825.6374/1200
The Chargé in Chile (Norweb) to the Secretary of State
[Received November 16.]
Sir: Continuing my despatch No. 1571, November 4, 1933,83 I have the honor to transmit the text of the nitrate bill as approved last night by the Lower House.83 On account of its length a complete translation will not be available for today’s pouch but will be sent in the course of the next few days. The project now goes to the Senate where it will be discussed in committee and where the Government will have an opportunity to urge Senate support for the elimination of those features of the House bill which it and the industrialists find unacceptable. The passage of the measure through the Senate and its inevitable return to the House for reconsideration will require possibly another month.
In its present form the nitrate bill raises three main questions of broad policy of special concern to the foreign nitrate interests. They involve: (1) a state monopoly, (2) the composition of the Board of Directors, and (3) the taxation system.
- (1)
- With reference to the national monopoly (estanco), Article 1 has been revised to establish a definite term of 35 years for the duration of the lease. At the same time the provision in Article 2 of the original draft, permitting dissolution of the lease simply by legislation, has been omitted. These modifications mean that the contract between [Page 214] the industrialists and the Government can be terminated only by agreement among the contracting parties, a situation giving a degree of stability to the operations of the industrialists which was lacking in the original draft of the House committee. However, the House bill still fails to indicate the intention of Congress as to what will happen at the end of the 35 year period to the “right of commerce” which is reserved to the Government under the monopoly. As a measure of protection the industrialists feel it is important for the law to state expressly that at the termination of the lease the “right of commerce” should revert to the companies. Failing some safeguarding assurance on this point the producers fear that confiscation by the Government of the company’s right of commerce might result without any provision being made for adequate compensation.
- (2)
- The Board of Directors. Intimately associated with the producers’ problems under the monopoly is the question of the composition of the Board of Directors. In the original project a majority of the Board was to be appointed by the industrialists. As revised by the House, however, control is to rest with the Government. Should this provision stand, it is not difficult to imagine a situation whereby a hostile or irresponsible government might, through its preponderance on the Board, influence a majority vote of the Directorate to force the abrogation of the lease under the provisions of Article 1 of the proposed bill. The industrialists feel that adequate protection should be given against such a contingency which would mean disaster for their huge stake in the nitrate industry.
- (3)
- The third major problem arising from the modifications introduced by the House, concerns the proposal to alter the original plan for the Government to receive a straight 25% of the profits of the industry by the introduction of a sliding scale of government participation in the profits. This new feature is nothing more than a form of income tax and would, if it stands, result in diverting to the benefit of the Government a disproportionate share of the profits which otherwise could be used to cancel the legitimate debts of the industry.
Serious as these difficulties are, both the Government and the private interests appear relieved that an actively hostile minority in the Lower House was prevented from carrying out its threat to wreck the bill. This fear of what the House might do has been replaced by a feeling of confidence that the crisis has passed and that it will be possible to work out in the Senate a measure reasonably acceptable to all.
Respectfully yours,