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

No. 12,780

I have the honor to call the Department’s attention to the increasing tendency on the part of the Consejo Nacional de Comercio Exterior (Chilean exchange control agency) to prevent the importation of merchandise for the purpose of according protection to local industry.

In this Embassy’s unrestricted report No. 101 dated February 24, 1945,5 under the subject “Import and Exchange Controls in Chile”, the operation of the Chilean exchange control system at that time was described. The Embassy subsequently reported to the Department a public statement of the President of Chile that strict control over exchange would have to be exercised by Chile for some time in the future. The necessity of husbanding Chile’s exchange resources, particularly at a time when a decrease in the country’s basic imports may occur, is [Page 839]appreciated. However, the use of exchange control as a barrier to imports, and not solely for the conservation of foreign exchange, seems definitely contrary to the Chapultepec and Bretton Woods agreements.6

As previously reported, Chilean exchange control regulations since 1932 have required an application for authority to purchase exchange as a condition precedent to release of merchandise from the customs warehouse. In 1939 this control was extended to require a “Solicitud Previa” prior to the placing of firm orders in foreign markets. In effect, this changed the rationing of available foreign exchange into the combined foreign exchange and import licensing system which now prevails.

By this system, the Consejo Nacional de Comercio Exterior, without specific published regulations, is arbitrarily preventing importations on the ground that similar products are being produced in Chile. Having once adopted this practice, the Consejo is naturally subject to increasing pressures by local industry for protection by this means.

. . . . . . . . . . . . . .

Although the specific cases cited above are not in themselves particularly serious, in the aggregate they indicate a trend which may well become a serious trade barrier, particularly if foreign exchange available from the sale of nitrates and copper decreases substantially in the future and the Consejo is able to point to the reduced supply of foreign exchange as further justification for the strict curtailment of imports.

On several occasions, the Embassy has suggested to appropriate Chilean officials that exchange control should be administered on a priority or quota basis and that the Consejo should not consider itself the authority to determine when locally manufactured products should be given a virtual monopoly of the Chilean market. In other words, that the Consejo should limit its functions to allocating exchange and not to operating two forms of control; an exchange control and an import control. It has further been pointed out that the Chilean tariff is the proper means of furnishing such protection to local industries as the country deems necessary.

The reaction of Chilean officials to these observations has been polite but non-committal.

[Page 840]

The lack of information concerning the policies which the Consejo expects to follow in the future with regard to the granting of exchange is causing the Embassy serious concern. It has not been possible to find out whether the Consejo has made a careful estimate of Chile’s essential requirements during the next six months or a year and established a system of quotas to be followed in connection with the issuance of exchange. The Consejo gives little publicity to its activities, and its decisions on general as well as specific cases are often either not announced publicly or announced sometime after the decision has been rendered. The Embassy has explained to the Consejo the desirability of making it possible for the Embassy to furnish the Department with information which in turn could be made available to American exporters so that they could have some idea as to how the Consejo expects to operate. For example, if the Consejo continues to require a “Solicitud Previa” in the case of all imports, American exporters will obviously wish to be informed that a Solicitud has been granted before making shipment. This matter is now under discussion between Embassy officials and officials of the Consejo and it is hoped that some clarification of the situation will be forthcoming soon. It is not believed, however, that these conversations will cause the Consejo to abandon its restrictive activities referred to above.

I have previously, in Despatch No. 12,599,7 submitted to the Department certain suggestions which might appropriately be discussed with President Ríos during his forthcoming visit to Washington. One of the points touched on in that despatch is the question of exchange control. I am even more convinced now of the advisability of bringing this question into the open while President Ríos is in Washington and stressing particularly the following points:

That present activities of the Consejo National de Comercio Exterior exceed the mere enforcement of exchange controls for the purpose of conserving exchange and have become unreasonably restrictive in character.
That these activities of the Consejo are contrary to the Chapultepec and Bretton Woods agreements.
That they are unsound economically because they have the effect of protecting Chilean industry against healthy competition, and tend to foster monopoly, excessive profits and industrial inefficiency. In this regard it might well be pointed out that Chilean producers who are assured of “invisible” protection from the Consejo as well as tariff protection, may well be encouraged to increase prices of their products instead of increasing the efficiency of their plants and thus reducing operating costs and prices. In other words, the activities of the Consejo will contribute to the already serious Chilean problem of high prices.
That the improper use of exchange control will not only create resentment in other countries but will probably result in insistent demands for counter-measures against imports from Chile.
That it is incongruous and inconsistent for the Government of the United States to be requested to extend credits to Chile—such as those extended by the Export-Import Bank to the Fomento Corporation—when the organizations benefiting from those credits, or their affiliated companies, are requesting the Consejo to prohibit imports from the United States. Emphasis on this point might serve to clear the thinking of some Fomento officials, in which case Fomento’s influence might crystallize government opinion in other government circles on a favorable basis.

I feel that the matters discussed in this despatch are particularly pertinent to any discussion of a permanent United States-Chile trade agreement. At the present time, the question of exchange availability appears to be at least as important as the high Chilean tariff, as a factor limiting trade. Unless present practices of the Consejo are discontinued, it will be an even more important factor. Negotiating a permanent reciprocal trade agreement without first, or collaterally, providing for the elimination of prohibitive exchange control would obviously be futile. Moreover, it would have the result of giving tacit approval to a form of trade restriction, the elimination of which is an important part of the foreign policy of the United States.

Respectfully yours,

Claude G. Bowers
  1. Not printed.
  2. Agreements regarding the International Monetary Fund formulated at the United Nations Monetary and Financial Conference, held at Bretton Woods, N.H., July 1–22, 1944, and signed at Washington, December 27, 1945. For texts, see Department of State, Treaties and Other International Acts Series Nos. 1501 and 1502, or 60 Stat. (pt. 2) 1401 and 1440; for documentation on this Conference, see Foreign Relations, 1944, vol. ii, pp. 106 ff. See also Resolutions XX, XXI, and LIII of the Chapultepec Conference, Final Act of the Inter-American Conference on Problems of War and Peace, pp. 59, 61, and 97, respectively; for documentation on this Conference, see pp. 1 ff.
  3. August 10, 1945, not printed.