Position Paper Prepared by the Acting Deputy Director of the Office of International Materials Policy (Evans)
Department Position on Bolivian Tin Negotiations
Mr. Symington has asked Mr. Webb1 whether the Department believes the United States should subsidize the Bolivian economy through the price of tin. Mr. Webb, of course, replied that the answer to the question in that form is “no”, but that the question as asked did not bring out the complicated nature of the problem.2 The Department, therefore, should formulate any views on the subject of these negotiations for Mr. Webb to give to Mr. Symington.
That Mr. Webb make the following points:
1. The United States Government should not subsidize the Bolivian economy through the price of tin. If a commercial price for tin should not be sufficient to maintain Bolivia’s economy, and aid from the United States should be desirable, such aid should be labeled as such and should not be based on funds provided by Congress for a different purpose.
2. By a commercial price we mean a price at which the Bolivians can be induced to sell and we are willing to buy because of our own [Page 1162] needs. The United States needs Bolivia’s tin ore and Bolivia needs our dollars. Under these circumstances, it should be possible for the two parties to reach agreement with no thought of subsidy.
On the other hand, we must consider the fact that Bolivia is almost entirely dependent upon the sale of tin. Our relations with Bolivia and the other countries of the hemisphere would be seriously damaged if through arbitrary action on the part of the United States Government we were to deprive Bolivia of a market for their exports. So long as the United States Government is prohibiting the private importation of tin and thereby affecting an important section of the total world demand there is a danger that this might happen. Therefore, if agreement cannot be reached with Bolivia on a reasonable basis by US Government negotiators it may be necessary to consider some other way of permitting US civilian demand to become effective.
3. The price the United States should pay should take into consideration not only our current needs but the price which will maintain a level of production in Bolivia corresponding to our future requirements. The cost study is helpful here. It cannot, however, be the sole determinant of a price acceptable to both sides and should be considered in the light of normal commercial practice.
We understand that the RFC in its negotiations with the Bolivians has argued that the price should be based on the average cost of production in Bolivia. In order to keep the mines operating on this basis it would be necessary for the Bolivian Government to control all tin revenues and to distribute them to individual producers so that the cost of each would be met. This is a very dangerous proposal to make to a foreign government. The United States is engaged in trying to protect the interests of American investors in underdeveloped countries against the strong desire of those countries to expropriate and nationalize. If other countries were to learn that the United States Government were proposing such action in the case of Bolivia it would be very difficult for us to protect the American owners of low cost mining properties in other countries. It would be an open invitation to the Chilean Government, for example, to redistribute to locally owned copper mines the profits of Anaconda and Kennecott.
If the RFC cost study shows that the production of some Bolivian mines would have to cease at the price the RFC is willing to pay it of course has the right to reduce the quantity it is prepared to buy, but it should not suggest to the Bolivian Government the confiscation and redistribution by it of the earnings of the lower cost mines.
4. The State Department does not know whether the increase in Bolivian taxes is justified or whether that increase has been greater than the increase in taxes in the United States. We should recognize however that the fact that the Bolivian Government can alter costs through tax action reduces the value of cost as a basis for determining the price we are prepared to pay. We should make this clear to the Bolivians.
5. In commenting on the suggestion that we should draw on the stockpile, we should make it clear that we are assuming the maintenance of the present stockpile objective. Any decision to reduce the amount of tin in the stockpile should be based on a change in the objective which in turn should be based on a study of the security implications. [Page 1163] We should firmly oppose any other withdrawal from the stockpile on the following grounds:
- To do so would be a perversion of the purpose of the stockpile. It is designed to protect our security. It is not designed as a price manipulating instrument.
- Even if we should so use it, we should not start drawing from the stockpile unless we are prepared to continue doing so for some time. Otherwise, it would be too easy to call our bluff.
- The political situation in the Far East is so serious that we cannot rely on continued supplies and should not materially reduce our stockpile, which is only two thirds full. On the contrary, we should be building it up.
- Such action would slow down our whole stockpile program by making producers less willing to produce extra amounts for it, since their fears that we will use the stockpile as a commercial weapon against them will be confirmed.
The following additional comments relate to the specific recommendations given above.
Recommendation 2. Some amplification of the statement that the United States would have some responsibility if Bolivia should not sell her ore may be needed. It is true that the government monopoly of tin purchases does hot directly affect Bolivia’s ability to sell ore to other than the Texas City smelter, as American private buyers do not purchase ore. However by keeping American private buyers out of the market for tin metal we have reduced the effective world demand for tin. This in turn reduces Bolivia’s chance of selling ore to Europeon smelters.
Mr. Symington has suggested that he may obtain the ore he needs from Indonesia and thus be independent of Bolivian ores for the smelter. We do not believe he is likely to succeed. He now obtains approximately half the Indonesian production for the smelter. To replace the Bolivian ores for the smelter he would need to purchase virtually the entire Indonesian production. If he were to try to do this he would probably find himself competing at a high price level with the Dutch smelters that are dependent on Indonesian ore. However if this estimate should be wrong and Mr. Symington should contract for Indonesian ores and then refuse to purchase from Bolivia on the ground that his requirements were met, the position suggested above would permit the Department to insist that the United States civilian demand for tin be filled, possibly by a resumption of commercial imports. This would increase Bolivia’s opportunity to sell her ore somewhere.
Recommendation 3. The RFC proposal to average costs does not, of course, accord with the normal method of determining price in a capitalist economy. Our objection to this proposal, even under conditions of emergency controls, is not inconsistent with our suggestion [Page 1164] that premium prices might be paid for the production of individual mines, as was done during World War II. Under our domestic premium price plan there was no averaging of all costs. A basic price was established and a premium price paid only to those high cost producers whom the United States Government decided should be subsidized. A similar system was used by us abroad, and premium prices were paid to certain higher cost producers in order to obtain the additional production. These determinations, however, were made by the United States Government.
Recommendation 5. We understand from the Munitions Board that they are opposed either to withdrawal of tin from the stockpile or a lowering of the stockpile objective. The arguments in this recommendation, of course, stand on their own feet even if the stockpile objective should be lowered, but our present appraisal is that such a reduction is unlikely.