834.6363/200: Telegram
The Acting Secretary of State to the Ambassador in Paraguay (Frost)
50. The Department has carefully considered your Telegram No. 100, February 17, 10 a.m., concerning the activities of the Union Oil Company. Careful study has also been given to the proposal submitted by the Union Oil Company in the January 11 letter from Hubert C. Ferry to W. H. Geiss.
The course of action which Paraguay will take in this matter is obviously one for the determination of the Paraguayan Government. The Department does not object to the negotiation of a suitable contract with the Union Oil Company. The Union Oil Company proposal, however, contains strong monopolistic provisions, and the Paraguayan Government should appreciate that the proposal closes the door to entrance into Paraguay by other interests. You should bring these considerations to the attention of the appropriate authorities, [Page 1472] expressing the sincere hope that the contract will not be monopolistic. The proposal as now drafted (and the draft legislation which Union Oil suggests) would seem to tie up for many years substantially all prospective oil land.
It has been observed from your telegram that the Union Oil Company states it can supply all needed machinery “depending on attitude of American Government”. This Government does not wish even by implication to be made a party to any contract or proposal. It does, however, wish to make clear that oil field equipment and machinery is still in very short supply and that the fact that this Government does not offer objection to a suitable Union Oil Company proposal carries with it no warranty that the needed equipment will be available at an early date. Applications for the necessary priorities and export licenses will, of course, have to be passed on by the appropriate agencies of this Government and will have to be weighed to determine the availability of equipment and the relative benefit which would accrue to the war effort from the equipment’s use for the purposes contemplated. It is to be borne in mind in this connection that it has been the general policy of this Government to make available oil field equipment only for exploration, which is likely in the very near future to develop important supplies of petroleum which can be utilized readily in the prosecution of the war.
The Department has given you the foregoing background in order that there may be no misunderstanding of this Government’s position on the part of the Paraguayan Government. It is to be reiterated that the decision is one which will have to be taken by the Paraguayan authorities, and that, although the monopolistic aspects of the present Union proposal are considered most undesirable, the Department in the last analysis would not be justified in attempting to block the contract, although it would lament the contract’s negotiation with the monopolistic provisions. This latter is, of course, for your strictly confidential background information.