The American Technical Advisers ( Donnelly and Turkel ) to the Ambassador in Cuba ( Caffery )29

Subject: Comments on the Department’s Confidential Instructions Nos. 60 and 61 of April 3, 1934.

At your request we are presenting our comments on the general instruction for the revision of the reciprocity treaty with Cuba as set forth in the confidential instructions from the Department of State of April 3, 1934.

In regard to increases of rates of duty on importations from foreign countries treated with in the supplement of April 3rd, we are including in a separate memorandum our views on Japanese and Belgian competition in products on which we feel that it is desirable to request an increase of the general import duties in order to meet or remove this competition.

In Sub-section A of Section No. 1, the Department treats of the possibility of employing anti-dumping regulations on imports which are sold at less than the foreign market value or cost of production. There is at present provision in the Cuban customs tariff for application of the maximum duties against foreign dumping, but it has never been applied. Our views on anti-dumping provisions to be included in the treaty are set forth in Paragraph 5 of Article V of the draft of March 6, 1934, which presents our proposals for general provisions to be included in the treaty.

We concur with the Department that the treaty should contain antidumping provisions, but suggest that the treaty article be limited to the dumping of third countries. However, the Department may desire to add an article similar to Article III of the agreement with Colombia.30 It is important to remember that the Cuban Government, as [Page 126] constituted, is not in a position successfully to administer anti-dumping regulations. The Government lacks facilities for making the necessary investigations in foreign countries and is also hesitant to employ such drastic measures in view of the possibility of antagonizing foreign countries. In the light of this fact it is felt that we should disregard the possibility of anti-dumping regulations being enforced in Cuba and, therefore, we should protect our position as far as possible by increasing the spread between the general duty and the duty to the United States by increasing the preferentials.

We agree with the Department’s statement in Section 2(a) regarding the consolidation of the consumption tax with the import duty whenever the consumption tax is a disguised import duty. There are many instances which are already known to the interdepartmental Committee and therefore it will not be necessary to treat with this subject in detail.

Razor blades are manufactured locally from imported steel. Although the manufacturers are required by law to pay the consumption tax, their prices are such that if they paid the consumption tax to the Government they would operate at a loss. Imported razor blades pay the consumption tax at the time of importation. Consequently they are at a disadvantage in competing with the local products. In this instance we are recommending that the consumption tax be imposed on the raw material at the time of importation. This would yield more revenue to the Government and would place our manufacturers in a better competitive position with the local firms. The same is true of rayon knit goods, hosiery, and similar products. In the report on the revision of the textile schedule, which was submitted on March 23, 1934,31 we suggested that the consumption tax on the finished goods be imposed on the yarn and collected at the customhouse. Although we do not know of any border line cases, we will bear in mind the instructions of the Department and will refer such cases to the Department for decision.

We agree with the Department’s statement in Section 6 that it would be advisable to provide so far as possible for the maintenance of the statics quo or for the establishment of specified limits of internal taxes with respect to products dealt with in the agreement. However, there are some instances in which internal taxes are discriminatory or serve as an additional burden on imports, and in many instances our end cannot be accomplished through reduction of import duty only. Therefore, it would be desirable to ask for a reduction in particular internal taxes. Some of the outstanding cases are cigarettes, playing cards, meat products, automobiles, and textiles. In a few other instances we should probably request a decrease in certain internal taxes, [Page 127] but of course before doing so, the Department would have an opportunity to study our proposals.

With reference to the consular invoice fee, the Department states in Section 7 that the Embassy may “request reduction of the consular fee to a nominal amount, or if in your opinion it is most desirable, the consolidation with import duties”. Consolidation of this fee with the import duty would be an admission on the part of the Cuban Government that the consular fee is an import duty and as such it could not be applied to products imported from Spain and France, since it is specifically provided in the treaties with these countries that import duties on products mentioned in the treaties may not be increased.32 It is our feeling that the most we can expect to obtain is a uniform reduction of the consular fee from 5 per cent to 2½ per cent ad valorem. It seems to us that the question of where and when the fee is imposed is strictly an internal matter and that therefore we should not interfere. Some American interests would prefer to have it levied at the time of importation of the shipment and others at port of shipment. The important thing for us is to secure a reduction of the fee, if possible, to 2½ per cent ad valorem. Although this will represent a reduction of revenue to the Government, we hope to be able to com pensate for it in other parts of the treaty.

With reference to Section 9 of the instructions, regarding concessions to be granted by the United States to Cuba on products other than sugar, we have carefully avoided discussion of these products and when the subject has been approached we have told the Cuban delegates that the most we can do is to submit their proposals to Washington for consideration.

In regard to special provisions for the treaty mentioned in Section 10, your attention is invited to the fact that proposed revisions were submitted by us on March 6, 1934.33 Some of these provisions are very important and if it is at all possible it is our desire that they be retained. It will be very useful for us to receive the Department’s draft of the special provisions as soon as possible in order that the treaty may be expedited. In fact, we have made arrangements for special discussions of the treaty draft as soon as we receive suggestions from the Department. Since the negotiation of the treaty articles may require more time than the negotiation of the schedules, the Department will appreciate the importance of sending its draft to us in the very near future.

Needless to say, we are disappointed to learn that the Department disapproves in Section 11, of our principle of the absolute preferential. [Page 128] It is entirely probable that as the result of the instruction, Cuba will negotiate treaties with other countries and that by reducing the general duty the advantages obtained by the United States in the provisions of the treaty will be lost. While it is not our intention to forestall such negotiations, it is our earnest hope that the treaty will guarantee a definite margin of preference over foreign competition.

In exchange for a known sacrifice of approximately thirty or forty million dollars annually in the duty on sugar, we feel that the United States should accept nothing less than an absolute preference.

Originally we had planned that the general rates would be minimum rates and rates to the United States would be maximum, thus preventing any reduction in the general rates but permitting that possibility with respect to rates to the United States.

However, we have compromised on the absolute preferential plan which would permit reduction in general rates of duty, yet protect the value of the concessions obtained at the time of signature. On this basis Cuba could reduce general duties but the value of the preferential to the United States would be retained as shown in the following table:

Relative Plan Unit of Duty Gen’l Tariff U. S. Prf.% Tariff for U. S.
Duty on potatoes under United States-Cuban treaty 100 Kilos. $5.00 40% $3.00
Duty on potatoes under Canadian-Cuban treaty 100 Kilos. $3.00 40% $1.80
Absolute Plan
Duty on potatoes under United States-Cuban treaty 100 Kilos. $5.00 40% $3.00
Duty on potatoes under Canadian-Cuban treaty 100 Kilos. $3.00 $1.00

The objection to the absolute plan on the ground that it sets a limit to the reduction of general rates is true if the plan is driven to its logical extreme. That theoretical objection should not be given such weight as to overturn the absolute preferential plan with its known safeguards to American commerce.

The Department has been informed that the Canadian Government has expressed a desire to the Cuban Government to negotiate a new treaty, but the Cuban Government has stated that it will not do so until the new treaty with the United States has been completed. In the event of a treaty with Canada, it is reasonable to assume that the Canadians will insist upon a lower import duty on potatoes, flour, fresh fruits, and lumber.

As Cuba enjoys a substantial favorable balance of visible trade with Great Britain, it follows that that country will negotiate a treaty to protect the sale of textiles, iron and steel products, machinery, Indian rice, and some foodstuffs.

Although we do not have definite proof, we believe that the Chilean Government will endeavor to negotiate a treaty with Cuba for the reduction of duties on beans, oats, hay, onions, and fruits.

[Page 129]

In the second instruction, No. 61, of April 3, 1934, the Department indicates that it may be desirable to seek increased general rates on certain items. Obviously that would be done for the purpose of increasing our margin of preference. Is it not inconsistent to go to the extreme of asking for an increase in general rates in order to widen our margin of preferential and yet leave the way open to a reduction of that margin?

We are in sympathy with the Department’s attitude to establish principles to guide in negotiating treaties with other countries, but we believe that our Government should continue to make Cuba the exception to our commercial treaty policy and that therefore our trade with Cuba should receive special consideration.

The Department indicates in Section 12 its intention that the rates of duty on important specified American products be bound as to maxima by the agreement. While the interdepartmental committee made many recommendations as to increasing the preferential without binding the rate, our negotiations have disclosed that the Cuban delegation is prepared to bind all products as to maxima by the agreement. Since this is more advantageous to the United States, it is suggested that all such rates be bound.

The Department states in Section 13 that it considers that there has been too great a tendency in connection with the proposals submitted by the Embassy to seek increased preferences. The Department states that the emphasis should be on obtaining reduction in duty rather than on obtaining increased preferences. The Department is evidently not aware that the Cuban Government is strongly disinclined to reduce general rates of duty, and consequently the only practical way to accomplish reduced duty to the United States is by asking for a sharply increased preferential. The chairman of the Cuban delegation has several times made the definite statement that we are engaged in a revision of the reciprocity treaty, not the Cuban Tariff, and consequently general rates of duty should not be reduced.

  1. Copy transmitted to the Department by the Ambassador in Cuba in his despatch No. 244, April 13, 1934; received April 16.
  2. Foreign Relations, 1933, vol. v, p. 249.
  3. Not printed.
  4. For text of treaty with Spain, signed July 15, 1927, see League of Nations Treaty Series, vol. cxx, p. 251; for text of treaty with France, signed November 6, 1929, see ibid., vol. cxiv, p. 345.
  5. See proposals transmitted with despatch No. 46, March 9, 1934, from the Ambassador in Cuba, p. 112.