282. Telegram From the President’s Special Assistant for National Security Affairs (Bundy) to the Ambassador to Chile (Dungan)1

CAP 65695. Eyes Only for Ambassador from McGeorge Bundy.

1.
October price rise in Chilean copper from 36 to 38 cents is asserted by companies to be a primary reason for identical U.S. copper [Page 617]price rise announced this week by Anaconda and Phelps Dodge. This creates most serious concern here and leads us to ask what combination of carrots and sticks might persuade the Chileans to reduce their price by 2 cents.
2.
We fully recognize that export price of copper is a deeply sensitive question in Chile and that world copper market is tempting at present. But we also believe strongly that long-run price stability is deeply in interest of both U.S. and Chile, and CEA as well as some of the wisest heads in copper business tell us that high copper prices may simply lead to rapid substitution of aluminum in important sectors of the market, like automobile radiators and local electric transmission lines. High voltage lines have already been lost to aluminum.
3.
We thus see a strong basis of common interest between Johnson and Frei administrations and sensible copper companies in preventing runaway copper prices.
4.
We have our eye on the following possible sticks:
(1)
Pending $80 million program loan.
(2)
Hold-up on investment guarantees for $80 million Kennecott loan to Chile and $135 million new Anaconda investment with the result that there would be no expansion.
(3)
Hold-up on pending Ex-Im Bank applications for $135 million of loans to companies operating in Chile.
(4)
Use of 700-thousand-ton U.S. stockpile to break world copper market.
(5)
Use of government incentives to promote substitution of aluminum for copper.
5.
Among carrots available we are considering:
(1)
Strengthening of program loan in return for price rollback. As we see it, two-cent increase brings only 38 million a year to Chilean Government, and we are ready to consider sympathetically any politically manageable deal which would cover cost of rollback.
(2)
Continuing warm political support for Frei on all practicable issues.
(3)
Personal appeal to Frei from highest level here.
6.
We recognize difficulty of Chilean decision to reduce prices and are prepared to do our best to create a situation in which such a decision can be strongly defended by Chile. It occurs to us, for example, that a price rollback here might usefully set stage for later Chilean action, and there may be other things we can do which you would see more clearly than we can. In any event, your assessment should consider relative advantages of Chilean rollback before, with, or after a decision by American companies to rescind U.S. price increases.
7.
We know this is a tough one, but effective rollback of copper price increases is at least equal in importance to earlier aluminum [Page 618]rollback. Chilean rollback now looks like the key, so success with Frei is of first importance to us. We count on your political imagination to devise best possible tactics to achieve this result.

Please answer via same communications channel.

  1. Source: Johnson Library, National Security File, Situation Room File, Outgoing Traffic, 11/9/65–11/14/65. Secret; Eyes Only. A draft with Bundy’s handwritten revisions is ibid., White House Central File, Confidential File, Oversized Attachments, December 1965.