The Minister in Honduras (Lay) to the Secretary of State

No. 1172

Sir: In accordance with the Department’s instruction No. 592, of July 20, 1934, the Legation has inquired, in a note to the Foreign Office, whether the Honduran Government is prepared to begin exploratory conversations as to the possibility of concluding a mutually advantageous trade agreement between the two countries along the lines indicated in the Department’s instructions.

The Foreign Minister, Doctor Bermúdez, is in the United States and will be away for possibly two months, but I have had a talk about this matter with Señor Julio Lozano, the Honduran Finance Minister, who is more familiar with tariff and international trade matters than anyone in the Government.

Señor Lozano, while doubtful that a trade agreement between the two countries could be negotiated that would accomplish much toward increasing the market for United States products in this country, or that there are any other products in addition to bananas that would find a substantial market in the United States if granted concessions, is open to conviction, as he expressed it, and would recommend to his Government that it accept our suggestion that exploratory conversations be commenced, with a view to determining whether negotiations, if undertaken, would be likely to meet with success.

During our conversation Doctor Lozano pointed out that until Japan displaced us in the cotton goods market in Honduras, we enjoyed between 70% and 80% of the total Honduran import trade, and since we left the gold standard, we have supplied goods to this market that were formerly imported from Great Britain and Germany. He gave me to understand that Honduras would be unwilling to make any bilateral agreement that might cause restrictions of her valuable banana markets in such countries as Germany, which has a treaty with Honduras with provision for most-favored-nation treatment.1

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I have not mentioned the subject to Señor Lozano or anyone else but from a cursory study of the different ramifications of the international trade, tariff and treaty situation here, I believe that we could recover our substantial American market in cotton goods in Honduras, which has been captured almost entirely by Japanese low-priced goods, by inducing Honduras to enact a bargaining maximum-minimum tariff law similar to the one recently passed by El Salvador,2 more easily and more effectively than by the negotiation of a trade agreement. Japan is also underselling American exporters to a small extent in electrical goods in this market but the serious menace to our trade here is in cotton goods. From January to July, 1934, out of a total importation of cotton goods of 1913 bales, Japan supplied 1180, the United States 499, and England 234. As yet figures for values are not available. Formerly the United States supplied over 80% of this trade but now the bulk of the orders are going to Japan. I understand that the new tariff of El Salvador has already started the recovery of our cotton goods market in that country. There seems to be no reason why a similar bargaining tariff here would not accomplish the same results.

For the above reasons I beg to inquire whether the Department does not deem it advisable for me to inquire, before discussing the question of a trade agreement, whether the Honduran Government would consider the enactment of a bargaining tariff on the Salvador model. Such a tariff would not only benefit us but also Honduras.

Honduras could probably increase her exports to the United States in the following articles which are dutiable: cocoanuts, Panama hats, copra and cocoanut lard, now shipped in small quantities, provided a preferential concession over other countries producing these articles is granted.

For a more comprehensive review of the new Salvador tariff act, the despatches from our Legation in that country should be consulted. The enclosed extracts from a letter3 written by a traveling representative of Bruner Pottsberg and Company, large exporters of cotton piece goods, 35 Worth Street, New York, to his firm in New York will give the Department an idea of the seriousness of Japanese competition to our cotton goods trade in this country.

Respectfully yours,

Julius G. Lay
  1. Treaty signed March 4, 1926, Martens, Recueil des Traités, 3d series, vol. xxvi, p. 560.
  2. Decree No. 67, June 23, 1934, El Salvador, Diario Oficial, July 3, 1934, p. 1451.
  3. Not printed.