287. Telegram From the Embassy in Chile to the Department of State 1

642. Fm Harriman to the President. Info Ball, Mann, McNamara, and Califano.

At a meeting with Ambassador Dungan, Solomon and me this evening, President Frei (Tomic, Saez, Lagarrigue also present), received [Page 630]us in a grave mood. He began by stating simply and clearly that President Johnson’s request for rollback of copper price poses the most difficult problem conceivable for his government at this time. However, referring to substantial assistance US provides Chile, Frei stated that it was not in his “hands” to say no to a request from President Johnson for cooperation. Frei said that the economic difficulties of the price rollback, although important, were not controlling and that the discussions between us had been “positive”.

1)
Political Problem for GOC: Before describing further the substance of his response, Frei elaborated political problem request poses. If GOC reduces copper price to 36 cents it will have to face a “political crisis of the highest magnitude.” Although he personally can understand why it is desirable accede President’s request, it is absolutely impossible to explain to the Chilean people [who] see US as so tremendous, powerful and rich that it is not possible for them to understand why such step necessary. No political party, nor the military nor the ordinary Chilean would understand. Opposition already maintains that GOC has given excessive benefits to American companies in copper agreements. Only today, he noted, important Chilean mining entrepreneurs called on him urging that time ripe to raise copper prices to 45 cents. Frei asked specifically that I inform President Johnson that he can count on GOC’s cooperation but “If President Johnson can find another formula, another way, he will again render us a new service. But if he cannot find another way of handling this problem, we will cooperate even though this means for GOC the gravest risk in its history.”
2)
Timing of Chilean Response: Frei then turned to problem of timing proposed Chilean rollback. Two factors make present moment extremely unfavorable for rollback:
A)
Copper strike, which hope to resolve within a week, resolved by drastic action. (President Frei this afternoon, exercising emergency powers, arrested several leaders of socialist-led copper workers union and took over operation mines.)
B)
Copper legislation, which he hoped would be resolved in a month. To move price down now would probably kill legislation, Frei concluded.
3)

Two alternatives proposed by Frei: First—Chile would roll back price in its world sales but only after other major producers take the initiative. Politically impossible for GOC to take initiative for rollback. Initiative would bring his government down. Chile would, however, follow lead by U.S. domestic and European producers, and we could inform the European producers of this agreement which GOC would confirm. I responded that our understanding had been that Chile was the bellwether, and I questioned whether USG has leverage to induce Europeans take lead.

[Page 631]

Second—bilateral arrangement with U.S. to reduce price on copper for U.S. consumption to 36 cents. Frei turned to this second alternative by saying that if U.S. and Europeans cannot take initiative, let us then restrict the problem to the U.S. market. Chile’s real interest is in cooperating with the U.S., not with Europe, which would benefit from general reduction in Chilean price. Frei said there have been several instances in past when price to U.S. for Chilean copper was below general Chilean world producers’ price; the most noteworthy example the agreement in 1951 with President Truman which was dictated by Korean War circumstances.2 Vietnam is similar situation, Frei noted.

Frei made it clear that his preference is for the second alternative. When Solomon explained U.S. faced with difficult problem if action not taken within few days, Frei responded that under second alternative we could begin discussions immediately on informing U.S. domestic producers of impending Chilean rollback and in the meantime Chile could suspend application of 38 cent price to exports for U.S. consumption.

4)
Importance to GOC of U.S. cooperation: Frei went to considerable lengths to stress his conviction that Chile’s national interest lies in promoting close and cooperative relationship with USG. If U.S. is truly interested in Chile’s “experiment” it will succeed, he said. Frei explained that “We are for free enterprise, not [Communist?] economy. We must make agricultural and economic reforms made 30 years ago in Europe and the United States, in spite of strong opposition from vested interests.” It is essential for GOC that Chilean people sense clearly USG confidence in GOC.
5)
I told President Frei we would advise Washington of his proposals and left open question of considering other alternatives.

Comment: Ambassador Dungan and Solomon concur with me that compelling Frei, assuming that could be done, which we doubt, to take the first open action to rescind the price increase would represent too high a political cost to Chile and to the U.S. Also we believe there is fair chance (based on our conversations with Brinckerhoff of Anaconda and other copper experts), that given their past opposition to price increases, European producers would go along with U.S. domestic producers in rescinding price increase if they were assured that Chile would follow as Frei has promised. However, Washington is in better position to ascertain if this presumption correct under present world circumstances. Certainly it is the unanimous view of all experts that [Page 632]raising margin requirements in New York copper market and tightening trading practices on London Metal Exchange (with its consequent reduction in prices) would make this price reduction more feasible for all producers, both in Africa and the U.S., as well as for the GOC.

Question arises if Frei’s second alternative—reducing prices to 36 cents on all sales to U.S. market—is not more advantageous from U.S. viewpoint since the cost of offsetting Chile’s financial loss would be 1/6 or less of the cost under the first alternative. Also it then makes sense to apply export controls on copper to keep the U.S. economy on 36 cent copper which is certainly easier than trying to keep worldwide producer sales on 36 cents, particularly with possibility of Zambian difficulties.

If, however, decision is to opt for first alternative of worldwide price reduction, then we believe that economic package outlines previous cable 6363 would probably suffice, bearing in mind Frei’s caveat about U.S., Canadian and European producers reducing prices first with him following after strike and copper bill settled, estimated to take four weeks.

Although we are not recommending it, if it is difficult to reach decision quickly between alternatives, we could attempt to conclude now agreement with Frei based on alternative two, but leaving open to us option for reasonable time to explore feasibility of alternative one.

During conversation Frei was informed by Dungan of uncertain GOC position on ChiCom representation issue. Frei reacted immediately. Went to telephone and ordered GOC representative to vote against admission Communist China.

Dungan
  1. Source: National Archives and Records Administration, RG 59, Central Files 1964–66, INCO COPPER 17. Secret; Immediate; Nodis. No time of transmission appears on the telegram; it was received in the Department at 4:42 a.m.
  2. Documentation on the agreement, which was concluded on May 7, 1951, is in Foreign Relations, 1951, vol. II, pp. 1239–1242, 1258–1273, and 1276–1279.
  3. Telegram 636 from Santiago, November 16, reported on a second meeting among Solomon, Sáez, and others, in which the Chileans suggested elements of a tentative agreement. (National Archives and Records Administration, RG 59, Central Files 1964–66, INCO COPPER CHILE)