740.21112 RP/6a
The Secretary of State to the Ambassador in Colombia ( Lane )
Sir: Reference is made to the Department’s telegram no. 1093 of September 1, 1943,35 in which you were informed that an instruction was being prepared in connection with the replacement of Axis drug and chemical firms in Colombia. As was therein stated, in view of the importance of the forthcoming negotiations, the Department has had under consideration the question of the relevant policies and procedures. The views of the Department are as follows:
[Page 62]1. It is believed that direct preliminary discussions should be held with the Colombian officials to establish an understanding on the economic warfare objectives which the two Governments would wish to achieve in connection with our assistance in the proposed Colombian program. Your telegram no. 1443, August 20, 1943,37 indicates that these points (which are in line with the Resolutions adopted at the Washington and Rio Conferences) are mostly acceptable to the Colombian Government.
It is believed that the general framework for negotiations should include the following points, established on a basis of a direct government-to-government understanding.
- a.
- If any of the properties is sold or otherwise transferred, or if any funds accrue for any other reason, it should be agreed that the proceeds will be specially blocked beyond the reach of the German owners for the duration of the war. Should Colombia be willing to agree to payment of any such funds directly into the Colombian treasury without segregation and to await final disposition at the end of the war, that solution would be most acceptable. In any event, mere freezing of the account against withdrawals would probably not be sufficient since the objective is to block the funds in a manner which will insure that the owners cannot realize any present advantage by pledging the frozen accounts or by other similar means.
- b.
- It should be agreed that trade between the nationalized firms and any Axis or Proclaimed List firms will be eliminated. Elimination of supply contracts with Axis or Proclaimed List firms and a guarantee that such trade will not be resumed for the war period should be a condition of American supplies. Cancellation of such supply arrangements will be satisfactory if it is made to coincide with the arrival of sufficient American supplies in Colombia to take care of health purposes. To clear the way for replacement of Axis trade by other arrangements, there should be direct cancellation of any existing contracts with Axis firms under which the manufacture, importation, or exportation, or other distribution of the products involved is limited. However, the cancellation procedure should preserve the patent and trade-mark rights of the vested companies.
- c.
- With respect to Axis trade-marks, trade names and patents, the Department’s views are set forth in its circular instructions of July 17 and July 20, 1943.38 It is believed, in view of the apparent willingness of Colombia to liquidate the Axis enterprises, that cancellation of the Axis trade-marks or a forced transfer to desirable purchasers who would guarantee not to use such marks would be acceptable.
- d.
- American assistance would also be conditioned upon elimination of Axis personnel from the nationalized firms. It is realized that a program for the elimination of Axis technical personnel will be largely dependent upon finding suitable replacements. However, it is believed that this Government should have the assurance of the Colombian Government that it is the intention of the latter to discharge all unsatisfactory personnel as rapidly as is feasible. In this [Page 63] connection it might be well also to raise the problem of preventing the discharged personnel from engaging in subversive activities and to determine what steps Colombia would be willing to take to insure that discharged employees would not become a source of danger to hemispheric security.
- e.
- It is desirable that in connection with the contemplated forced transfer, the Colombian Government should agree to prevent the acquisition, directly or indirectly, of any interest in the vested properties by either Axis nationals or persons whose connections with Axis enterprises make it likely that they would be subservient to Axis control after the war.
2. The Department has also formulated certain standards which it is believed should be met by companies which may make contracts with the nationalized firms. It is believed that these standards are not a proper subject of direct government-to-government negotiations in the same manner as would be the measures outlined above. However, you may desire to communicate certain of these points to officials of the Colombian Government and to officials of negotiating companies. In the latter category are included the representatives of the Alien Property Custodian.
- a.
- So far as possible ownership and management of the vested companies should be in the hands of suitable Colombian nationals. Participation by United States interests should be limited to a minority financial participation and/or a management fee contract. Management contracts should run for fairly limited periods so that retention of control in American hands will not persist unduly. On the other hand, such management contracts should be for a period long enough so that reacquisition of an interest in the vested companies by the Axis immediately after the war would not be facilitated.
- b.
- Management contracts should provide for subsequent management by Colombians through programs for the training of Colombian executive and technical personnel.
- c.
- In the development of supply or management contracts by United States concerns, participation in the Colombian market by as many concerns as is reasonably possible in view of the number and character of the vested establishments should be facilitated. Except where combinations would be clearly desirable because of technical advantages, the vested establishments should be encouraged to retain separate identities and be separately managed, and to the extent feasible, no one American company should be encouraged to enter into management or exclusive supply contracts with more than one of the vested establishments. In order to prevent combinations in the management operations between the several American concerns which may not be provided for in the contracts, it would be desirable to have included in the management contracts provisions that the companies which initially received separate management contracts shall not combine in their Colombian operations. This provision is to limit only such combinations without Colombian consent, and a Colombian decision will of course be decisive in such matters.
- d.
- Control over general importation into and distribution within Colombia should not be given to companies receiving management contracts except in so far as the importing functions are directly related to the manufacturing. Great care should be taken to prevent any measures which would impair the access of other exporters to the Colombian market.
- e.
- Exclusive or preferential supply contracts should be avoided except for those which may be desirable because of the technical or special services to be rendered by distributors, and for such similar contracts, limited so far as may be to the duration of the war, which may be necessary to obtain scarce supplies for Colombia during the war.
- f.
- American companies which undertake management contracts for manufacturing activities should make their relevant patents and “know-how” fully available for operation of the related Colombian establishments, without restriction other than royalty on a most-favored-concern basis; and should undertake to foster Colombian research, at least sufficient to improve the products made and the processes undertaken.
- g.
- No commitment should be made or unnecessary obstacle be interposed to exclude any vested concern from particular lines of products, sales territory, or customers, or otherwise to require the observance of unreasonable restraints on the activities of such concerns.
- h.
- Contracts involving manufacture should be designed to promote the further development of Colombian industry in those lines which give a reasonable indication that production may be carried on economically after the war without long-term tariff or other special protection.
- i.
- Participating American companies should guarantee that trademarks having Axis connotations will not be used, except in so far as they may be generic and open for general use.
- j.
- If an American company should acquire the present inventory of an intervened enterprise, satisfactory assurances should be obtained of the intention of that company to remain in the Colombian market for a reasonable period after the war.
3. The standards stated above in paragraph 2 are chiefly relevant to the situation in which an American concern may make a contract with one of the vested companies. It is recognized, however, that another and simpler method of bringing American supplies into the Colombian market and excluding Axis supplies therefrom may be the liquidation of the Axis companies and the distribution of American products through new or existing desirable distributors. In this connection your attention is drawn to the survey requested in the Department’s telegram no. 1071 of August 26, 1943.39 Thus, the Colombian authorities have indicated that they are willing to sell the Bayer inventory, to eliminate the Bayer trade-marks, and to discharge the Bayer personnel. Since the Colombian authorities appear willing to liquidate [Page 65] the Bayer enterprise, and since that concern is the largest drug and’ chemical house in Colombia, it seems likely that they may be willing to take similar steps with regard to such houses as Schering and Merck.
It may therefore be that the Alien Property Custodian’s companies, or other American companies, may find it simpler and equally or more satisfactory to Colombia to negotiate supply or management contracts with desirable Colombian distributors who have had no Axis connections, or to expand existing desirable Colombian distribution and/or manufacturing outlets. These contracts would contemplate active participation by desirable American companies in the Colombian market and the distribution of their products by wholesalers who were without Axis taint. At the same time, the Axis drug and chemical concerns would be entirely liquidated in the manner tentatively outlined for Bayer and the proceeds of the liquidation would be effectively blocked. Trade-marks and patents would be disposed of in a manner consistent with the Department’s circular instructions on trade-marks and on patents. Separate management or supply contracts could be made for those manufacturing facilities which the Axis concerns in Colombia presently operate. It is the Department’s understanding that the principal concern of this sort is the Behring Institute and the packaging and similar machinery owned by the Axis concerns could easily be disposed of to whatever desirable distributors might make contracts with American suppliers. Should this suggestion be followed, expansion of manufacturing facilities in Colombia would be encouraged, but on a basis which would envisage the establishment of new companies to carry on such manufacture, probably in collaboration with strong American drug and chemical houses.
These suggestions have the primary and strong advantage of removing those numerous problems which flow from the association of an American company with a concern which has previously been an instrument of Axis economic policy. Since the manufacturing facilities of the Axis companies in Colombia are believed to be slight (with the exception of the Behring Institute) it is thought that there would be no particular loss to the Colombian Government in destroying these Axis distributing organizations. The necessary supplies could the more readily be brought into Colombia because no suspicion of an Axis taint would hang over the Colombian distributors. Such a course of action would also solve automatically such problems as the one of retention of the Schering name.
The pattern above outlined is, of course, similar to the one being discussed by Sterling. It is believed that the Alien Property Custodian companies may well be entirely willing to take part in a program [Page 66] along these lines and that several American companies would be willing to bring into Colombia products, under such a procedure, which would more than take the place of those products now wholesaled by such firms as Merck.
You should discuss this matter with the appropriate Colombian authorities. Should this approach be followed, in whole or in part, by the Colombian Government, such information as may be ascertainable on Colombian distributors who would be willing and able to go into the drug and chemical field can be made available to interested American companies. In this connection, of course, the survey requested by the Department’s telegram under reference will be extremely valuable, and should be forwarded to the Department as soon as possible. The Department of Commerce will then be requested to bring desirable American companies into the Colombian picture.
4. The Department considers it highly important that all desirable American companies be given an opportunity on equal terms to negotiate contracts for the supply of drugs and chemicals to Colombia, and for the management of such of the Axis companies as Colombia may decide to vest and to continue. For this reason, it is desired that the Embassy keep the Department currently informed of any negotiations, and that all relevant information be transmitted to the Department, so that American firms may be informed. Similarly, it is not desired to give the impression that the companies controlled by the Custodian—as carefully distinguished from the representatives of the Custodian, who are representatives of a government agency and not of particular companies—should be accorded special privileges in the Colombian negotiations. The Custodian’s companies are under the present control of this Government, and it may be expected that their attitude will be shaped by governmental considerations to a larger extent than would be the attitude of a private company. It may well be, further, that the facilities of the Alien Property Custodian will be useful in bringing about contacts with other American companies or in making reports which could be made available to the American industry. Finally, it is quite probable that the Custodian’s companies are sufficiently expert in certain particular lines that contracts with them may be highly desirable from the point of view both of Colombia and of those companies. However, the companies under the control of the Custodian are in competition with other American concerns, and governmental control is not expected to persist permanently. The Department, therefore, wishes to emphasize that the impression should not be given that companies under the control of the Custodian are especially favored, all other things being equal.
[Page 67]This attitude of the Department is clearly understood by representatives of the Alien Property Custodian in Washington who have, in fact, made preliminary inquiries among several other drug and chemical firms and received favorable indications that the latter would be interested in participating in the Colombian market. It has been indicated by the Custodian’s representatives, further, that the Sterling negotiations are not inconsistent with the negotiations to be carried on by the Custodian’s representatives and may, in fact, supplement these negotiations in a way which will result in mutual advantages.
5. It should be recognized that the standards described in this instruction are designed as preliminary guides, and not as final touchstones. It may appear desirable to modify them in some respects. Moreover, it is emphasized that final agreements with the former Axis firms, or involving dealings with those firms, are to be cleared with the Department before being finally signed.
Very truly yours,