811.20 Defense (M) Chile/636

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

No. 3794

Sir: With reference to the recent exchange of telegrams on the subject of the Chilean over-all minerals agreement and the copper export agreement, we have received a letter from the Foreign Economic Administration, dated January 18, 1944, of which the salient features are quoted below because they appear to us to be a well-rounded presentation.

“Our proposed changes can hardly be considered to be dangerously large in themselves. The total amount involved in our proposed reductions (excluding molybdenum) is only about $400,000 for the six month period or six-tenths of one percent of our projected expenditures in Chile for minerals during that time.

“In the case of molybdenum the proposed reduction is very small and is apparently acceptable to the only seller, judging from our latest [Page 722] conversations with Kennecott.27 We are planning to contract for Braden’s28 entire molybdenum output at the lower price and to buy 750,000 pounds from this source instead of our obligation under the overall agreement of 370,000 pounds. Our total purchases of molybdenum during six months will be about $220,000 more than they would be if we limited ourselves to the overall obligation and left the price unchanged.

“A good deal of our program, even after the proposed reductions, goes beyond what we would be willing to do if we were taking a strictly commercial point of view. We have authorized the purchase of 40,000 tons of manganese at a cost of $822,000 which we do not require and which we are not obligated to buy. We are continuing to buy Chilean copper ores and concentrates at above the U. S. ceiling price and for the time being, to buy the output of Andes Copper Company at a cost above that ceiling at a time when present requirements might well justify a substantial reduction. Our purchase of gold ores and concentrates, even at the reduced price we have suggested, subjects us to a risk of loss which no business man would be willing to face on his own account. These facts should make it very clear to the Chileans that we are not placing our procurement on a narrow commercial basis and that there is nothing in our proposed changes to justify the conclusion that the United States Government from this point on is going to ignore Chile’s welfare.

“In fact, we are convinced that the proposed reductions in price are actually beneficial to the Chilean economy. The present prices for copper and other minerals and the volume in which we purchase them must be adjusted sooner or later. If no reductions are made now and the change comes all at one time the economic effects on Chile would be very serious indeed. There are other sound economic reasons for a reduction in Chile’s revenue from minerals which are hardly applicable to the present case because of the small amounts involved but would be applicable if, as now appears likely, it becomes necessary at a future date to reduce the quantity of copper bought from the large Chilean producers. Chile is suffering from a serious price inflation and the revenue received from exports to the United States has undoubtedly contributed toward that inflation. If that revenue is reduced at least part of the impetus toward a still further rise in internal Chilean prices would be removed.

“We pointed out in our cable to Chile29 that the proposed reductions are part of an overall program being pursued in other countries and in the United States. The failure to put these reductions into effect in Chile would not only increase the difficulty of effecting reductions in other exporting countries but would create serious difficulties in implementing necessary domestic reductions. We need Chilean cooperation if we are to follow an intelligent overall program.

“Fair minded Chileans undoubtedly appreciate that the provision for semi-annual review of prices should work both ways. On two previous occasions we have granted price increases, which were justified by the war effort. Now we are asking that Chile grant decreases which are equally justified by the overall needs of the United Nations.

[Page 723]

“In his cable30 the Ambassador referred to the difficulty of justifying any action which would reduce our purchases in Chile while we continued to ask Chile to limit the amount of copper she can sell to other countries. This point was anticipated. I understand that the Department concurs with the FEA in believing that the Copper Export Agreement should be cancelled, and it was my understanding that the Embassy had been informed of this view some days before the Ambassador’s cable.”

Very truly yours,

For the Secretary of State:
Dean Acheson
  1. Kennecott Copper Company.
  2. Braden Copper Company.
  3. Telegram 57, January 15, 5 p.m., p. 719.
  4. Presumably telegram 84, January 13, 4 p.m., from Santiago, p. 718.