Foreign Relations of the United States, 1950, The United Nations; The Western Hemisphere, Volume II

911.5325/8–1850

The Secretary of State to the Embassy in Chile

confidential

Washington, September 1, 1950.

No. 33

The Secretary of State refers to the Embassy’s despatch No. 174 of August 18, 1950¹ and to other correspondence between the Embassy and the Department concerning the arbitrary division of maritime freight between Chilean and foreign flag vessels.

The Department concurs with the Embassy’s opinion that it would be best at this time to concentrate immediate efforts on the elimination of the present requirement for a declaration by prospective importers as to the nationality of the carrier (that is, eliminating question No. 9 from the import license application).² However, at the same time the Embassy should continue to press the views of this Government concerning the broader and apparent basic policy of the Chilean Government for a minimum of 50% of Chilean foreign trade in Chilean ships.

In accordance with the Embassy’s request, the following comments should be helpful to the Embassy in the presentation of a further formal note to the Chilean Foreign Office in which the views of this Government should be strongly reiterated in reply to the Foreign Office notes No. 07795 of August 1 and No. 08170 of August 10.³ As will be seen, these comments will cover both the matters of the problems raised by question No. 9 of the import license application as well as the apparent Chilean policy of obtaining a minimum of 50% of its foreign trade in Chilean ships.

With respect to the problem of the elimination of question No. 9 from the import license application, the following are the views of this Government on this matter:

(1) It is the long-established policy of the United States that international shipping should be conducted under conditions permitting free competition on equal terms for all carriers for commercial cargoes. In order that this condition may prevail, the importer and/or exporter must have a freedom of choice as to the shipping services to be employed. In this connection, the United States Government is pleased to note that the Government of Chile recognized the soundness of this principle as revealed in the reply of the Foreign Minister’s note No. 08170 of August 10, 1950, in which he stated that the importer in Chile indicates freely the nationality of the vessel in which his products will be carried. It, therefore, appears that both the Chilean and the United States Governments agree on the fundamental soundness and importance of the principle that importers and/or exporters should have a free choice in selecting the shipping services to move commercial cargoes.

(2) It is the firm view of the United States Government that question No. 9 of the application for import licenses of the Chilean National Foreign Trade Council is in violation of the principle set forth above. As the Embassy pointed out in despatch No. 174, although the statement of the Foreign Minister in his note of August 10 that importers have a free choice in designating the nationality of the carrier is superficially true, nevertheless it is not consistent with the realities of the situation. In view of the well-known policy of the Chilean Government to foster the development of its own Merchant Marine, an applicant for an import license is bound to be influenced toward naming a Chilean flag vessel as the carrier when he is submitting such application to a Chilean Government agency. As the Embassy stated in despatch No. 174 and other communications, and as the Department has been reliably informed, apparently applicants who designate Chilean flag vessels as the carrier of the goods obtain their import licenses more expeditiously than otherwise. This, of course, places such applicant in a much more preferred position over another applicant who for normal commercial reasons selects a foreign carrier.

(3) In view of the fact that the inclusion of question No. 9 on the import license application is not necessary to bring about the freedom of choice of shipping companies by exporters and/or importers, which both Governments agree is sound and desirable, the United States Government again urges the elimination of question No. 9 from the above application and the cancellation of the instruction to Chilean Consulates dated May 15, 1950 with respect thereto. It should also be reiterated that this practice could be very effectively used to divert commercial cargo to Chilean flag vessels without any opportunity for competition by United States and other flag vessels.

(4) Since the Chilean Government in the Foreign Ministry’s Note No. 08170 of August 10 stated the importer does have a free choice as to the nationality of the vessel and can and does make his own arrangements direct with the shipping line desired it, therefore, follows that there is no reason for the inclusion of question No. 9 in the above application nor to the instructions to the Chilean Consulates referred to above.

With respect to the broader question of the aspiration of Chile to carry 50% of Chile’s foreign trade in national flag vessels, the following points should be made in a note to the Chilean Foreign Office:

(1) The United States fully recognizes the desires of other countries to have their own national Merchant Marines and to have such national flag vessels participate in the movement of their foreign trade. It is also recognized that Government assistance to achieve this desire may be necessary.

(2) However, the United States Government cannot agree to practices which divert commercial cargo to national flag vessels which are discriminatory against other flag vessels and detrimental to the free flow of international trade. Therefore, this Government must again reiterate to the Chilean Government its desire that Chile will not employ practices which interfere with the choice by exporters and/or importers of the flag vessel to be employed and which involve the intervention by a government in directing the routing of commercial foreign trade.

(3) In this connection, references have been made at various times by the Chilean authorities to apparent similar action by the United States in putting into force measures which direct the routing of certain cargoes to United States flag vessels. It should be clearly understood there is no law, regulation or practice under which the United States Government directs or influences the routing of commercial cargoes. Evidently, the Chilean authorities are referring to statutory provisions that apply to Government-owned cargoes, such as cargoes being transported for the use of the National Defense Establishment, or cargoes resulting from government gifts or loans, such as Economic Cooperation Administration cargo or the shipment of cargo financed by Export-Import Bank loans. The United States sees no basis in Chile’s contention that such limited action of the United States Government in directing the routing of such cargo involves the United States in practices insuring a minimum participation in the carriage of strictly commercial cargo nor does it justify Chile taking such steps as directing the routing of commercial cargo.

(4) Chile’s aspirations to carry 50% of her foreign commerce in national flag vessels before providing the equivalent percentage in quantity and quality of service may be also questioned. If this became effective, it might be very detrimental to the interests of Chile as well as to the United States and to the good shipping relations which have existed between the two countries. If by artificial and arbitrary means, a particular carrier obtains a percentage of the trade far in excess of the amount and the quality of service provided, the services of other carriers in the trade are bound to be curtailed and/or withdrawn with the result that the overall service in capacity, quality and frequency deteriorates. The United States Government, therefore, in the interest of the maintenance of the best transportation services possible between the two countries, urges the Chilean Government not to take official action in an arbitrary manner affecting the routing of commercial cargoes for the purpose of increasing the participation percentage of national vessels beyond that justified by the quantity and quality of the service provided by them.⁴

1. Not printed.
2. Question No. 9 required applicants to state whether they intended to import cargoes in Chilean or foreign vessels. In its telegram 8 to Santiago of July 12, 1950, the Department reported learning from Grace Line officials that Chilean consular officials were refusing, under an instruction from their government dated May 15, 1950, to certify shipments moving on non-Chilean ships if the import license specified a Chilean vessel. (911.5325/3–1350)
3. Neither printed.
4. In telegram 104 from Santiago, September 7, 1950, Ambassador Bowers reported he had that day delivered to the Foreign Office a note along the lines of Instruction 33. He noted also that the Chilean Foreign Trade Council had recently authorized that a requirement might be imposed requiring the use of Chilean flag vessels for Tip to 50 percent of cargo arriving from ports regularly served by Chilean lines. (911.5235/9–750)