Papers Relating to the Foreign relations of the United States, 1927, Volume II

611.3731/250

The Cuban Ambassador (Ferrara) to the Secretary of State⁸

Washington, December 15, 1927.

Excellency: I have the honor to submit to Your Excellency, on behalf of my Government, in view of the conversations which we have had upon the subject, an outline of two alternative proposals which might serve as a basis for the study of a new commercial treaty between Cuba and the United States. I earnestly hope that these tentative propositions, which are put forward in the most cordial spirit, will receive serious and careful consideration, in order to determine if they afford mutually acceptable and advantageous bases for improving and strengthening the growing commercial and friendly relations of the United States and Cuba.

The first proposal which I wish to present to Your Excellency, is the following:

1. Cuba will increase the present preferential of 20, 25, 30 and 40 per cent now granted to American products imported into Cuba to 30, 35, 40 and 50 per cent, respectively.

2. The United States, on its part, will increase the present preferential of 20 per cent now granted to Cuban products imported into the United States to 40 per cent.

3. The quantity of sugar which may be imported into the United States each year from the Philippine Islands free of duty shall not exceed 300,000 long tons, and any quantity which is imported over this amount shall pay the same duty as Cuban sugar.

The second or alternative proposal is annexed hereto (Annex No. I), and the following exposition relates to certain features of it.

Like the first proposal, it aims to establish a larger and more effective reciprocity between the two countries than that which now exists, but it embodies in addition special limitations, in order that the benefits proposed for the products of Cuba may not interfere with the protection extended to the competitive industries of the United States by the tariff. Furthermore, the second proposal introduces the element of a greater stability in the tariff rates between the two countries than is found in the present reciprocity convention.

In order to provide increased benefits to the products of the United States in Cuba, the following concessions would be granted by Cuba:

1. The entry free of duty of the following classes of goods from the United States:

(a) Those which are not at present dutiable from the United States.

(b) Certain classes of machinery, apparatus, instruments, etc., and all classes of vessels, namely:

1) Scientific instruments and separate parts for same (Tariff No. 213, a and b);

2) All weighing machines and apparatus, including scales and separate parts for same (Tariff No. 214, a and b);

3) Agricultural machinery and instruments (Tariff No. 216, a, b, c and d);

4) Engines of all kinds, not especially provided for (Tariff No. 217, a and b);

5) Pumps of all kinds (Tariff No. 218, a and b);

6) Steam boilers of all kinds (Tariff No. 219, a, b and c);

7) Locomotive and traction engines (Tariff No. 220, a and b);

8) Turntables and hydraulic cranes (Tariff No. 221, a and b);

9) Separate parts for apparatus and machinery other than electrical, when mainly of copper or copper alloys (Tariff No. 222);

10) Electrical machines and apparatus of all kinds and their accessories not especially provided for, including batteries (Part of Tariff No. 223, a and b);

11) Sewing machines, machines for embroidering and similar machines and separate parts for same (Tariff No. 224, a and b);

12) All other machines and apparatus and instruments applicable to any other use, not expressly provided for (Tariff No. 225, a and b);

13) Reimported machines and apparatus exported from Cuba to be repaired (Tariff No. 226);

14) Coaches, automobiles, velocipedes and bicycles (Tariff No. 227, a, b, c, d, e and f);

15) Carts for transportation in mines (Tariff No. 229 b);

16) Sailing vessels of all kinds (Tariff No. 232, a and b);

17) Steam vessels of all kinds; dredgers, floating docks and similar apparatus (Tariff No. 233, a, b and d);

18) Aircraft (Tariff No. 234);

19) The remnants or salvage of wrecked vessels, except their cargoes (Tariff No. 235).

The above items comprise all machinery and apparatus, except that for making sugar and alcohol.

(c) Certain agricultural and food products:

1) Wheat (Tariff No. 254);

2) Rye (Tariff No. 255 b);

3) Barley (Tariff No. 255 c);

4) Oats (Tariff No. 255 d);

5) Other cereals, except corn (Tariff No. 255 e);

6) Fresh apples, pears, peaches, plums, cherries and similar fresh fruits (Tariff No. 262 b);

7) Almonds of all kinds (Tariff No. 263);

8) Clover seed (Tariff No. 266);

9) Flaxseed (Tariff No. 267);

10) Other seeds; alfalfa, millet, and other seeds not especially provided for (Tariff No. 268, a, b and d);

11) Cattle and other animal feed (Tariff No. 269, a, b, c, d, e and g);

12) Cotton, raw (Tariff No. 112 a).

The free entry into Cuba of these articles would undoubtedly bring about an increase of importance in the Agricultural exports of the United States, and would benefit American farming interests. A table is appended (Annex No. II) showing the rates of duty which all the above articles pay when coming from the United States and from other countries, respectively. The latter rates would represent the margin or differential which the United States would enjoy if these products entered free of duty.

It is provided that the duties which other countries at present pay on these articles may be increased or reduced, but that in the latter event the duties shall not be lower than 15 per cent ad valorem or the equivalent in specific duties. This provision assures to those classes of goods from the United States the continued enjoyment of a substantial preferential.

2. In addition to the free entry of the commodities mentioned above, it is proposed that reductions of 30, 40, 50 or 60 per cent of the Cuban customs duties be granted to the products of the soil or industry of the United States, in place of the present reductions of 20, 25, 30 or 40 per cent, respectively. The specific commodities to which these various percentages of reduction would apply, would be agreed upon between the two governments and the list inserted into the treaty. However, it is provided that not all the products of the soil or industry of the United States shall receive, upon importation into Cuba, a reduction of duty, as is now the case, but that only one half, approximately, of the commodities separately listed in the tariff schedules of Cuba shall enjoy such reductions. On the remaining articles, the duty for the United States would be the general rate or the rate granted to the most favored nation. These exceptions would not be of material importance to the United States, since they would represent products or goods which the United States does not export to any extent, while on those which were characteristic of the agriculture or industry of the United States, the preferential (from 30 to 60 per cent) would be substantially greater than at present, and sufficient, in many cases, to entirely displace similar competitive goods of other countries in the Cuban market.

The concessions which it is proposed that the United States shall grant to Cuba are the following:

1. That articles which now enter duty free from Cuba, in accordance with the present reciprocity convention, shall continue to enter free.

2. That a gradual reduction be made in the duties on sugar from Cuba, over a period of approximately ten years, until the duty is entirely removed, but such reduction of duty or free entry shall apply only to a fixed quantity of sugar from Cuba each year, to be specified in the treaty. (This proposal will be explained below in its bearing upon the sugar industry of the United States.)

3. That the customs duties on cigars from Cuba shall not exceed in total a rate equivalent to 50 per cent ad valorem.

4. That all other products of Cuba shall enjoy, as at present, a reduction of 20 per cent of the rates of duty which may be in force in the United States, but the duty which may be collected on any product of the soil or industry of Cuba shall in no case exceed a rate equivalent to 35 per cent ad valorem.

While providing for an enlarged and more effective reciprocity in the trade relations between the two countries, due consideration has been given to the fact that the competitive industries of the United States are now enjoying a tariff protection. Consequently the benefits which are proposed for the products of Cuba are limited so as to avoid injuring American industries. In the case of cigars, it is considered that a duty of 50 per cent ad valorem, together with the higher internal tax levied on Cuban cigars, which fall almost entirely within class E of the Revenue law, would adequately protect the American cigar industry against Cuban competition. The different quality of the products moreover makes direct competition between them relatively slight.

In the case of other Cuban products besides sugar and cigars, it is proposed that the maximum rate of duty shall be equivalent to not more than 35 per cent ad valorem, since this rate is presumed to be high enough to assure protection to the products of the United States with which Cuban imports might come into competition.

Plan proposed in regard to sugar duties and imports.—In the case of sugar, the restriction proposed as a protection to the industry of the United States, consists in admitting at the increased preferential rates (and eventually without duty) only a fixed quantity of sugar from Cuba each year, and in decreasing the duty very gradually. Under these two conditions, it is improbable that the domestic producers would lose, to any substantial extent, the tariff protection which they now enjoy and which consists of the addition of 1.7648ȼ per pound to the world price for 96 degrees centrifugals and correspondingly for other sugars. In accordance with the plan outlined, the duty on Cuban sugar would be slightly reduced each month, through an increase in the present Cuban preferential of one half of one per cent each month. This reduction would be continued until the Cuban preferential reached one hundred per cent, that is, until the duty was entirely removed. This gradual decrease in the duty, requiring a period of several years (in all over 9 years), would, it is believed, cause only a minimum disturbance, if any, to the domestic industry, inasmuch as the very small monthly reductions in duty, representing only 0.01103ȼ per lb., would not be reflected in the price. Over a period of months, the reduction in the duty would of course not be negligible and would eventually represent the full amount of the present Cuban duty. This does not imply, however, that the present duty would be without effect upon the price, since it would still be levied on sugars from Cuba imported in excess of the amount fixed for the year. Inasmuch as only a limited quantity of Cuban sugar could be imported at the reduced rate (or duty free), and all additional amounts would have to be imported at the present rates of duty, it is to be expected that the price of sugar in the markets of the United States would not be depressed by that proportion of Cuban sugar which received more favored treatment, and that domestic sugars would continue to enjoy substantially the present tariff protection.

The limitation upon the imports of Cuban sugar subject to reduced tariff rates, would also tend to prevent the price of sugar in the American market from falling below the cost of production, thereby ruining the industry, as the Cuban sellers would not then be under the strong pressure which they are today to dispose of the largest amount of sugar possible in the American market. The United States under present conditions is greatly oversupplied with sugar, that is, when the amount of the domestic and Cuban sugars available are added together, they are far in excess of immediate requirements. This condition of oversupply makes inevitable an incessant and disastrous competition between the sugars from all the various sources of supply. By fixing a limit to the quantity of Cuban sugar which could enter the United States at a reduced rate of duty (or duty free), the American market would be relieved to a large extent of the pressure which the present oversupply exerts and prices would tend to adjust themselves to the needs of consumption. It is this stability in market conditions which Cuba desires to promote, in the interest of the consumers as well as of the producers of sugar.

The exact amount of Cuban sugar which would enter each year under the reduced duty (or higher preferential) is indicated in the text of the proposal. These figures, however, are offered in a tentative way, as a basis for consideration. They are nevertheless the result of a careful examination of the figures for imports and “consumption” of sugar in the United States during the past twenty or thirty years, which are annexed hereto (Annex No. III). It will be seen in the table submitted as Annex No. IV that the quantity of sugar from Cuba which was actually entered for consumption during the past five years, 1922 to 1926, averaged 3,505,735 long tons per year. For 1925 and 1926 the average was 3,581,432 long tons. It is however proposed to begin with a limit of 3,300,000 long tons, and to gradually increase this amount during the first ten years to 4,000,000 tons, after which the increase would be at the uniform rate of 150,000 tons per year. Provision is made for revising these figures by agreement between the two governments, at any time, if such revision is required to safeguard the interests of the sugar industry of either the United States or Cuba or to ensure to either party the enjoyment of the benefits contemplated by the treaty.

The average yearly increase in the consumption of Cuban sugar in the United States, based on Willett and Gray’s figures for the last ten years, 1917 to 1926, has been 162,475 long tons per year. (Annex No. V.) The quantities of sugar from Cuba to which the reduced rates of duty would apply, would, therefore, be substantially less than the amounts which it is proper to estimate would normally be required from Cuba in each of those forthcoming years. Therefore Cuban sugars paying the present Cuban rates would be imported to a considerable extent, and these sugars would establish the price for all Cuban sugars imported into the United States and consequently for all domestic sugars also.

The limitation of importations of Cuban sugar enjoying greater preferential (and eventually free entry) would allow for a considerable expansion of United States production, fully as great as that which has been taking place up to the present time. It would, however, be necessary to place a restriction upon the quantity of sugar from the Philippine Islands which could be imported free of duty into the United States, in order that the limitation upon the entry of Cuban sugar might not result simply in the expansion of the Philippine sugar industry and in displacing also the production of the United States. The Proposal submitted therefore contains a provision that the amount of sugar which may enter the United States free of duty from the Philippine Islands shall not exceed 300,000 long tons in any one year, and that any imports above this amount shall pay at the rate of 1.76480 per pound for 96° centrifugals. During the last five years, 1922 to 1926, sugar entered for consumption into the United States from the Philippine Islands has averaged 308,020 long tons per year, and in 1926 amounted to 339,674 tons. (Annex No. IV).

The proposal submitted provides for greater stability than the present reciprocity convention, in the rates of duty which would be levied in each country on the products of the other, notwithstanding the changes which might be made in the tariff of either country.

The larger number of commodities which under the plan proposed would be admitted from the United States into Cuba free of duty, and the entry of a substantial quantity of Cuban sugar into the United States free of duty, would place the tariff relations of the two countries on a more stable footing than they rest at present.

It is felt by the Government and people of Cuba that there are very strong reasons for urging upon the Government of the United States a better tariff treatment for Cuban products.

The treatment which our products have received in the United States under the various tariff laws since 1903 has been decidedly unfavorable, notwithstanding the reciprocity convention. This fact becomes evident, when the rates of duty levied on products from Cuba are compared with those which are levied on the products of other countries with which the United States has no reciprocity agreement. On the one hand, the duties on Cuba’s main products are very much higher than the average duty levied by the United States on all dutiable imports from other countries, and at the same time, the proportion of goods which enter the United States duty-free from other countries is large, while from Cuba it is very small. Therefore, countries which have no reciprocity with the United States are more favored than Cuba, on account of the fact that the export products of Cuba are heavily taxed by the tariff laws of the United States and because Cuba does not produce to any extent those articles which enter free of duty into the United States. It is an unfortunate situation for a neighboring country, which maintains in all its economic and national activities very cordial and close relations with the United States, to be precisely the one to feel most severely and discouragingly the effects of the tariff policy of the United States, even though it has not been the express intention of that policy to injure her. Under these circumstances, it seems to be clearly the duty of the statesmen of both nations to find means of bringing about happier and more equitable tariff relations between the two countries.

From 1903 to 1926, over fifty per cent of all goods imported into the United States, have come in free of duty. From South America the average has been about 85 per cent, and from Europe (which sends to the United States mainly manufactured goods) it has been over 35 per cent, while only about 4 per cent of the products from Cuba have entered duty-free. The table which constitutes Annex No. VI shows the proportion of duty-free imports into the United States in the years 1900 to 1926, from all countries (general total) and from the various regions of the world, compared with the proportion of duty-free imports from Cuba, and Annex No. VII shows the proportion of duty-free imports from Cuba and from other important countries during the years 1922 to 1926, inclusive. The data presented in these tables reveal that only a very small proportion of the imports from Cuba into the United States consist of duty-free goods, while a large part of the imports from other countries belongs to this class.

There are no published figures to make possible an actual comparison between the level of the duties which are assessed in the United States on goods imported from Cuba and on those imported from other individual countries. But it is probably correct to say that the country whose products are most highly taxed by the tariff of the United States is Cuba, due to the fact that her exports consist so largely of sugar and tobacco.

The equivalent ad valorem rate collected on dutiable goods entering the United States from all countries (general total) and from Cuba before the war (fiscal years 1903–04 to 1913–14), as well as the respective amounts of duty collected, are given in Annex No. VIII. This table shows that all dutiable merchandise imported into the United States during that period paid an average ad valorem rate of 42 per cent, while dutiable goods from Cuba paid 53 per cent. In this period, from December 27, 1903, to June 30, 1914 (ten and a half years), the total amount of duty collected on merchandise from Cuba was $553,500,624, out of a grand total of $3,250,826,475, that is, 17 per cent was derived from Cuban imports (Annex No. VIII). During the existence of the present tariff act of 1922, or to be more exact, during the five years 1922 to 1926, inclusive, the total amount of duties collected on all merchandise imported into the United States has been $2,704,647,919, while the duty collected on sugar imported from Cuba has been $675,300,316, or 25.2 per cent of the total customs duties of the United States. In some years (for instance in 1922) the percentage has been as high as 32.0 (Annex No. IX). The average rate of duty collected on all dutiable imports during those five years has been 37.70 per cent ad valorem, while on sugar from Cuba, the average ad valorem rate has been 53.20 per cent, being however much higher in some years (75.49 per cent in 1926).

The rates of duty collected on cigars from Cuba in the years 1922 to 1926 has varied from 62.5 to 66.3 per cent ad valorem, notwithstanding the 20 per cent reduction of duty. On leaf tobacco the average Cuban rate during these years has been about 35 per cent ad valorem.

I am presenting these figures to the consideration of Your Excellency, because they seem to point unmistakably to the conclusion that the treatment of Cuban products in the American tariff is extremely severe and out of harmony with the spirit of the reciprocity convention which was entered into, as its preamble states “animated by the desire to strengthen the bonds of friendship between the two countries”, as well as “to facilitate their commercial intercourse by improving the conditions of trade between them”.

Accept [etc.]

Orestes Ferrara

8. For texts of annexes mentioned in this note, see Tariff Readjustment, 1929: Hearings before the Committee on Ways and Means, House of Representatives, 70th Cong., 2d sess., vol. v, schedule 5 (Washington, Government Printing Office, 1929), pp. 3228–3235.