825.2542/4–351

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

confidential

Subject: Discussion of copper problems with Chilean representatives

Participants: Horacio Walker,1 Foreign Minister, Chile
Ambassador Felix Nieto del Rio, Chile
Senator Tomic,2 Chile
Senor Vergara, Chile
Senor Garnham, Ministry of Economy, Chile
Senor Jorge Burr, Economic Counselor, Chilean Embassy
G. Johnson, Economic Stabilization Agency
F. Hayes, Defense Production Administration
OMP—Mr. Evans
Mr. Getzin
OSA—Mr. Warren
Mr. Atwood
Mr. Barall

This meeting to discuss the copper question was opened with a thorough review of what had been accomplished prior to this date, based on Memorandum of Conversation of March 15, 1951,3 which outlined those agreements in principle which had already been achieved. Mr. Atwood also amplified certain of the ideas expressed at previous meetings and added that since the last meeting the United States had reached agreement to discuss a moderate increase in the price of Chilean copper.

The Foreign Minister expressed his satisfaction with the talks as they had proceeded to that point and stated that he was glad to see that the United States understands the Chilean problem from both the political and economic points of view. Since copper represents 65 percent of Chilean exports and is therefore vital to the economic life of the country, it was necessary to consider public opinion on this subject. In the last war copper was sold at the frozen price of 11½ cents while all manufactured items were later imported at higher prices after ceilings had been removed, causing an estimated loss to Chile of $500,000,000. Public opinion was strongly oriented to avoid repetition of this. The Foreign Minister explained that, to date, the Government had avoided passage of a law controlling copper sales in the belief that the problem should be solved by inter-Government agreement. [Page 1269]However, he had already seen price increases in some of the items imported by Chile and he was concerned with the trend. He stated that it was not Chile’s intention to sell copper indiscriminately but only to friendly countries such as Brazil and Argentina in exchange for exports which they shipped to Chile. He recognized the fact that Chile must also make sacrifices in this emergency, as in the last war, but in his view an increase in price granted by the United States represents a lesser sacrifice than that made by Chile. He stated that internal economic stability was necessary to maintain copper production at a high level and for other defense purposes.

He agreed, for Chile, to the sale of copper produced by the United States companies being effected entirely through those companies which in turn would follow the sales instructions of the Chilean Government. Chile also agreed that sales would be made for the essential needs of friendly governments only. He then asked if he correctly understood a statement made by Mr. Miller to the effect that, if the American companies did not make money available for the expansion of copper production, loans from the United States might be possible. He explained that in exchange for higher prices, increased production, and an allocation of copper for sale by Chile, the Chilean Government proposes to modify the tax laws to provide more favorable treatment to the American companies and that a proposed law for such equitable treatment would be sent to Congress. The only important problem left unsolved was the settlement of the price. The political and economic situation in Chile required an increase in price and Chile was willing to discuss such a moderate increase at the present time. In his opinion an increase of 4 cents per pound would be moderate. Also, a quota of copper production under the control of Chile, was necessary for the essential needs of the country and for export to friendly nations. The Foreign Minister stated that Chile is willing to prohibit the resale of such copper and to give assurance that none would be sold to iron-curtain countries and, under such conditions, he estimated that they should receive up to 20 percent of the total production (a reduction from the original request for 25 percent). He added that this also made possible a downward revision on the basis of equity and good faith. The Foreign Minister stated that he would have to report to the President and the Cabinet upon his return and was seeking a decision prior to his departure so as to be able to cite specific figures arrived at in the discussions. With respect to increased production he wanted to be in a position to tell the copper companies that if they did not have sufficient funds for the necessary expansion the United States Government would lend the money. He would assure the copper companies that if they proceeded with the expansion it would be under better conditions than they had enjoyed in the past.

[Page 1270]

Mr. Atwood replied that the United States Government’s position with respect to the larger mines is that if they need assistance the (United States is willing to discuss this directly with the companies since this type of loan is within the scope and purpose of the Eximbank. While the State Department could not speak for the Bank it was noted that it was within the Bank’s policy to make this kind of loan. On the question of the quota of copper for sale by Chile, the United States was glad to hear that it was Chile’s intention to sell only in terms of the essential internal needs of friendly countries; that no sales would be made behind the iron curtain; and that re-export would be prohibited. At the same time the United States felt no specific quota was necessary since any export sales made in the above framework or domestic sales considered by Chile as essential to its internal needs, or for essential uses of other friendly nations, would be acceptable. The United States would like to reserve the right of consultation on this matter in the event that the diversions were sufficient to interfere with the United States defense effort.

Mr. Vergara questioned what was meant by “essential needs”. For example, would this include manufacturing in Chile, even the manufacture of items which were destined for export? Mr. Atwood replied that Chile’s use of copper to manufacture items for sale abroad to other countries was considered to be within the meaning of “essential needs”. At the same time Mr. Atwood made it clear that it was expected that Chile would use this criterion intelligently and reasonably.

Senator Tomic pointed out that an allocation of 20 percent of Chilean copper for sale by his country did not mean that this entire amount would necessarily be required for essential uses and foreign markets. If the entire 20 percent, or approximately 80,000 tons, could not be used legitimately for these purposes the unused balance would revert to the copper companies for normal sales in the United States. Thus Chile would have the right to control this amount of copper and also the right to sell it to friendly countries in Europe such as France, Italy, Germany, Switzerland or Sweden which have bought copper from Chile in the past. Mr. Atwood replied that we could reach an agreement on this basis, with Chile exercising the proper precautions to see that sales were made only within the terms agreed to.

The Foreign Minister explained that fixing a definite quota would be advantageous to the United States in that it could then calculate in advance the amount of Chilean copper which would be available for export to the United States. For example, if Chile takes 20 percent, the United States may then count on 80 percent for its needs. Mr. Atwood stated that he believed agreement could be reached on this matter and asked that it be made of record that this quota was not being imposed by the United States. The Foreign Minister stated that this quota [Page 1271]would be recommended by the Chilean Government as a limitation on its own recognized absolute right to dispose of its copper as it wished. This would be done to assure the United States of continued copper shipments for its defense efforts. Senator Tomic stated that in his opinion the United States would probably receive more than 80 percent of total production by following this formula.

Mr. Evans asked if the Chilean Government would be willing to consult with the United States on the export of copper so that the United States and Chile would not both be selling in the same market, thus causing a given third country to receive too much copper and possibly enable it to exceed such quotas as may be agreed upon through International Commodity Committee procedures. The Foreign Minister agreed to consultation and the exchange of information to avoid exceeding quotas set for other countries. Mr. Atwood stated that if Chile estimated that it should control up to 20 percent of production, the United States was willing to accept this figure with the assurances already advanced by Chile.

Mr. Getzin asked if the 20 percent included concentrates and applied to all types of copper in Chile. Mr. Vergara replied “no”. Mr. Hayes specified that the 20 percent was applicable to refined copper and that Chile could dispose of this amount within the limitations agreed to, this quota being acceptable for perhaps the next 12 months. The Chileans stated that they would be willing to discuss revision whenever deemed desirable by the United States and Mr. Garnham pointed out that after this system is put into effect it will be possible to determine whether Chile can sell this amount properly. After some experience a revision could be anticipated. Mr. Hayes then suggested that a quarterly discussion of the quota might provide the basis for continuous discussions. He also specified that “palanquillas” would not be included in the 20 percent. The Chileans (Vergara) agreed that there would be no more “palanquillas” manufactured but that this restriction did not apply to legitimate processing such as the manufacture of light wire, etc., and that (Tomic) distribution would be made with the least disruption to normal marketing procedures.

Mr. Atwood stated that the price of copper sold to other countries could be set by the Chilean Government and that the actual distribution would be made by the companies which had worked hard building up interest in Chilean copper. Senator Tomic said that Chile had considered the possibility of making sales through their own companies, Fomento, or Madeco which was 30 percent owned by the Government, or Famae which was 50 percent owned by the Government, and he wanted it made clear that Madeco and Famae are not out of business. He suggested that perhaps Fomento should be the sales agency so that this company could get, in exchange for Chilean copper, the [Page 1272]essential items needed for the Chilean manufacturing industry. However, he did not insist on this point and the Chileans agreed firmly that copper in refined shapes will be sold through the American companies.

The Foreign Minister then raised the question of the price of Chilean copper. Mr. Atwood reviewed the price problem, emphasizing the possible dire consequences to the United States economy of any rise in the price of copper, and then stated that the United States considered an increase of 2 cents per pound as moderate and justifiable. Mr. Vergara referred to the price squeeze faced by Chile and stated that 2 cents would be highly unsatisfactory. He pointed to the failure of the wheat and potato crops in Chile this year and the fact that Argentina was already squeezing Chile On the price of the wheat which might be made available. Also, freight rates were going up because of the failure of the United States Government to include these in price control regulations while diverting shipping to Europe, India and elsewhere. The 2 cents offered would not be enough to solve Chile’s current problems and would only force the Government to seek a higher export quota or to increase taxes on the American companies, and thus prevent attainment of United States objectives. Mr. Atwood replied that a final United States position could not be taken today since further discussion with ODM would be necessary. The question of how a price change could be brought about was under consideration in the United States and the Chilean point of view would be made known to United States Defense Agencies. The Chileans pointed out that in their opinion a 4 cents increase was considered a minimum, with Senator Tomic stating that the price of copper should be about 30 cents per pound. He indicated that part of the desired 4 cents minimum increase would be passed on to the copper companies, either in the form of price increase or as tax exemptions or relief. Messrs. Atwood and Hayes pointed out that an increase of 4 cents in Chile, if spread between the companies and the Government at 2 cents each, would force up the price of US-produced copper by 2 cents a pound to keep pace with Chilean copper.

Mr. Getzin asked if Chile would be willing to accept 2 cents per pound and give nothing to the copper companies. The Foreign Minister replied in the negative stating that the price increase would not go directly to the companies, since Chile would require the additional funds and would pass on some part of it to the companies, probably in the form of a more favorable tax plan or a more favorable exchange rate. Chile would negotiate this directly with the companies but a 50–50 division would certainly not prevail. Mr. Hayes stated that a 4 cent increase instead of 2 cents would exert tremendous inflationary pressure on the United States’ economy and that this amount was “staggering”. Mr. Johnson pointed out that ESA had agreed to discuss the [Page 1273]price increase only because of Chile’s acute foreign exchange problem, since the present price was adequate in the US, and was not prepared to consider any increase being granted to companies in the United States as their present profits were considered adequate. The Foreign Minister replied that some concession to the companies was required to induce them to increase production but that Chile was willing to accept a price increase in the form of a subsidy such as that paid for Bolivian tin in the last war. The method of increase in the price would be left to the United States Government.

Senator Tomic asked for definite information on what could be done in the way of additional investments in Chile to increase production to keep pace with other copper-producing areas such as the United States, Africa and Canada, where the production rate was increasing, whereas, in Chile, it was now lower than the level of 25 years ago. Mr. Atwood replied that the United States was aware of Chile’s problems but was thinking more along the lines of long-range development of the country’s economy rather than maintaining emphasis on one commodity. The Foreign Minister stated that he appreciated the efforts the United States is making in Chile’s behalf and requested that a meeting be called as soon as possible to settle the question of price. Ambassador Warren assured him that this would be done.4

  1. Horacio Walker Larrain.
  2. Radomiro Tomic Romero.
  3. Ante, p. 1263.
  4. A memorandum from the Deputy Assistant Secretary of State for Inter-American Affairs (Mann) to the Secretary of State, dated April 12, 1951, reads in part as follows:

    “Mr. Edwin Gibson of DPA, reporting an agreement reached by Messrs. Wilson, Harrison and Eric Johnston, notified the Department that a price rise of three cents on Chilean copper was justified if the Department could obtain agreement from Chile on all the other points raised in the discussions which had been held.

    “On Monday morning, April 9, the Chilean Foreign Minister indicated his agreement on all the points including a price rise of three cents.

    “After a meeting of Departmental representatives with Mr. Gibson on Monday at noon the Chilean Foreign Minister was advised informally that afternoon that the U.S. considered a price rise of three cents on Chilean copper to be reasonable and that a note covering the points agreed upon would be prepared and delivered to the Chilean Ambassador prior to the Foreign Minister’s departure from the U.S. on Saturday, April 14.” (825.2542/4–1251)