Foreign Relations of the United States: Diplomatic Papers, 1943, The American Republics, Volume V

825.6374/1518

The Chilean Embassy to the Department of State

Washington , July 10, 1943.

Aide-Mémoire to Mr. Duggan

The restrictions occasioned by the war have reduced world nitrate sales to 1,400,000 tons. As production could not be regulated accordingly, the world stock at the moment is 100,000 tons greater than normal stocks in the pre-war period. The pre-war normal stock was of 500,000 short tons, at a time when it was convenient to maintain adequate nitrate stocks in all world markets. The war has made it impossible to continue the maintenance of such stocks, and today the sales are generally effected on the Chilean coast. A stock of 500,000 tons is, therefore, exaggerated, and even more so the present stock of 600,000 tons.

In order to keep in operation the plants which are actually producing, it is therefore absolutely indispensable that the sales of the new nitrate year and of the coming years reach the minimum production level of 1,400,000 tons. As there is no hope of increasing the sales in world markets outside of the United States, but that rather, on the contrary, deliveries to other markets will most probably be reduced to less than 400,000 tons, it is obvious that if the United States does not purchase and transport 1,000,000 tons of nitrate during the present year, the paralyzation of Chilean plants with consequent unemployment and social and economic difficulties will be inevitable.

General information which has been imparted to us, which indicates that the situation has recently improved greatly, but that a purchase of 1,000,000 tons yearly by the United States can still not be assured, is less unfavorable, but does not assure Chile of being able to keep up present production levels. Any reduction whatsoever in the purchases below 1,000,000 tons, will result in unemployment in Chile that could even reach one of the great plants of Tocopilla.

If the purchase of 1,000,000 tons is effected this year, but there is no possibility of making a similar purchase for the coming year, 1944–1945, the same situation will again arise in Chile, repeating itself in a year.

Without any argumentative spirit, but due only to the gravity of the situation during the war, our Government has charged us with making known the antecedents which could be brought to bear so that the United States would consider the case of natural nitrate with equity and good will.

The Good Neighbor policy, and that of mutual cooperation established among the American Republics envelop the practical idea of considering the important problems of the countries with a serene spirit of justice, equity and comprehension.

In the concrete case of natural nitrate, there has been a very special contact with the representatives of the United States inasmuch as on the one hand it deals with the most genuine basic Chilean product, and on the other hand, the defense of the United States has made necessary the construction of synthetic nitrogen plants. Such plants could in the future be transformed into competitors of the Chilean nitrate if at this moment or in the future they enter their production into the ordinary market and especially if it were to be used for agricultural purposes.

When the construction of these plants was first being considered, Chile offered to deliver a stock of nitrate sufficient to satisfy the eventual necessities under any circumstances, asking that no such plants be constructed as there was already sufficient nitrate production to take care of the world’s needs.

Because of considerations of defense, the construction of the plants was begun on a moderate scale, and Chile remained calm because it was declared that such construction would not endanger the natural nitrate sales for agricultural purposes, nor consequently the economy of Chile.

In the Conference of Rio de Janeiro,¹³ the Ninth Resolution¹⁴ established the form in which this problem should be faced, giving certain guarantees which, if harmoniously handled, would satisfy the aspirations of the Government of Chile.

Last year, in March and April, in new conversations, general assurances were given in the sense that the Government would maintain the ownership of the plants until after the war, and that their fate would not be definitely decided without first considering the effect of such decision upon the Chilean economy. Moreover, the discussion at that time included conversations to the effect that before taking any definite action on the question, it would be discussed at a round table with representatives of the Chilean Government.

With these antecedents, it is brought out in summary, that the Government of the United States understands the delicate situation of Chile in the nitrate problem, now as well as after the war, and it only remains to seek the practical means by which it can be assured that this situation, created by the present war emergency, does not contribute to the destruction of one of the basic natural resources of a friendly country.

It is well to remember that Chile is developing to the limit of its capacity the help that it is able to proffer to the defense of the United States, even unto making sacrifices in its internal necessities of copper, in order to be able to serve in good cause the agriculture of this country for over 100 years by providing the necessary fertilizers, and in the past two years it has contributed to the successful development of the food program by furnishing nitrate in a period of such vast importance.

During the present year, a considerable part of the production of the new plants raised for defense and of Canadian plants also built because of the emergency, will be destined for agricultural purposes in the United States. This fact, besides confirming our fears that the construction program was too large for just supplying war necessities, will affect our economy in a large measure, and can produce in Chile, in the future, disastrous economic and social effects.

It is our understanding that, for reasons of uncertainty with respect to the time in which the nitrogen of new production will be available; because of the mechanical conditions of some products to be delivered for consumption for the first time; and finally, in order to assure the convenient availability of the nitrogen necessary for the fulfillment of the food plan; the Food Administration, without any consideration of the situation of Chile, but rather exclusively in consideration of the internal necessity in reference, has recently requested, according to advices which have reached us, that the War Production Board authorize the purchase and make transportation arrangements for 1,000,000 tons of nitrate for the year ending next June 30.

If such is the case, Chile’s problem as far as the year 1943–1944 is concerned would unquestionably be solved, but if only internal necessities are to be considered, and the Good Neighbor policy and that of mutual cooperation are to be disregarded, it is quite clear that for the next year the excessive national production could well cause drastic reductions in the purchase of Chilean nitrate with the above-mentioned serious consequences.

Further still, this excessive production could make inroads in exportation to other world markets, thus reducing, in a way disastrous to Chile, the few markets that are now helping to keep up a minimum production level necessary to avoid unemployment in the nitrate fields.

In such serious conditions, the Government of Chile is confident of being able to count upon the collaboration of the United States which is justified if the antecedents and the purposes of mutual protection of basic industries are taken into consideration. Our Government believes that with good will the means of avoiding these serious dangers can be found, even when it is understood that this can only be discussed in the light of the reciprocity of the American Republics.

In effect, as long as the United States needs the products of Chile, and especially nitrate and copper, Chile has exerted all effort to deliver these products in the most reasonable conditions and in due time, and it maintains the hope that when the United States needs only copper, it will also put forth its best efforts to continue the purchase of nitrate during the war, to the end that Chile be able to maintain social and economic harmony for the duration of this emergency.

With respect to the future, Chile understands that it is essential to continue the modernization of its industry, and is doing its best toward accomplishing this. It believes that after the war the nitrate industry could go on living and effecting delivery in the world market of the quantity of nitrate necessary to keep up production, social peace, and the economy of the country, provided, always, that the Government plants receive no artificial support, and it is sure that to that end it may count upon the friendly collaboration of the Government of the United States.

Even in consideration of the fact that the moment is undoubtedly not opportune to attempt to solve the problems of the future, the Government of Chile believes that the Government of the United States could manifest its conformity to some general principles that, in the judgment of Chile, could be determined, and that would give sufficient security to the future of the nitrate industry.

These points are:

1. Following the policy of American cooperation to maintain the basic production of other nations of the continent, and in consideration of the fact that there exists an excess of productive capacity, the Government of the United States will not grant, directly or indirectly, financial facilities for the construction of new synthetic nitrogen plants in the world.

2. The Government of the United States will retain, for the duration of the war emergency, the ownership of all plants constructed, or that may be constructed, for defense purposes, and will make no decision regarding their fate until the end of the war, nor without first taking into consideration the effects that such decision would have upon the economy of Chile. The Government of the United States will invite representatives of the Government of Chile to confer upon this matter when the war is over, and before taking any definite action on the matter.

3. If the new plants are to be destined to the nitrogen trade, the Government of the United States, owner of these plants, will not grant subsidies, either directly or indirectly, that would improve the economic basis of emergency industries that would constitute a direct menace to the natural nitrate industry.

When the moment arrives for the transfer of these plants, it is understood, consequently, that the capital invested will not be under-valuated nor the cost written off, and that no other methods will be employed to produce similar effects and that would place the new industry of nitrogen in a position of artificial] advantage which would undoubtedly be contrary to the principles of cooperation.

Finally, Chile would like to be able to count upon the following permanent measures destined to protect natural nitrogen:

4. To keep natural nitrate on the “free list”, without submitting it to importation intricacies nor to a system of quotas or licenses, nor other restrictions that would tend to limit the free use of this product by American farmers.

5. The suppression of regulations established to give preference to the national products so that Chilean nitrate could be employed in the industrial works of the Government.

The above-listed points regarding nitrate are those which the Government of Chile would like to determine with the Government of the United States, and we have deemed it advisable to present them in verbal form to Mr. Duggan, begging him to be so kind as to give us his advice as to the persons whom we should interview in order to discuss the case in question. We should appreciate suggestions on the following points:

1. The manner in which the nitrate purchase for the present year can best be settled, and also for the coming years for the duration of the war.

2. The manner in which it can be assured that the Government will retain the ownership of the nitrogen plants until the termination of the war, and that their destiny will not be determined without due consideration of the effect such action would have upon the economy of Chile.

3. That point No. 2 will not be determined without first conferring with representatives of the Government of Chile.

4. In the event it is decided to allow such nitrogen plants to enter into general trade, to assure that the cost will not be written off, nor will subsidies be granted, nor any other measures producing similar effects.

5. That no financial aid will be granted either directly or indirectly for the construction of new nitrogen plants in the world.

13. Third meeting of the Foreign Ministers of the American Republics, Rio de Janeiro, January 15–28, 1942; for correspondence concerning this conference, see Foreign Relations, 1942, vol. v, pp. 6 ff.
14. For text of the Ninth Resolution, see Department of State Bulletin, February 7, 1942, p. 126.