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

825.2542/10–3053

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

confidential

[Washington,] October 30, 1953.

Subject:

• Minutes of the Eighth Formal Meeting US–Chile Copper Negotiations October 30, 1953

• Participants: Ambassador Jara, Chilean Embassy
• Sr. MacKenna, Central Bank of Chile
• ARA—Mr. Woodward¹
• GSA—Mr. Gumbel
• OMP—Mr. Getzin
• OSA—Mr. Barall

The meeting today was held at the request of the Chileans. Mr. Woodward reported briefly on his discussion with Ambassador Jara and MacKenna at the Embassy on October 28² where the Chileans had urged the US to buy on the basis of promises while Mr. Woodward urged the Chileans to find some way whereby at least the nondiscriminatory rate be eliminated prior to the purchase. He informed the Chileans that, unfortunately, we are still in a situation where we feel unable to go ahead just on the basis of the promises contained in the draft note. He asked what the Chileans had learned in the interim.

The Ambassador reported that del Pedregal was in touch with the committee in Congress which wanted to know exactly what terms could be reached in Washington. The Ambassador and MacKenna mentioned the 40–60,000 ton proposal which we had submitted and the alternate proposal of substituting 110 for the current 19.37 rate with the idea that the companies could compensate the Chilean Government for what they gained by means of paying the companies a lower price, e.g. below 24½ cents for the copper bought. MacKenna explained that this would have the advantage of doing away with the artificial exchange rate with no loss to the government. He said the Minister of Finance does not refuse to study this formula but in MacKenna’s own opinion this latter plan would not be desirable although it would be considered a transitory formula only. Mr. Getzin pointed out that there would be no advantage to the US on this latter arrangement. We had wanted the 110 rate to insure automatic revision of the tax structure. This proposal would fail to accomplish that end. He said we had thought of the 110 rate in combination with a retroactive income tax as a transitory measure but that it would not be desirable from our point of view to eliminate one discriminatory practice and compensate for it by extending another discriminatory practice. Such an arrangement would have bad repercussions in the US if it became public. MacKenna pointed out that the companies were now protesting that the increase in taxes from 50 to 60% retroactively was illegal and therefore such a solution was not desirable for recapturing the loss on the exchange rate.

MacKenna then stated rather disingenuously that he had an idea for a possible solution though he had not tried it on the Ambassador or the Chilean Government. He said we must seek a way for mutual faith and then suggested that a public announcement could be made that 100,000 tons had been sold at 30 cents. The US would pay for 50,000 tons immediately and the balance would be bought after the necessary legislation is passed by the Chilean Congress. There would be no time limit for the additional 50,000 tons.

Mr. Woodward referred to our previous proposal of a 40–60,000 split and said we might make it 50,000 but on the question of price for the second half, it would be a great deal easier to get approval from ODM if a definite time limit could be established. Mr. Gumbel pointed out that the absence of a time limit would give Chile the opportunity to change the market and if the price goes up Chile would be able to sell without living up to its promises. MacKenna said this would not happen since Chile desires to sell its accumulated stock as soon as possible, especially since there were now 120 to 130,000 tons on hand. In reply to our query as to how long it would take to get the necessary legislation, MacKenna replied that Chile would start negotiating with the companies at once on a contract law but he did not know how long it would take to get approval by Congress—perhaps two months. The Ambassador said the problem is one of presenting the situation to the Chilean Congress in its most favorable light. If the administration could avoid the appearance that terms were imposed by the US, there would be a better chance of obtaining the necessary legislation. Mr. Gumbel expressed the opinion that we must make the purchase at a fixed price but there must also be a time limit. Since it was explained that the ODM offer could not be kept open indefinitely, it was finally decided to try to get approval on a six-month period at a fixed price of 30 cents.

Mr. Woodward asked if del Pedregal had already discussed this proposition with Congressional leaders. The Chileans replied that he had discussed the draft note and the legislation to be required but not the details of this 50–50 proposal because MacKenna had not yet suggested this idea to the Minister of Finance. However if the Ambassador and MacKenna recommended acceptance of this proposal, they believed the Minister of Finance would accept. (Note: Of course the 40–60,000 ton proposal had been discussed by Counselor of Embassy, Claude Courand, with del Pedregal, Fenner³ and Cuevas,⁴ and the Chileans were acting on instructions. See Embtel 125, October 29.⁵)

The US team said it preferred this proposal to administrative action on the exchange rates but the announcement would have to be worded carefully and the text should be submitted for joint approval. The companies would sign a contract with GSA for the delivery of 100,000 tons at 30 cents, of which 50,000 would be delivered at once for payment in cash. After some discussion it was agreed that the balance would be delivered within a six-month period upon notification from the State Department to the GSA. If the implementing legislation was not passed within the six-month period, the contract would lapse with only 50,000 tons having been delivered. It was made clear to the Chileans, however, that if Chile failed to perform because of an increase in price during the six-month period, the US would still have the authority to call for delivery of the additional 50,000 tons at the agreed price of 30 cents. On this basis the negotiating team agreed to try to get approval from ODM next week. It was agreed that the public announcement could be made as soon as the ODM gives its approval and the necessary Confidential Notes are exchanged. It was suggested to the Chileans that they obtain approval from their government of the exact text of the draft note. MacKenna said this would be done.⁶

1. Deputy Assistant Secretary Woodward replaced Mr. Atwood as Chairman of the U.S. negotiating team for the seventh (Oct. 21, 1953) and eighth meetings.
2. The referenced discussion was reported in telegram 97, to Santiago, dated Oct. 29, 1953, not printed (825.2542/10–2953).
3. Oscar Fenner Marín, Chilean Minister of Foreign Affairs.
4. Francisco Cuevas MacKenna, Chilean Minister of Mines.
5. The referenced telegram, from Santiago, dated Oct. 29, 1953, is in file 825.2542/10–2953.
6. By Oct. 30, 1953, U.S. and Chilean representatives had held eight formal meetings, but they reached no conclusion concerning United States purchase of Chile’s accumulated copper stocks. In early November, the discussions were briefly transferred to Santiago, where representatives of the Embassy, the Chilean Foreign Office, and President Ibáñez also failed to reach agreement. On Nov. 9, the Chilean Government suspended the negotiations, and recalled its special representative, Luis MacKenna, from Washington.