Blockading Chile's Copper

THE threat of expropriation is a sword of Damocles constantly dangling over U.S.-based multinational companies operating in less developed countries. It is a peculiarly frustrating danger, since it has been pretty much accepted that a company that actually is expropriated can do very little about it. It can negotiate about compensation if the expropriating country is of a mind to pay; if not, executives of most companies have simply written off the value of their seized assets. Kennecott Copper Corp., however, has come up with a third strategy to recover the losses it sustained when the Chilean government of Marxist President Salvador Allende Gossens last year seized its El Teniente mine, near Santiago. In a move of significance to all multinationals operating in mineral-rich but money-poor countries, the company is trying to throw up what amounts to an international legal blockade of Chile's copper shipments.

Specifically, Kennecott is trying either to seize legally all copper exports from El Teniente, once they reach foreign ports, or attach the payments that foreign customers make to Chile's state-owned copper company. The opening skirmish in this paper blockade was fought about a month ago, when the company got a Paris court to issue an injunction against payment by two French firms for a $1,400,000 shipment of copper headed from El Teniente to Le Havre aboard a West German freighter. Kennecott claimed that the copper is in effect stolen property.

When news of the court order reached the ship's officers, they steered the vessel into Rotterdam rather than Le Havre. Kennecott then got a Dutch court to order the impounding not only of the cargo but of the ship as well. The vessel was finally permitted to leave port, but only on condition that it proceed to Le Havre and unload the copper there, where payment for it cannot be made until final disposition of the case.

Chile already has protested, claiming that the French courts lack jurisdiction. Kennecott argues that its property was in effect confiscated and that it has a right to recover its losses, which it figures at about $180 million. The company obviously hopes either to collect enough from foreign buyers of Chilean copper to make up that sum, or to force Chile into negotiating compensation for Kennecott's 49% interest in El Teniente, the world's largest underground copper mine. Win or lose, Kennecott has gained a tactical edge: Chile will have to justify its expropriation before relatively impartial French judges.

Kennecott's action has shaken other developing nations, which grudgingly depend on big foreign firms to develop their resources. Later this month mining ministers of Peru, Zambia and Zaire (formerly the Belgian Congo) will meet in Santiago to discuss with Chilean officials how best to counter Kennecott's thrust. The court battle could hardly have come at a worse time for Chile, which gets about 70% of its foreign currency from copper sales. The country is already boiling with political and social unrest, and teetering on the edge of bankruptcy. Obviously, Kennecott's offensive is likely to hurt future copper sales to customers unwilling to risk legal hassles and possibly costly delays in deliveries.

Kennecott officials are determined to keep the heat on Chile. The Manhattan office of General Counsel Pierce McCreary, who is directing the campaign, has the air of a war room. His desk is strewn with shipping reports, and on one wall hangs a large map for plotting ships' courses. From here, McCreary keeps a close watch on vessels entering or leaving the Chilean port of San Antonio, the only place from which El Teniente copper is shipped. At present he is monitoring the movements of at least six ships headed for Europe, loaded with El Teniente metal; when they arrive he wants his agents to be there to greet them with court orders.

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