Foreign Relations of the United States, 1952–1954, The American Republics, Volume IV

Miller files, lot 53 D 26, “Bolivia”

Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) and the Assistant Secretary of State for Inter-American Affairs (Miller) to the Secretary of State ²

confidential

[Washington,] April 2, 1952.

[Subject:]

• Bolivian Tin Negotiations³

Problem

The negotiations with Bolivia on tin are deadlocked again, though in a more friendly atmosphere.

The President of Bolivia⁴ has written President Truman asking him to intercede to bring about a final agreement with Bolivia on tin at a remunerative price.

The Department has been asked what its position is as to the final offer to be made to the Bolivians.

Recommendation

That the Department recommend that Mr. Miller call in the Bolivian Ambassador privately and tell him (a) that we have considered the matter carefully, (b) that there is no hope whatsoever of our giving any increase in price that would make any real difference to the really high-cost producers, (c) that in the light of President Ballivián’s letter⁵ we are willing to help solve their real problem through advances of $5.5 million plus technical assistance for improving tin production and urge him to try to get his government to accept $1.18 on this basis. If this is unsuccessful, we should then make a formal offer in plenary session to the Ambassador⁶ and the negotiators of $1.20 F.O.B. for one year only plus a $5.5 million line of credit specifically for improvement of facilities, informing them that this is the President’s final decision.

Background

The facts are as follows.

The Singapore market price has been approximately $1.18 for the last month. On March 26 it sagged to $1.17875, recovering to $1.18 even yesterday.

RFC has signed up for 20,000 tons with the British, 18–20,000 tons with the Indonesians, and 7–9,000 tons with the Belgians, all at $1.18 F.O.B. We have agreed with each that if we pay Bolivia a better price they will get it also.

RFC has purchased 5,800 tons since January at $1.18 in spot purchases. This inflow is continuing.

The International Tin Study Group Report⁷ shows that tin production exceeded free-world consumption by 24,000 tons last year. The consumption figure, however, does not allow for United States stockpile demand, which is still considerable.

The Bolivian negotiator, Dr. Hochschild, is insisting on $1.30 F.O.B. Indications from La Paz are that the Bolivian Government would consider settling for $1.25. Up until a few days ago Mr. Larson and General Wilson would have recommended $1.20, but with the Singapore price steadily at $1.18 they now do not see how they can go above that figure.

Most of the tin for which we have contracted is metal, but there is enough ore to keep the Texas City smelter going on a very reduced and uneconomical basis for 1952. The Bolivian ore is necessary to keep the smelter going at anything like capacity and thereby to avoid large operating losses.

If we stick to $1.18, we will almost certainly get the Bolivian tin eventually. They have no other place in which to sell it. But Bolivia might well try a number of expedients before giving in. She might depend on the concerted pressure of Latin American countries, in the OAS or otherwise, to get her a higher price. She might appeal to Argentina or Brazil for economic aid. She might curtail production.

The Bolivians are convinced that the British were induced to accept $1.18 because of the steel we gave them, the Indonesians because of the credits we have given them plus a two-year contract, and both of these countries and the Belgians because they knew that, under their contracts, if the Bolivians got a better price they would benefit.

We have considered and rejected the possibility of giving the Bolivians a reduction in their smelting charges. We have rejected this because the smelter is now losing money at present charges. The only other sweetener that we can find for the package is a possible offer of financing of from 5–6 million dollars for facilities to improve the quantity and quality of the Bolivian ore, which GSA is now seriously considering. This would particularly benefit the small Bolivian miners and would be very helpful. But it would be something they would have to pay back with interest. There are also certain other loans, not related to tin, which have been under consideration by the Export–Import Bank for some time and which are making good progress. If they are to be approved anyway, it would be very helpful to do it as part of this package.

We have come up from 99 cents F.O.B. to $1.18 F.O.B. in the price since last summer. The market price at Singapore has come down to $1.18. The $1.18 price would be adjusted retroactively to cover the approximately 1,800 tons the Bolivians shipped us last September and the approximately 12,000 tons they now have at port. They would gladly have accepted $1.18 six months ago. Nevertheless, they maintain that no settlement would be just and equitable unless it recognizes their higher costs and gives them a slightly better deal than the British, the Indonesians and the Belgians. They quote the Johnson Committee report⁸ statement that they should get a premium because of their high costs.

We cannot pay them enough to meet the problem of their very highest-cost producers. But some extra payment will probably save enough face to permit a reasonably amicable settlement.

It is ARA’s opinion that without such extra payment there will probably be a further prolonged deadlock. We should make sure of this if possible.

Since any price we give the Bolivians will have to be passed on to the British, the Indonesians and the Belgians, every extra cent a pound we pay the Bolivians would cost us approximately an extra $1,250,000 per year, of which the Bolivians would get about $400,000.

This situation has two essential elements:

1. How badly do we want fairly prompt shipments of the Bolivian ore necessary to keep the Texas City smelter in operation on some sort of economical basis? If there is any reasonable argument that it is worth an extra 2 or 3 million dollars to us to get this tin promptly, the answer to the problem is easy. We should then pay approximately 2 cents more to the Bolivians.

2. How badly do we want to reach speedy agreement with the Bolivians on a basis that will save their face? We face a heavy legacy of bitterness and ill-will left by the whole recent United States-Bolivian history on tin. This has become a cause célèbre in Latin America. It has been useful to Peron⁹ in stirring up anti-United States feeling. It has even caused the President of Chile¹⁰ to intervene with President Truman on behalf of the Bolivians. This ill-will was created largely by ourselves. Two or 3 million dollars a year in increased payment for a product we need is probably not a large sum of money in view of the possible stakes involved here and the amounts of money we are spending to avoid similar dissension and ill-will in other parts of the world.

It can also fairly be argued that the price of $1.18 was not a commercial price, but was the result of shrewd bargaining by the United States; that although the two British deals each stand on their own feet, the British were certainly influenced to some extent by their desire to make a gesture for the United States and by the steel they got; and that this has fixed the price with the Indonesians and the Belgians and the current market price.

On the other hand, payment of this extra amount would invite a heavy blast of criticism from Senator Johnson and those who think like him and possibly some criticism; also from the business community which now sees a falling market. The Administration, and the Department in particular, will be blamed for a political decision which imposes on American consumers a new burden of foreign aid without legislative fiat and gives an unearned windfall to the British, Indonesians and Belgians. It will be said that this is particularly improvident in a falling market and that we should have stuck to $1.18 and given the Bolivians any financial aid they need by direct assistance methods. They will point out that the extra 2 cents is pure politics, since it isn’t enough to make any difference to the really high-cost producers.

The question is, therefore, should the Department acquiesce in the present inclination of GSA to stand firm on $1.18, sweetened with a line of credit for improving tin production, or should it urge upon GSA, Dr. Steelman¹¹ and the President that the United States pay a cent or two more?

Reasons for the Recommendation

Our recommendation is set forth above. The main reasons for it are as follows.

1. At this narrow range of choice in price the commercial, political and general interests of the United States become inextricably merged and we must be guided by the net balance.

2. When it comes to a deviation in price of a cent or two one way or the other, no one can say with certainty that $1.18 is right and $1.19 or $1.20 is wrong. One can only operate within a range. This is particularly true when we are unwilling to put the price to the test of a free market.

3. By building the Texas City smelter and buying Bolivian tin for many years, we have discouraged the Bolivians or any other country from constructing a tin smelter to use the Bolivian concentrates. By preventing private purchase in the United States and remaining out of the market for so long, we have prevented competition from determining the price of tin. We have, in effect, used our stockpile to force that price down, since in the absence of the stockpile we could never have held out as long as we did. We therefore have a moral obligation to pay a “fair price”. We believe that the larger quantity of Bolivian production can be brought out profitably at $1.18 and that $1.20 would probably not be enough to take care of the higher-cost marginal producers. These points will be made by our critics and will be hard to answer. The Bolivians, however, insist that $1.18 is not a fair price to them simply because it is acceptable to lower-cost producers. It is really more a question of face than of money.

4. It is in the interest of the United States to get enough tin promptly to keep the smelter personnel and minimize operating losses.

5. The cost to the United States generally would be relatively small; the cost to the taxpayer would be negligible. There is no question of inflation or price ceilings involved.

6. The political advantage to us of settlement with Bolivia is clear. It is also in our commercial interest in a real sense because of the effect of this running sore on general relations with South America; e.g. supply of raw materials for our stockpile, the attitude of South Americans to United States investment, the supply of copper from Chile. An increase of one cent a pound in the Chilean export tax on copper would cost the United States consumer many times the amount at issue here.

7. Tough commercial bargaining does not necessarily mean haggling for the last penny and forcing a reluctant bargain. The price of $1.18 was set in exceptionally favorable circumstances, i.e. the United Kingdom deal. We cannot sustain the position that this was a purely commercial deal on tin alone.

8. To sum up: We are in a situation in which no one can say with certainty that as a purely commercial proposition $1.18 or $1.20 is exactly the right price. We cannot establish that $1.18 was arrived at on a purely commercial basis. The financial cost of the two-cent increase is comparatively small. The general interests of the United States would be significantly served by choosing the higher price. We should therefore do so if necessary to close the matter promptly.

2. Drafted by the Director of the Office of International Materials Policy, Winthrop G. Brown.
3. The referenced negotiations had commenced in Washington on Mar. 13, 1952. Defense Materials Procurement Administrator Jess Larson headed the U.S. negotiating team, which also included Reconstruction Finance Corporation Administrator Harry A. McDonald, and representatives of the Department of State (Mr. Brown) and the General Services Administration. Pertinent documentation is in Department of State file 824.2544 for 1952.
4. Brig. Gen. Hugo Ballivián Rojas.
5. The referenced letter, dated Mar. 22, 1952, along with an undated draft reply, is in file 824.2544/3–2252.
6. Ricardo Martínez Vargas.
7. Apparent reference to the report entitled Tin 1950–1951: A Review of the World Tin Industry (The Hague, Netherlands, International Tin Study Group, 1951). The International Tin Study Group was established pursuant to recommendations approved at the World Tin Conference, held in London, October 1946; it met for the first time in April 1947.
8. Reference is to U.S. Senate, Preparedness Subcommittee of the Committee on Armed Services, Sixth Report, Tin 1951 (commonly referred to as the Johnson Report, after Senator Lyndon B. Johnson (D.–Tex.), Chairman of the Preparedness Subcommittee), 82d Cong., 1st Sess.
9. Juan Domingo Perón, President of Argentina.
10. Gabriel González Videla.
11. John R. Steelman, adviser to the President.