The Chargé in Nicaragua ( Dawson ) to the Secretary of State
[Received November 30.]
Sir: I have the honor to report that President Sacasa has twice recently spoken to me about his plans for revision of the Nicaraguan tariff. In his conversations he has stressed two points, the need of the Nicaraguan Government for added revenues and the danger that Nicaraguan markets will be flooded by Japanese goods with detrimental results to Nicaraguan export trade.
In connection with the first point, the President stated that he had given some study to the proposal of the Collector General of Customs for a revision of the tariff, generally along upward lines (despatch No. 37, of September 15, 1934, from the Consulate at Managua36), but that he did not wish to do anything about the matter until the reciprocal trade agreement negotiations between the United States and Nicaragua had been disposed of.
President Sacasa expressed the feeling that large Japanese imports into Nicaragua would be regrettable as Japan took none of Nicaragua’s exports and the general trend in the world today seemed to be to trade on a reciprocal basis. He said that the Exchange Control Commission had tried to hold down Japanese imports by restrictions on the granting of foreign exchange to cover them but that this had been unsuccessful. While the President did not mention it, the reason for this seems to be that, although Japanese exporters require payment on or before delivery, their prices are such that importers can buy foreign exchange from brokers at the prevailing street rate of about 1.20 córdobas to the dollar instead of from the National Bank at the official rate of 1.02 córdobas to the dollar and still purchase goods cheaper than from American, British, German or French exporters.
One thing which appeared to worry Doctor Sacasa and certainly does other Nicaraguan officials is that, under the new German exchange regulations, Nicaragua will be able to sell coffee to Germany, its principal market, only to the extent that Nicaragua purchases German exports. The President seemed to have a vague idea that, if imports from Japan could be cut off, some of the trade would go to Germany with reciprocal benefits to Nicaragua. Other officials appear to be more inclined to regard the German market as definitely lost and to be hoping for the development of new coffee markets, such as in the United States.[Page 524]
The President remarked that he was inclined to think that a modification of the Salvadoran preferential tariff scheme37 (Despatch No. 589, of August 28, 1934, from the Consulate General at San Salvador38) would furnish Nicaragua the greatest measure of protection and do the most good. From all appearances he was convinced of the efficacy of this system by several conversations last month with Mr. E. C. Curtis, a traveling agent for Brune, Pottberg and Co., of New York, with credentials as a representative of the Textile Exporters Association of the United States, which has sent representatives to all of the Central American countries in an endeavor to secure action which would counteract the dumping in them of Japanese cotton goods exports and enable American exports of this category (the most important item in American export trade to Central America) to maintain their position, which has been seriously undermined.
Mr. Curtis, a very able and intelligent German Jew who has been a resident of the United States since before the entrance of the United States into the World War and has taken out first papers, in various talks with me expressed his belief that the only way in which the American textile export trade, as well as the British, could continue to meet Japanese competition in Central America was by an extension to other countries of the Salvadoran tariff system. He frankly expressed the opinion that no reductions in tariff rates which could conceivably be secured in reciprocal trade agreements (which would presumably not be extended to Japan since it does not have a most-favored-nation treaty with Nicaragua nor, so far as the Legation has been able to ascertain, with the other Central American countries) would enable American cotton goods exporters to compete with their Japanese competitors on terms of price equality.
Mr. Curtis, who is a very efficient propagandist, appears to have strongly influenced Doctor Léonardo Argüello, Minister for Foreign Affairs. In addition, he succeeded in getting some newspaper support for his propaganda and had several articles, written by him, published in La Noticia, the leading local daily.
Shortly after Mr. Curtis’s departure for Honduras, where he intended to pursue a similar campaign, two Japanese officials, Messrs. Kazaburo Kataoka and Yasuto Shudo, one understood to be a member of the Japanese Legation staff in Mexico City and the other a Foreign Office employee, arrived in Managua in the course of a trip through the Central American countries and Panama. They gave several newspaper interviews to the effect that their mission was to improve commercial relations between Japan and Central America and that Japan was anxious to purchase Nicaraguan products, mentioning raw [Page 525] cotton, hard woods, coffee and scrap iron. The Department can judge as to the seriousness of these remarks. Nicaragua exports no cotton, its hard woods could hardly compete with those from Formosa, for example, the Japanese are not known as a race of coffee drinkers and the only scrap iron in Nicaragua consists of old rails and abandoned railroad material, principally on the east coast.
The two Japanese officials remained in Managua only two days, from October 15 to 17, 1934, and did not have an interview with the President. They were received by the Minister for Foreign Affairs, who told me that he was badly impressed by their manner. He stated that, while they carried proper credentials, they had used journalistic rather than diplomatic methods in questioning him (Doctor Argüello has apparently had little experience with the typical Japanese thirst for knowledge). They made no concrete proposals, according to Doctor Argüello, but indicated that they would send him a note from Panama. When I last saw the Minister, last week, before his departure for Léon, he told me that he had had no word from the Japanese representatives.
I think there is little question that the higher Nicaraguan authorities, as a whole, would much prefer to give the United States tariff preference by raising tariff rates on imports from such of our competitors as Japan rather than by lowering duties on our products and those of other nations having most-favored-nation treaties with Nicaragua. The Nicaraguan Government is at its wit’s end to make ends meet and does not want to lose any revenues. The lesson that one of the major causes of the world depression is the system of worldwide tariff barriers damming the stream of natural international commercial intercourse has not been learned by it.