825.3972/7–1450
The Secretary of State to the Embassy in Chile
No. 31
The Secretary of State refers to the Embassy’s despatch No. 56, July 14, 1950, and its telegrams No. 12 of July 13, No. 20 of July 17 [Page 789] and No. 35 of July 25,1 reporting on the protest that has been registered with the Ambassador against the proposed lease to private interests of Morgantown Ordnance Works.
The views of the Chilean Government regarding the disposal of the United States Army’s synthetic ammonia plants, including the plant at Morgantown, have been frequently expressed to the Department and have been given full consideration by the Department. They are, however, at variance with the conclusions reached by the United States Government after study of the factors involved and the Department is unable to accept them or let them guide its actions.
With respect to the contemplated lease of Morgantown, the Department does not consider that the present situation justifies a request to the Army to abandon efforts to lease the plant. The principal reason for this view is related to national defense. The plant is a part of the National Defense Reserve, and must, if possible, be maintained under conditions enabling the Army to have access to its output, in whole or in part, without delay should the need arise. This cannot be done if the plant is placed in stand-by. There would be a minimum of a four to five months delay in reactivating this plant if it were shut down, with risk of further delay should it then be found that repairs or replacement of parts were required before production could be resumed. A plant in stand-by condition deteriorates at a faster rate than one in operation, no matter how carefully it has been packed away.
The present military situation is not such as to require a large-scale ordnance program and it is, therefore, not practicable for the Army itself to continue operation of the plant. The situation intensifies, however, the need for keeping the plant in operation under a commercial lease, so that its output will be immediately available to the Army, either through purchase from the lessee under an option in the lease, or through repossession of the property.
The strategic gain in keeping the plant in operation is so great that the Department would not be justified in requesting an alternative course, when it is not clear that there is actually any risk of injury to the Chilean nitrate industry in leasing the plant. It is only under a certain combination of circumstances that the risk will exist, and the probabilities cannot be weighed until a number of presently unresolved factors are known. These include the use to be made of the property, the terms of the lease, their significance in relation to other costs, and the probable drain of military requirements upon domestic supplies of nitrogen in coming months.
The Department has secured a firm commitment from the Department of the Army that three weeks will be allowed for consultation [Page 790] with Chile on the proposed terms of lease and other relevant matters, once the probable final terms are known, and that in addition prior to that time interagency discussions will be held on certain of the relevant issues. There will be sufficient opportunity to ask the Army to reconsider its plans on Morgantown, if it is found to be necessary and appropriate to do so.
For the Embassy’s information, Army officials are somewhat doubtful that they will receive at the present time any bid for the Morgantown plant attractive enough to warrant consideration. Although no bids were submitted when first invited, the Army has since been approached by a number of companies tentatively interested in acquiring the plant. The size of the plant, however, and the large capital investment that would be required before commercial operations could be undertaken are apparently causing these potential lessees to move with extreme caution. No firm offer that is considered reasonable has been received to date and the processing of the plant for standby retention is under way. The Army will, however, continue its efforts to lease the plant and understandably wishes to reserve the right to consider all offers.2
The Chilean Government’s beliefs that this Government’s policy in disposing of its synthetic nitrogen plants has been injurious to the Chilean nitrate industry and has been in violation of international commitments are not borne out by the facts. What are regarded as fair market values have been received for each of the plants sold or leased to date and the expansion in total demand for nitrogen fertilizers has been such that the output from the plants, far from leading to a surplus of supplies, has only served to lessen the severity of a shortage of fertilizers that persisted into 1949–50.
There has been no complaint from the domestic synthetic nitrogen industry that unfair competition or overproduction has resulted from the transfer to commercial interests of the Government-built plants.
The Government’s policy in disposing of these plants has not been inconsistent with Resolution IX of the Foreign Ministers’ Meeting at ‘Rio de Janeiro in 19423 since this resolution requires only that synthetic industries which are “economically artificial” i.e. subsidized, be not encouraged by the Governments, and, furthermore, makes an exception where defense needs are involved.
Resolution XII of the Conference of Inter-American Commissions for Production and Development, May 9, 1944,4 is not a commitment [Page 791] subscribed to by the United States Government. When acted upon by a Subcommittee of the Inter-American Financial and Economic Advisory Committee, this resolution was referred to governments for consideration but without recommendation, the United States representative being unable to accept a commitment applicable to all synthetic industries.
Whether or not this Government has adequately honored the obligation assumed in the Agreement embodied in the exchange of notes signed at Mexico City in 1945, remains a matter of interpretation.
While it is felt that this Government can and should defend itself from charges that it has harmed the Chilean nitrate industry and violated international commitments, it is recognized that the Chilean nitrate industry is currently in a rather unfavorable position, for reasons apart from the Government’s policy in disposing of its nitrogen plants. A course of action reaffirming United States interest in this basic Chilean industry and offering possibilities of remedying some of the industry’s present problems is called for. As a first step, the Department has advised the Chilean Government of its willingness to enter into discussions of the problems of the industry, to determine whether there is need for joint Governmental action to assist the industry and to, draw up any appropriate plans towards that end. If such discussions accomplish nothing else, they should serve to shift the emphasis in Chilean policy from efforts to limit world synthetic nitrogen capacity, which are futile in themselves and do not get at the root of the industry’s difficulties, to the measures needed to maintain and improve the competitive position of sodium nitrate.5
There is enclosed herewith for the records of the Embassy a copy of a note from the Department to the Chilean Embassy, dated August 3, in reply to the memorandum delivered to the President by the Chilean Ambassador on behalf of the President of Chile.6 A copy of the memorandum was forwarded to the Embassy under transmittal slip, dated June 6, 1950. There is also enclosed a copy of the answer to a note from the Embassy7 that specifically requested that Morgantown be not leased.
- None printed.↩
- Documentation regarding the eventual sale of this plant in the fall of 1951 is contained in files 825.2564 and 811.3972 for 1951.↩
- Text of the Final Act of the Third Meeting of the Foreign Ministers of the American Republics (held January 15–26, 1942) is printed in the Department of State Bulletin, February 7, 1942, p. 117.↩
- Summaries of the texts of recommendations adopted by this meeting (held in New York City, May 9–18, 1944) are printed in Coordinator of Inter-American Affairs, Economic Report, No. 5 (Washington: Government Printing Office, 1944).↩
- Documents in file 825.2564 for 1950 indicate that in response to this suggestion the Chilean Government sent Jorge Vidal of the Chilean Nitrate Corporation to Washington for discussion of nitrate problems with U.S. officials. Representatives of the State, Commerce, and Agriculture Departments responded favorably to Sr. Vidal’s suggestion that Chile apply to the Export-Import Bank for a loan Whose proceeds might be used to improve the competitive position of Chilean nitrates; however, Chile submitted no formal application to the Bank during 1950.↩
- Neither printed. The memorandum is that referred to in footnote 13, p. 788.↩
- Neither printed.↩