825.2542/3–1551

Memorandum of Conversation, by Mr, Milton Barall of the Office of South American Affairs 1

confidential

Participants: Senor Felix Nieto del Rio, Chilean Ambassador
Senor Roberto Vergara, Chile
Senor Jorge Burr,2 Chilean Embassy
Mr. G. Johnson, Economic Stabilization Agency
Mr. F. H. Hayes, Defense Production Administration
OMP—Mr. Brown
Mr. Getzin
OSA—Ambassador Warren3
Mr. Atwood
Mr. Barall

At the request of the Chilean Ambassador the first formal meeting on the copper question was held (this date) with the understanding that the US Government was not yet ready to discuss or negotiate with respect to any general increase in the price of copper.

It was agreed to be in the interest of both countries that production of copper in Chile should be increased. To increase production from the large mines of the Anaconda and Kennecott Companies, the Chilean Government will continue discussions with these companies in order to reach an acceptable basis under which the companies can accelerate current expansion programs and plan for additional investments leading to even greater production. It was agreed that with respect to the large mines no financial assistance would be sought from the US Government. After agreement between the Chilean Government and the American companies is reached, the US will assist by granting priorities for the production and export of essential equipment and supplies to carry out the plans, although no guarantees of delivery can be made at this time because the supply situation in these items will have to be examined in the light of other high priority needs at the time of delivery. With regard to smaller and medium sized mining properties, the US is prepared to assist in efforts to increase production by granting priorities for supplies and equipment in the same manner as for the larger mines. In addition, the US is willing to consider providing limited financial assistance on the basis of favorable reports submitted by competent engineers. The US Government is prepared to arrange immediately for engineers to go to Chile to help determine, together with operators and engineers in Chile, the feasibility [Page 1264]of increasing production by enlarging present operations and/or starting new ones. This can be done under Point Four or on other terms but only at the request of the Chilean Government, After this examination the US is willing to consider the appropriate method of financial assistance.

The US Government recognizes the desire and right of Chile to sell a portion of her copper production to countries other than the US. Because of the importance of copper to the economy of the US, especially at a time when US industry is geared to maximum defense production in an attempt to supply the free world with essential military and civilian goods, we expect that maximum quantities will continue to be shipped to the US and that only a minimum will go to other countries. By “minimum” we mean quantities sufficient to take care of the normal essential requirements of Chile and other countries, chiefly Latin America. The US also hopes that Chile’s internal consumption will be held to essential requirements. The US considers that sales of unfabricated copper should be made in the form of refinery shapes and that the sale of “palanquillas” should cease. Chile agreed to this providing that the copper companies would abandon the use of one price for all exports. The Chileans asked that it be clearly understood that sales to other countries are not to be limited to Latin America alone and that sales to free countries in Europe or elsewhere may also be made.

The US representatives said they had understood that the principal reason why Chile wished to divert its copper from the United States was to finance requirements of needed products from other Latin American countries, and that the copper companies had built up a considerable market for Chilean copper in Europe which might be prejudiced by price increases. The Chileans agreed that this was substantially correct, but did not wish to be precluded from making sales outside of Latin America at a higher price if suitable occasion should arise. The US explained that the American companies had spent considerable time and effort in building up markets for Chilean copper in Europe and it was therefore desirable that all sales outside of Chile should be made through the established sales organizations of the copper companies. The Chileans stated that if satisfactory arrangements with the companies could be worked out it would not be necessary to set up a sales organization of their own.

It was recognized that the amount to be sold to countries other than the US was related to decisions that would be taken with respect to the change, if any, in the price of copper in the US and would be the subject of further discussion. It was also agreed that the price of copper that might be diverted and the way in which that increased price would be distributed between the companies and the Chilean Government was a matter for discussion between the companies and the [Page 1265]Chilean Government. It was agreed by Chile that no copper would be sold to iron curtain companies and that in sales to other countries care would be exercised to avoid the possibility of transshipment behind the iron curtain. It was also agreed that the distribution of copper would be subject to any obligation Chile undertook with respect to international allocation in the International Material Conference.

With respect to the excise tax on copper it was explained that three bills to suspend the tax had been introduced in the US Congress, two in the Senate and one in the House. Since this is a tax measure, action must first take place in the House. The Ways and Means Committee cannot reach the bill for discussion until work on the Internal Revenue bill now under consideration is completed. The US hopes for favorable action but it will be several weeks before the bill is even discussed in the Ways and Means Committee. Meanwhile, the Executive Branch has gone on record unanimously as favoring suspension and is doing everything in its power to see that this viewpoint is brought to the attention of individual members of the Congress.

It was explained to the Chileans that the US was unable to devise a formula which would guarantee to maintain the purchasing power of Chilean copper with respect to items imported into the country. It was explained that no such formula had seemed practicable of application for domestic prices let alone internationally. The US recognizes however the problems which Chile is facing and is willing to consult at any time with the Chilean Government in the event that there should be great inequity in the terms of trade.

In the general discussion of this point the US representatives pointed out that the US has instituted price controls and that these controls apply to the goods which the US imports as well as to the goods the US exports. Therefore to the extent that Chile imports from the US she is receiving the benefit of our price control. Moreover it is the general US policy that the essential needs of friendly countries from the US should be met, but a specific formula for implementing this policy in terms of specific commodities or needs could not be devised. The US could not give any assurance at this time as to how long our price controls would be effective.

The subject of a general increase in the price of copper was discussed from several angles but it was again made clear to the Chileans that the US has not yet taken a position on whether it can consider the establishment of a ceiling price higher than 24½ cents. Ambassador Nieto pointed out that while Chile’s long term problems would likely be resolved by diversification of her industry, a solution to her short term problems could only be achieved through an increase in the price of copper. He asked if the US was willing to consider an increase in price and added that if the price were not increased the result might be [Page 1266]less copper for the US. Efforts were made to elicit from the Chilean Mission some idea of the amount of price increase they thought necessary to solve this problem. In reply they indicated an estimated gap of 30 to 35 million in the price of items imported by Chile over the price of its exports and suggested that an increase of 10 cents would be required to close the gap. (There is some question as to the validity of the figures presented and whether the entire deficit in foreign exchange should be charged to copper but these points were not developed at this meeting.) The Chilean Ambassador stated with some vehemence that Chile would not accept a policy similar to that in effect during the last war under which a low price was paid for copper and this price continued unchanged, until after the war. He felt that there should be an immediate increase in the current price and assurance given that any price would not necessarily be firm for the duration of the emergency. Sufficient elasticity should prevail so that Chile’s needs can be met.

The Chileans were assured that the question of price was being considered at the highest levels in the US Government. Since there was agreement on all points except the US price, it was decided that the next meeting would be held after a US position on that point is established.

  1. Mr. Getzin was codrafter of this memorandum; it was drafted on March 19, 1951.
  2. Commercial Counselor, Chilean Embassy.
  3. Fletcher Warren, Director, Office of South American Affairs.