824.2547/8–2654
The Assistant Secretary of State for Economic Affairs (Waugh) to the Administrator of the General Services Administration (Mansure)1
Dear Mr. Administrator: Reference is made to my letter of August 27, 19542 on the subject of United States Government contracts for Bolivian tungsten, and to the letter of August 26, 19543 from Mr. A. J. Walsh to Mr. Harlan Bramble of this Department, transmitting a draft letter which the General Services Administration proposes to send to Bolivian tungsten producers.
In addition to the correspondence noted above, conversations have taken place between officers of the General Services Administration and of the Department on this subject. As a result of these conversations and its own analysis of the contracts in question, the Department now believes that the weight of the arguments regarding interpretation of the contract specifications is in favor of the Emergency Procurement Service position that the contracts calling for tungsten trioxide in the form of wolframite do not obligate this Government to pay for tungsten trioxide that may be contained in the ore in forms other than wolframite. The Department considers that the Bolivian contention that tungsten trioxide in the form of scheelite meets the specifications of contracts calling for wolframite is an incorrect interpretation of the contract terms. The Department is also of the opinion, however, that [Page 563] the presence of scheelite in the ores in question is not in itself a violation of the contract specifications. The only contractual requirements in this connection are that the ore contain a minimum of 65 percent tungsten trioxide as wolframite and that certain specified impurities, among which scheelite is not included, not exceed the stated maximums.
A number of shipments against contracts calling for wolframite have failed to contain the minimum of 65 percent tungsten trioxide in the form of wolframite. In particular, the deliveries under the Hochschild contract have been below that standard. It is possible that the supplier cannot remedy this situation in the near future. The Department realizes that the suppliers have the right to take back ore not meeting the specifications, beneficiate it, and resubmit it within ninety days. There is a practical difficulty with this alternative, however, since the one firm in a position to perform this beneficiation is booked far in advance, in substantial part on material for the United States Government. It is possible that treatment of some lots could be arranged elsewhere but the practicability of this course has not been demonstrated. Under a strict application of the terms of the contract, therefore, it seems certain that if the Bolivian Government attempted to beneficiate ores not meeting contract specifications it would fail to meet delivery schedules, thus permitting the United States Government to cancel the contract.
The Department believes that the national interest requires that the contracts with Bolivian suppliers continue in force. The present Government of Bolivia has been increasingly friendly and cooperative toward the United States. If it should disappear or be substantially altered, the resultant administration might well be less favorably disposed toward the aims and objectives of the United States, and of the western world in general. Also, it is probable that a period of economic collapse and political chaos would accompany a change in administration. Such developments in Bolivia would be most undesirable from the standpoint of United States security.
In order to avoid economic collapse and actual starvation in Bolivia, the United States has since November, 1953 been engaged in a program of economic grant assistance to that country. Under this program, a total of $23.4 million has already been expended or allocated for expenditure in that country. The need for such assistance arose primarily from the almost complete dependence of the Bolivian economy on revenues from its minerals exports in order to pay for essential imports of foodstuffs. Lower prices in the world market for Bolivian minerals exports, of which tungsten ranks second only to tin, have caused that country to be unable to pay for its needed food imports. The loss of income from tungsten exports would cause Bolivia to be [Page 564] even more unable to pay its own way and additionally dependent on United States economic aid.
In addition, it has been hoped that the aid extended to Bolivia would strengthen the desire of its officials and people to live in harmony with other countries of the Hemisphere, including the United States. That objective has been partially achieved. However, that success would be completely lost if the United States now cancelled the contracts for tungsten. The action would be interpreted in Bolivia as displaying a disregard and lack of sympathy for the serious problems faced by that country, and as an example of the one-sided trading practices of which Bolivia, and other countries in Latin America, frequently accuse the United States. The Bolivians are aware that the United States is continuing to pay its own tungsten producers even higher prices than those contained in the Bolivian contracts, and would greatly resent the fact that they, as a principal foreign supplier, were singled out for economies practiced by the United States. Bolivia has been a particularly vocal exponent of the argument that the United States should enter into arrangements to guarantee stable markets for the raw materials it obtains abroad, and would use our cancellation of the tungsten contracts as a further proof of their argument that the United States looks abroad for help in time of crisis, but when that moment is past, shows no inclination to extend reciprocal treatment.
The Department also considers that the maintenance and development of tungsten production in Bolivia depends on contracts such as those now existing. The deposits were never extensively exploited on a basis of private purchases. While it may be possible that Bolivian production is not essential to the United States at the present time, developments in high temperature alloys, and in political conditions elsewhere in the world, could make it imperative that the United States have extensive supplies of tungsten available in the Western Hemisphere in addition to its own mines. Should the contracts now be cancelled, it appears that the Bolivian mines would be shut down. Redeveloping them would be expensive and time-consuming, and the Bolivian producers and the Bolivian Government would be hesitant to commit themselves to such redevelopment in the future. Moreover, the Bolivian disappointment if the tungsten contracts were cancelled would probably lead to a lack of cooperation in this and other fields as well.
In this connection, it should be noted that other countries which are producers of raw materials needed by the United States will be aware of whatever treatment is extended to Bolivia in this case, and their cooperation in the future will be accordingly influenced.
The draft letter which the General Services Administration proposes to send to the contractors would in effect result in cancellation of at least the Mauricio Hochschild contract and perhaps others. It is unlikely [Page 565] that enough material meeting the strict specifications of the contracts can be delivered in time to meet the delivery schedules. The Department, therefore, requests that the letter in this form not be sent.
The Department of State suggests that a satisfactory solution might be arrived at along the following lines:
- 1.
- That the contracts be continued.
- 2.
- That the existing price basis in the contracts be maintained.
- 3.
- That from that price basis there be deducted the cost of bringing the wolframite content of the ore up to specification plus other charges necessary to make the ore acceptable under the contracts.
It would be possible to attain the effect of this proposal by extending the delivery date until the Bolivian suppliers could have the ore treated. In view of the desperate need of the Bolivian Government for foreign currency, however, it would be preferable for the United States to accept and hold the material until it could be beneficiated. The United States should not accept ore that could not be brought up to specification.
It is recognized that the proper treatment charges may be difficult to calculate. In particular, the disposition of the scheelite contained in the ore may raise questions. Under the contract the United States is not obligated to pay for the scheelite, yet it has value and the United States could elect to use the unbeneficiated ore as a mixed wolframite–scheelite concentrate rather than upgrading it to a wolframite type. The Department prefers not to suggest specific provisions to govern this aspect of the transaction, but it believes the suppliers should receive a payment comparable to what they themselves would have realized if they had arranged for the beneficiation and delivered specification material. It is also recognized that the terms should be arranged so as to encourage the Bolivians to deliver the best grade of material they can produce. The Department is confident that these problems can be solved.
The Department of State is firmly of the opinion that every effort should be made to reach a satisfactory solution to this problem along the lines indicated. Acceptance of the proposal on the part of the Bolivian Government would require a substantial retreat from the position which that Government now takes, and would result in less income from the contracts than they have expected. At the same time, the proposal would protect the financial interests of the United States to the fullest extent practicable, while permitting continuation of the contracts, which the Department considers to be essential.4
Sincerely yours,