825.2542/10–953

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

secret

Subject:

  • The Opinion of the US Producing Companies on Copper Negotiations
  • Participants: Anaconda Copper Mining Company
    • Mr. R. E. Dwyer, President
    • Mr. R. H. Glover, Vice President & General Counsel
    • Mr. T. A. Campbell, Exec. Vice Pres. Chile Exploration Co.
    • Mr. Elmer Lang, Vice President, American Brass Company
  • Kennecott Copper Corporation
    • Mr. Frank R. Milliken, Vice President
    • Mr. Carl Lenz, Pres., Kennecott Sales Corporation
    • Mr. Elwood S. Hann, Treasurer
  • GSA —Mr. Irving Gumbel
  • State—Mr. Atwood, Mr. Getzin, Mr. Barall

Mr. Atwood reviewed the Chilean and US positions as developed during the current negotiations pointing out that the US has not retreated from its position of requiring action with respect to the companies prior to the stockpile purchase, while Chile maintains that a contract law prior to the purchase is absolutely impossible.

The Anaconda officials quoted a Chilean businessman now in the US (Señor Heiremans) to the effect that Chile would not do anything for the companies until such time as they face a desperate situation. It is the consistent attitude of the Chilean Government not to do anything until there is absolutely no other alternative. Any promises made would not be fulfilled and the stockpile sale would be considered a victory for the Popular Socialists. Mr. Dwyer said the most important feature, for Anaconda, would be recapture of control of sales and pricing. Without the derogation of the present laws the companies would still be subject to the whim of the Chilean Government. Negative action, i.e. failure to issue decrees under the present laws, would not be enough. A new law would be needed to return control to the companies.

When the companies were shown copies of the Chilean draft of a public announcement and the US draft counter proposal,1 Mr. Milliken had a strongly adverse reaction. In Kennecott’s opinion any statement is meaningless. It may have value to the US Government but is of no value to Kennecott. In Mr. Milliken’s opinion, any negotiations between the Chilean Government and the companies will be one of extreme pressures and Chile will “give” only when it has no alternative. If the stockpile deal is completed without changing their situation, the companies would have to bring to bear any remaining pressures available to them. Even a formal agreement between the two governments, without concrete prior action, would be valueless in view of Chile’s past record of non-performance. The Anaconda officials were not so firm as Mr. Milliken but agreed with his general approach and they, too, feel that a statement from the Chilean Government is valueless.

Mr. Atwood then asked if, since a contract law was an impossible prerequisite, were other steps short of the passage of new legislation acceptable to the companies. Mr. Milliken again reacted strongly against any intermediary position. He stated his company was willing to take the risk of breaking off negotiations if these conditions were [Page 729]not met. However, if the US felt it must reach some agreement in the national interest, there were some steps Chile could take administratively, without resorting to legislation. After a long discussion of what Chile could do unilaterally it was agreed that as a minimum Chile could: (1) derogate decree 245 of January 8, 1945, which established the present exchange rate of 19.37, and issue another decree establishing the rate of 110; (2) derogate that article of decree 397 of February 29, 1952 which provides that a supreme decree shall fix, each three months, the quantities of copper for export. This could be replaced by a decree authorizing the companies to export all production above that required for internal needs of the country; (3) though the Banco Central could be deprived only by law of the power to fix the price paid to the producers, by means of article 11 of law 11151 (Special Powers), the Banco Central could wipe out the overprice. It was made clear that these actions, even if taken by decree, would not be really satisfactory from the viewpoint of the companies inasmuch as the basic discriminatory legislation, which should be superseded by a contract law, would remain in effect as a constant threat of a return to the previous system.

Thus, administrative action by the Chilean Government would have limited immediate value, but would fail to provide guarantees for the future. Though the Kennecott officials felt these intermediary actions would not have great value, Anaconda thought they would be of definite advantage as a step toward improvement of the situation. If Chile were to move the exchange rate to 110 or to eliminate the overprice, this would automatically commit the government to the passage of new tax legislation as a means of recapturing the revenues lost. Mr. Milliken would agree to the intermediary steps only if the US retained some power, perhaps by agreeing to purshase 50,000 tons now and the additional 50,000 after performance. Otherwise, Kennecott would prefer the risks of a complete and final solution at this time, with the US and the companies retaining all the bargaining strength possible. However, Milliken subordinated his company’s position to the US and Anaconda. In general the position of Anaconda was less firm than Kennecott. It stated it has in Chile the greatest copper mine in the world with reserves equal to the total reserves in the US. In addition, two thirds of Anaconda’s total supplies come from Chile whereas for Kennecott it is considerably less than one third. Anaconda cited the advice of their representative in Chile, ex-Ambassador to the US, Rudolfo Michels, who had reported that Chile could not possibly pass a contract law immediately but that progress could be made by steps, the first being the administrative actions described above. Mr. Campbell of Anaconda seemed to have a firmer position than Messrs. Dwyer and Glover but he pointed out the danger that if we forced these two decrees, Chile might take reprisals in the form of a very high tax rate [Page 730]unilaterally imposed. Thus, the administrative action would have value only if the decrees were issued in good faith and with good grace. If they can be achieved only by force and pressure, they may be hazardous.

Mr. Atwood asked how much harm would be done to the companies if the US buys the copper without insisting on prior action, relying only on the public statement of intentions. Anaconda replied that the companies’ position would be no worse, but it would mean to Chile that it could get away with its arbitrary practices without being penalized. Mr. Atwood then asked what would happen if we called off the negotiations. The companies replied that Chile would be forced to sell at the market price, but it might also sell to the Soviet bloc. There is an additional threat in that the Banco Central might reduce the price paid to the companies below the present 24½ cents. This points up the necessity of returning control of sales, with full proceeds, to the companies.

In summary, it appeared that the best that could be achieved in straightening out the economic difficulties, short of prior legislation, would be (1) a decree by the President to let the companies sell abroad all copper above Chile’s internal requirements; (2) if this decree is politically impossible, the Banco Central could authorize the companies to sell at the market price and retain the full proceeds; (3) establish the 110 rate by decree; (4) issuance by the Chilean Government of a statement of intentions regarding the submission to the congress of a new tax law based on income.

  1. Neither printed.