The Minister in Portugal ( South ) to the Secretary of State

No. 496

Sir: With reference to my despatch No. 484 of October 20, 1931, reporting that I had delivered to the Minister for Foreign Affairs a note on the subject of flag discrimination in the sense of the Department’s telegraphic instruction No. 24 of October 16, 6 P.M., I have the honor to enclose herewith a copy and translation of Captain Branco’s reply to the aforesaid note—a reply as untenable … as is evident from the considerations hereinbelow set forth:

By Decree No. 19,306 of January 30, 1931, (see Legation’s despatch No. 294 of February 7, 1931), the Portuguese Government, as the result of representations made by the interested Maritime Powers, undertook to extend, prior to June 30, 1931, national treatment in respect of maritime and port dues to foreign merchant vessels;

Notwithstanding this commitment, no action was taken in the matter until July 1, 1931, when, by Decree No. 19,989, (see Legation’s despatch No. 408 of July 10, 19319), the Portuguese Government extended national treatment in respect of maritime and port dues to foreign merchant vessels, but simultaneously created new tonnage dues of one escudo per gross registered ton, thereby discriminating in effect against foreign bottoms;

By Decree No. 20,304 of September 12, 1931, (see Legation’s despatch No. 459 of September 21, 1931), the Portuguese Government professed to abandon in principle discriminatory duties and undertook to effect the total extinction thereof by means of gradual reductions. However, aside from making an inadequate initial reduction, which in itself can have no effect, the Portuguese Government took care to avoid committing itself in respect of any and all further reductions;

Furthermore, under Decree No. 14,833 of December 31, 1927, (see Consulate General’s report No. 433 of February 6, 19289), foreign shipping in the port of Lisbon is charged from 10% to over 600% more than Portuguese shipping is charged for the same services;

Finally, under Section 5 of Decree No. 20,253 of August 25, 1931, (see Legation’s despatch No. 450 of August 31, 19319), Portuguese vessels are charged a fee of 0.50 escudo per net registered ton for the authentication of manifests and bills of lading, whereas for the same [Page 973] service, foreign vessels are charged 1.00 escudo per net registered ton—that which is in effect a discriminatory tax in the guise of a consular fee.

The foregoing, I submit, is palpable evidence that it is the established policy of the Portuguese Government to discriminate in every possible manner against foreign shipping …

Respectfully yours,

J. G. South

The Portuguese Minister for Foreign Affairs ( Branco ) to the American Minister ( South )

No. 78/27

Mr. Minister: With reference to the Legation’s note No. 260 of October 19, last, I have the honor to inform you that the Government of the Republic, faithful to the principle expressed in Decree No. 20,304, is endeavoring to adopt all measures for the early extinction of the customs bonus by which the Merchant Marine has been benefited and under which there has been created a state of affairs the immediate suppression of which would gravely affect national economics.

In the very interest of the principle decreed, ensuring the complete effectiveness thereof, choice was made of gradual execution in preference to an abrupt act which, while alarming public opinion, would give rise to obstacles, to the unavoidable prejudice of the new policy adopted. There was thus created a period of transition during which, by means of successive measures, an endeavor will be made to bring about the conditions which, aside from fiscal equality, should form the basis of the maritime commerce system.

An equitable view of the problem cannot confine itself, in solving the matter, to the pure and simple suppression of the customs bonus, under penalty of the prevalence of an inequality to the detriment of the national merchant marine which, operating old and uneconomic vessels, without benefiting as do its competitors from credits at low interest, from fuel at reduced prices and from indirect and even preferential measures of protection, found in the customs differential a mere counterbalance to these disadvantages.

There are even at this moment, after the publication of Decree No. 20,304, of September 12, idle vessels. Should we hasten to the reduction of the customs bonus before the Portuguese fleet enjoys operating conditions approximating more closely those from which other fleets benefit, the number of vessels tied up in the ports would increase suddenly, with the consequent unemployment and distress of the crews, thus aggravating the difficulties of the moment by a new [Page 974] crisis which, owing to the necessity of looking after those affected, might lead the Government back to the position it had deliberately abandoned.

The creation of the circumstances rendering possible the future reductions of the customs bonus is provided for by projects already approved, relating to credits which, while benefiting the merchant marine, will prepare public opinion—to which the Government must give every heed—for the acceptance of the definitive renouncement of a system which has brought a measure of freight to the ships which call at the ports of northern Europe and of the Mediterranean.

The good faith of the Portuguese Government thus becomes evident from the conciliation of all points of view and interests to the extent which is just and reasonable. And under such a criterion, doubt cannot be cast upon the efforts employed for the rapid realization of a complete plan of protection of the national merchant marine (Decree Nos. 20,321, of September 18, 1931, 20,333, of September 22, 1931, and others under consideration) which through its effects may render possible the gradual suppression of the customs bonus in harmony with the general provisions set forth in Decree No. 20,304. It is unfortunate that these and other efforts and in general all those which the Government has employed for the financial and economic reconstitution of the Country should be seriously hampered by the atmosphere of uncertainty which the economic situation of Europe is creating. Were the situation otherwise, perhaps the Government of the Republic could fix, within a due period of delay, a date for the extinction of the customs bonus so as to be able to bring about the most rigid transformation of the present conditions of the national merchant marine and to conform at the same time to the desire of Your Government to have abolished within a short period that part of the percentage of the bonus which in effect gives rise to the advantage derived from shipping merchandise by Portuguese vessels.

I avail myself [etc.]

Fernando Augusto Branco
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