825.2542/5–2052

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

confidential

Subject:

  • Chile Informed of US Decision on Copper
  • Participants: Ambassador Félix Nieto del Río, Embassy of Chile
  • Mario Rodríguez, Counselor, Embassy of Chile
  • Jorge Burr, Counselor, Embassy of Chile
  • Edward G. Miller, Jr., Assistant Secretary
  • Winthrop Brown, Director, OMP
  • Milton Barall, OSA

Mr. Miller handed the Ambassador the Department’s note of this date (copy attached)1 informing the Chilean Government that the “United States proposes to establish arrangements under which private United States firms will be free to buy copper and copper concentrates abroad at prices to be determined between them and the seller.” Mr. Miller went on to explain that this decision was taken only after almost continuous discussions among United States Government agencies concerned. He explained that this is the only action the United States was able to take to meet all of Chile’s objections to the copper agreement of 1951, as brought out in the conversations of May 2 and in previous meetings. This action does away with the two-price system; it breaks the 80–20 percent distribution pattern and permits Chile to exercise control over the entire production of the large American-owned mines; it does away with the 27½ cent price formerly applied to Chilean copper sold in the United States despite the fact that the US ceiling price of 24½ cents is being retained on domestic production; and it eliminates competition in the European market from sales by US firms of copper produced in Chile.

Mr. Miller then took up the question of publicity which should be given to the United States decision. He referred to the message which the President of Chile will make on May 212 at the opening of the regular session of Congress and said that the United States had made all haste to meet this deadline and to permit the President to make an appropriate announcement. The Ambassador said that the President’s speech was already printed but that he might, nevertheless, wish to make a statement with respect to copper. Mr. Miller suggested that the President might wish to send a supplemental message to Congress.

[Page 683]

Mr. Miller continued by pointing out that this action on the part of the United States puts grave responsibility on Chile not to undermine its own position in the world market. He said he had heard rumors to the effect that a price of 35½ cents per pound had been fixed today by the Central Bank. He expressed the hope that Chile’s price will not be set so high since, in the long run, a price which is too high might be disastrous for Chile.

The Ambassador asked if the Department’s note was to be considered as a counter proposition to Chile’s note of May 7, 1952.3 Mr. Miller replied that it was not; that it was a US decision and that DPA would have to make an announcement soon to the public. The Ambassador said he understands it is a US decision but at the same time he considers it a proposition which Chile can discuss. Mr. Miller explained that this was unilateral action on the part of the United States in response to the unilateral action taken by Chile but that, of course, we can review our position at any time and, in that sense only, it may be considered a proposition. He said this was the best feature of the US decision because it did not put us in an inflexible position. He said that negotiation of a new price would be a long process and would necessarily involve the United States as a government, whereas the present action now leaves the matter of price to be decided between the buyer and seller.

Mr. Miller expressed the hope that Chile will be able to achieve increased production by passing the tax and exchange law which would permit the US producers to bring down the cost of production and lower unit costs to enable Chile to continue its sales when a competitive market in copper returns. He said he hoped the Central Bank will not set an inflexible minimum price as was done in the sale of the 20 percent quota and which produced difficulties when the price started to fall. He said it would be best for Chile to act as a normal seller, study the market, and set an appropriate price each month.

The Ambassador asked Mr. Brown if under these conditions the United States could absorb the 80 percent previously bought from Chile. Mr. Brown answered that it depends on the price. American consumers would like to buy more than 80 percent if the price permits. He explained that under our new regulations the consumer will be free to purchase more than the 80 percent previously allocated. Mr. Miller added that this, too, is up to Chile. We would like to buy more and have now provided incentives, by means of adjustment in ceiling prices, whereby the US buyers can purchase copper and copper concentrates abroad. Mr. Brown explained how brass and wire mills will be able to reflect a high proportion of the increased cost in their ceiling [Page 684]prices, whereas until now they had had to absorb the higher cost of Chilean copper. He said the ultimate test of how much copper can be sold in the United States will be determined by what the ultimate consumer is willing to pay for products manufactured from copper. This level will now be fixed by the law of supply and demand and not by the United States Government. He said we had considered all possible alternatives and came to the conclusion that it was best to get the problem of copper out of government channels and let consumers and sellers fix ultimate prices. Copper will move according to the requirements of those people using the metal, not on the decision of the US Government. This meets Chile’s objections to the copper agreement of 1951. Mr. Brown reiterated the points made by Mr. Miller on this subject and added that it also makes it possible for Chile to participate fully in the IMC, if it wishes, since it no longer needs to reserve its 20 percent for higher priced sales.

The Ambassador asked about the United States stockpile. Mr. Miller replied the United States would withdraw from the stockpile the amount of copper necessary to make up for the loss caused by the strike in the Anaconda mines and Chile’s embargo on copper shipments. He said that this would be announced by the US Government later on. He explained very carefully that the stockpile is not being used in pursuance of a tough policy toward Chile. The United States is acting in an honorable way with Chile and using the stockpile only to make up for deficiencies. The Ambassador asked if the stockpile would be used for sales in competition with Chilean copper. Mr. Brown replied that it would be used for emergencies only and not for competition since we do not wish to withdraw from the stockpile but rather to add to it and preserve it for possible emergencies, such as war. On the contrary, the stockpile might come in as an additional purchaser if the price is reasonable. He said we especially wished to make this explanation so that Chile will fully understand our temporary withdrawals to meet the existing shortage.

Mr. Miller explained that the decision on US action was taken by President Truman, with Dr. Steelman presiding at the meetings, and over the strong objections of our Price Stabilizer.4 He pointed out that this was a grave decision for the United States and Chile should realize the importance of this step in this country at a time when price increases are being denied to US industries.

The Ambassador said he would explain the US decision to President González over the telephone at 5:00 p.m. today. He said it was his own feeling that this is a step forward and expressed the hope that the President will understand the problem fully. He seemed somewhat concerned [Page 685]that US action did not set the price of Chilean copper and stated that prices mentioned in previous discussions were only asking prices. Mr. Brown reiterated that Chile must be cautious in exercising the full control it has now assumed. He added that we should not like to have a Johnson Report5 on copper such as we had on tin because that would generate irresistible pressures in the United States.

Mr. Miller pointed out strongly that the anti-US propaganda in Chile can have serious effects. He said this was a very hard decision for a lot of people in the United States to swallow; the American producers who are still frozen at 24½ cents; the OPS and EPS; the brass and wire mills which have to raise prices; DPA which has to change its allocation system; and the US public which is opposed to further inflation. Mr. Rodríguez requested clarification of the last phrase in the note “The Chilean Government will not offer copper to third countries at prices lower than prices offered to consumers in the United States”. It was explained that this was inserted to avoid positive discrimination against US consumers and that, as a matter of policy, Chile should sell to all buyers at the same price.

The meeting was terminated with a discussion on what action should be taken with respect to publicity. It was agreed to let the President of Chile make the announcement tomorrow if he wishes, but that the United States must know when he will make a statement, and perhaps the contents, so that a parallel announcement can be made to the US public. This is also necessary so that OPS can issue its order putting the new arrangement into effect. It was also agreed to avoid describing this action as “decontrol” to the press but rather to describe it as an adjustment in ceiling price, which it is. Mr. Brown said that the OPS order will be issued effective either the 16th or the 23rd of June.

The Ambassador promised to call Mr. Barall at home this evening to inform him of the time of the President’s announcement. The Ambassador remarked to Mr. Rodríguez that he was very much impressed by the speed and force exhibited by the United States in arriving at a major decision of this nature.

(Note: The Ambassador phoned Mr. Barall later this evening to inform him that President González expected to make an announcement on the new copper decision at 5:00 p.m., May 21. The President specifically requested that the United States issue no release before this time. The Ambassador expressed the belief that the President’s reaction would be “generally favorable” and that he would express general approval of US action.)

  1. Attachment is not printed.
  2. President González Videla’s address is reported in despatches 1364 and 1365, from Santiago, dated May 21, 1952, not printed (725.00 W/5–2152).
  3. Reference is to Chilean Embassy note no. 698/102 formally abrogating certain provisions of the Copper Agreement of 1951; it is in file 825.2542/5–752.
  4. Ellis G. Arnall.
  5. 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, Chairman of the Preparedness Subcommittee), 82d Cong., 1st sess.