inclusion of the Larecaja and Caupolican rubber areas (811.20 Defense (M) Bolivia/978).