825.2542/2–1954:Telegram

The Ambassador in Chile (Beaulac) to the Department of State

confidential
priority

241. (a) In order understand clearly relationship which exists in Chile between proposed legislation and proposed stockpile purchase must be borne in mind that because of course of negotiations in Washington and publicity concerning them in Chilean Congress and public have impression which it is impossible eradicate that proposed legislation is by-product of negotiations for purchase stock and results from our insistence expressed during negotiations.

(b) Most important factor in copper situation now and future is attitude Chilean Government (including Congress) toward companies.

(c) It is in interest Chilean Government give companies reasonable and friendly treatment order they may remain strong and productive and there is evidence government recognizes this.

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For example, unfriendly and flippant attitude Chilean officials toward companies reflected in press toward end negotiations in Washington has been absent two months.

During past month government in contrast to earlier attitude has made what appears be sincere effort draft with help companies a bill which government says it believes Congress will approve. Whereas bill less favorable in some respects than bill sent Congress by Gonzalez Videla in 1951, government representatives have reminded us Gonzalez Videla bill never considered by Congress.

Government consulted Senate before drafting present bill and Senate replies to consultation in terms which obligate it morally approve substantially kind bill government has drawn up. This constitutes new and presumably important step in direction of solution copper problem.

Government, furthermore, has pledged it will fight for bill in Congress and that President will use veto power to remove changes which affect companies’ interests. No similar pledge received from Chilean Government in past.

Government has stated Liberal and Conservative Parties and certain members Radical Party have promised support bill in Congress. Probably more accurate say leaders Liberal and Conservative Parties have agreed support bill as described to them. Foreign Minister says government also expects support of PAL.

(d)There are strong reasons for government wish to push legislation through Congress.

Press urging solution problem through legislation.

There is urgent need improve situation companies apart from government’s desire US purchase stock. Probable companies will reduce operations in Chile soon, but if improved conditions not created reduction eventually will be on more drastic scale even though stock purchased. Government told this.

Chile requires additional cooperation from US including loans, particularly for agriculture, and hopes loans forthcoming if it solves copper problem. Until problem solved, Embassy considers mistake grant loans to Chile and Chile has no right expect loans. Some Chilean officials acknowledge this.

(e) In any consideration of whether and when US should buy stock following considerations are pertinent: Chileans’ desire US purchase stock has strongly influenced government to draw up present bill. We cannot assume that desire would influence Congress to approve bill. Anaconda believes unpurchased stock would defeat legislation. Kennecott’s local representative has held this view but Milliken has attached importance to pressure value unpurchased stock. He has tended also to be indifferent to possibility bills being defeated. Government says purchase stock prior to consideration of bill by Congress would [Page 738]facilitate approval. Companies, Chilean officials and advisers consider Congress will not approve bill unless US first purchases stock. They consider there is a chance of approval if US has purchased stock.

If Congress approves bill and we subsequently purchase stock immediate position companies will have improved, but there will be resentment against companies for having obtained improved treatment through pressure exerted by US. To extent this resentment exists it will be harmful to companies and probably result in worse treatment by government later.

If stock not purchased by time legislation considered by Congress many and perhaps majority members Congress will oppose bill as protest against US pressure. Some American company officials consider no member Congress will defend bill. If bill fails because of issue of pressure, position of companies and of US in Chile will gravely deteriorate.

If we purchase stock prior approval bill worst that may happen is Congress will not approve bill or will approve less favorable bill even over President’s veto. Anaconda officials consider latter only remote possibility. (Braden officials not here today for consultation.) If bill not approved we then will own stock. We will have made contribution to stability international copper market. Companies will be in same position with relation to government as now (except in remote contingency worse legislation approved). We will have abandoned position which company officials who have participated in conversations with government believe has lost its bargaining value. Way will still be open for new legislation and internal pressures for new legislation or for administrative action will remain. When companies have reduced operations in Chile these pressures will be even stronger than now.

If we do not purchase stock and if Congress does not approve legislation it can be anticipated that price copper will fall; copper mining industry throughout world will be affected; companies will drastically reduce operations in Chile; overprice now being collected by government will diminish and, perhaps, disappear and total government revenue derived from companies will sharply decline. This will precipitate political crisis with possibility that military dictatorship headed by Ibanez or someone else will be set up. Communists would, of course, make great effort bring about condition of anarchy they could take advantage of.

We will be blamed by many for these results.

If crisis should develop there would be pressure from leftists for expropriation, but believe present government would recognize expropriation would make its copper problem worse and would also create new problems which country could not solve or withstand. What attitude a successor government would take cannot be predicted.

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There also would be pressure from leftists and probably from others to sell to Russia. Present government has said it will not sell to Soviet orbit. Successor government might take different view. If stock unsold possible sale to Soviet orbit will become lively political issue.

(f) The two large American companies tend to reach somewhat different conclusions on basis foregoing considerations.

Shortly after his arrival here Milliken of Kennecott tended to argue that principal pressure on Congress to approve legislation will come from Chile’s desire that we purchase stock and that once we purchase stock pressure will be removed. However, he is least familiar with local background and his attitude believed dictated by New York. Michaelson has not expressed that attitude.

Representatives Anaconda, which has greatest stake here, believe value stock purchase as a source of pressure to obtain satisfactory legislation is played out and that if we persist in using it as pressure it will become liability instead of asset as it has been up to now.

(g) Embassy agrees with Anaconda.

Beaulac