Memorandum of Conversation, by Mr. James Espy of the Division of North and West Coast Affairs

Participants: Mr. Braden, A–Br
Mr. Wright, A–Br
Ambassador Thurston
Mr. Butler, ARA
Mr. Renick, Amer.
Embassy, La Paz
Mr. Kennedy, IR
Mr. Lipkowitz, IR
Mr. Espy, NWC
Mr. Jewett, RFC
Mr. Johnson, RFC

Mr. Wright asked Mr. Jewett to open the discussion and the latter then proceeded to explain the present contract, its provisions and the background for its negotiation. He said that we were purchasing tin and tin ore from the Netherlands East Indies at approximately 55¢ per pound and also hoped to obtain appreciable supplies from Siam at approximately the same price. The British were also buying tin in Malaya at 54¢. They have been selling tin for export at 67¢ but the tendency for the sales price is apparently downward as their latest export quotation was put at 64¢. Mr. Jewett thought that we could obtain sufficient tin from the Far East to permit an appreciable decrease in the supplies we need from Bolivia. Mr. Johnson however, said that the stockpile in this country was only enough to take care of our needs through this year, and that the world’s supply of tin to meet all demands will probably be inadequate until late 1947. He therefore believes it would be desirable to obtain as much tin as possible from Bolivia.

Mr. Wright next set forth the position of Bolivia and presented in outline, the views and arguments that the Bolivian tin producers and the Bolivian Government would undoubtedly advance in support of their demand for higher prices. He mentioned that costs of production [Page 382] had gone up for various reasons, including higher wages paid, higher costs of social benefits and higher costs of supplies and food stuffs. He mentioned that the Bolivians would undoubtedly resist any attempt to have their taxes on tin reduced and that there seemed to be no likelihood of a reduction in labor costs.

Mr. Kennedy called attention to the fact that Bolivia was being paid a substantially higher price than other sellers of tin even at the second quarter 1946 price of 58½¢ per pound at South American ports. In reply to Mr. Wright’s suggestion that the long-term problem might be handled by an inter-governmental commodity agreement, Mr. Kennedy pointed out that no arrangement could alter the fact that Bolivia’s costs were higher than in competing countries, partly because of very high export taxes. Mr. Lipkowitz stated that Bolivia’s export tax was almost 20% of the price of tin (about 11¢ per pound currently) as compared with 10–12% or less in competing countries.

Mr. Kennedy suggested that any United States offer to Bolivia to increase the price above the contract of 58½¢ for the second quarter be matched by a similar reduction in taxes. More specifically, Mr. Kennedy suggested that U.S. offer to maintain the first quarter price of 60½¢ if Bolivia could agree to reduce export taxes by 2 cents per lb. Mr. Lipkowitz stated (and Ambassador Thurston confirmed) that our Embassy had reported that the original Bolivian budget for 1946 was based on an exportation of 30,000 tons of tin. Mr. Lipkowitz estimated that exports would exceed this figure by at least 10% (Mr. Renick thought 20%) if the 2¢ price decline for the April quarter were rescinded, indicating that tin export tax rates could be reduced perhaps as much as 20% without reducing total Bolivian revenues. It was also pointed out that export tax rates on lead, zinc, and silver were proportionately much lower than in other American republics, notably Mexico, and that additional revenues might be derived by Bolivia from income or other ability to pay taxes, particularly from the Patiño properties, which are substantially lower cost.

Mr. Renick advised that in his opinion, if the present price was continued, it would no doubt result in a decrease of production in Bolivian tin, as from all information he had been able to obtain a price of 58½¢ i.e. that stipulated for the second quarter of 1946, would not be sufficient to cover the cost of production of many of the mines in Bolivia. He believed that the Bolivians would have to reduce costs of production, either through a decrease in taxes, decrease in wages and/or decrease in social benefits if the Bolivian tin industry was ever to meet the world market price.

Mr. Braden said that we would, of course, need to consider how much tin we had to have from Bolivia. He remarked that there was [Page 383] a possibility that if Bolivia cut its taxes and reduced its military, the result would be a revolution and possible disturbance in the country which, in turn, would affect the supply to us of tin. We should not therefore, overlook the fact that under these circumstances, we might have to buy the tin at the price needed to maintain production until such time as we no longer required the Bolivian metal.

Mr. Braden also said it was necessary in any consideration of the tin contract, that we be sure that we have lived up fully to our commitments under the Rio de Janeiro Conference, the Mexico City Conference,70 the Magruder Mission and other inter-American understandings and agreements. It was felt by those present, including Ambassador Thurston, that the gradual price reductions under our current contract were in accord with the spirit of Article XXI—Mexico City Conference.

Mr. Wright then asked those present to indicate their position with respect to Mr. Kennedy’s suggestion on linking Bolivian tax reductions with any price concessions by the United States. They agreed in principle.

It was finally decided that meetings with the Bolivians should be conducted at RFC offices, the first to take place March 22, Mr. Jewett presiding with Department observers present. It was also agreed (1) that the Bolivians would be told by Mr. Jewett that probably the best price which could be arranged for the second quarter 1946 would be 60½¢, the same as the first quarter price; (2) that it would also be intimated that the Bolivians would be asked to make concessions, such as tax reductions, to help maintain a high level of Bolivian tin output.

  1. For the recommendations of the Rio Conference, see Department of State Bulletin, February 7, 1942, pp. 117 ff.; the resolutions adopted at Mexico City appear in Pan American Union, Final Act of the Inter-American Conference on Problems of War and Peace, Mexico City, February–March, 1945 (Washington, 1945).