825.6354/7–2645

The Executive Director of the Bureau of Supplies, Foreign Economic Administration ( Scheuer ) to the Assistant Secretary of State ( Clayton )

Dear Will: Thank you for your letter of June 2 on the subject of Chilean ores and concentrates.

In all our previous discussions of this subject with the Department regarding continuance of our subsidy program, never was it suggested that action be conditioned upon the continuance or discontinuance of the Andes contract although in each instance it was clear that it was our intention to continue it. The Andes contract is a cost-plus-royalty contract. It contributes a substantial quantity to our total needs for electrolytic copper. It will be cancelled or reduced before the cancellation of contracts for ceiling-price copper, and this will be possible when there is a substantial reduction in copper requirements, which are now under consideration by WPB.35

It was our understanding that the Department’s previous request for a continuation of the subsidy program in ores and concentrates was, as in the case of similar earlier requests, based upon the then current political situation and more recently in addition, the imminence of the Chapultepec conference. The USCC entered into this latest extension with considerable reluctance and with the understanding that the program cease on July 31, 1945. We agree that it might have been impolitic to cease subsidy purchases of copper from small Chilean enterprises while continuing such purchases from an American enterprise had the matter not on the occasion of two previous renewals been thoroughly canvassed with the Chileans and with the Department and, according to our understanding, with a complete meeting of the minds.

If you now feel on political grounds that this obligation should be further renewed, I am confident that the Board of the USCC would be strongly influenced by your recommendation. As we see it, however, it might be an advantage to Chile to adjust gradually to these inevitable changes by accepting a small cut-back now when total production levels in that country are high and their nitrate industry is running at record rates. There is bound to be substantial curtailment in copper programs eventually and if such curtailment is made gradually, which is our aim, the effects on the Chilean economy will be much less burdensome. The previous extensions were predicated [Page 802] on this approach. Under the circumstances we think you will agree that the subsidy purchases at this time can not be described as unbusiness-like. In most commodities involving subsidies we have many contracts of differing durations. When requirements are cut we should, insofar as possible, be free to cancel each contract at the earliest legal date. This was the very purpose in mind when each of these negotiations took place. Any other policy might be considered as an unbusiness-like practice, involving the U.S. Government in the purchase of unnecessary quantities of high-cost materials.

We anticipate that the WPB will revise their copper requirements at an early date and that their needs will be found to be substantially lower than our present commitments warrant.

We note your views regarding the purchase of gold ores and concentrates as expressed in Paragraphs 2 and 3.

Your further advices would be appreciated.

Sincerely yours,

Sidney H. Scheuer
  1. War Production Board.