The Secretary of State to the Chargé in Chile ( Scott )

No. 176

Sir: The trade agreements program of the United States contemplates eventual negotiations with each important commercial country with which the basis for an agreement in harmony with the principles and objectives of the program is believed to exist. Trade agreements have been signed with five countries, negotiations are now in progress with thirteen others, and it is planned to institute negotiations with additional countries from time to time in the future. It is expected, therefore, that in due course this Government will have occasion to initiate discussions with the Chilean Government with a view to determining whether there is a basis for the conclusion of a satisfactory agreement with that government and whether that government would be disposed to enter into such negotiations.

Meanwhile it is desirable that a complete understanding should exist in that country of the general objectives and fundamental principles of the commercial policy of the United States. Similarly, it is desirable for this Government to be fully cognizant of any considerations which may govern the commercial policies of Chile, and of the reaction of that Government to the policies of the United States. An exchange of views of a purely informal character, restricted to general considerations of policy rather than the detailed study which would follow in connection with negotiations, may serve a useful purpose at this time, and may facilitate the progress of any negotiations which might subsequently be initiated.

With this in view the Department considers that you may usefully, at your discretion, enter into informal conversation with the Minister of Foreign Affairs, and such other officials as may be deemed appropriate, for the purpose of explaining the commercial policy of this Government, and ascertaining the reaction thereto of the Chilean Government. You may supplement your reports of the substance of these conversations by such additional comment as you believe would be of interest to the Department, with particular reference to the [Page 390] ultimate possibility for the negotiation of a trade agreement between the two countries.

As an aid to you in discussing this general subject, there is enclosed a brief memorandum outlining the salient features of the commercial policy of the United States, as well as a copy of a press release of the Department entitled, “Policy of the United States Concerning the Generalization of Tariff Concessions under Trade Agreements”.1 In referring to these basic principles you may find it appropriate to point out that they are in harmony with the resolution on economic, commercial and tariff policy approved by the Seventh International Conference of American States at Montevideo in December, 1933.2

Should any points arise in your conversations concerning which there may be some doubt, the Department will welcome your inquiries in the premises.

Very truly yours,

For the Secretary of State:
Francis B. Sayre

Memorandum on the Commercial Policy of the United States

1. The Negotiation of Reciprocal Trade Agreements.

The Trade Agreements Act of June 12, 1934,3 authorizes the President of the United States, under certain circumstances and for the purpose of expanding foreign markets for the products of the United States, to reduce by not more than one-half, or to provide for continuance at their present levels, of the rates of duty on imports into the United States in connection with reciprocal trade agreements with foreign countries.

Under this authority the Government of the United States has embarked upon a program of reviving and stimulating its foreign trade by a determined effort to reduce or remove the many barriers of different kinds which now hamper the flow of trade between the countries of the world, including not only excessive rates of duty but also import restrictions such as quotas and licensing systems, and restrictive exchange controls. This program rests upon the conviction that the welfare of the United States, as of the rest of the world, will be enhanced by an increase in the production and mutually profitable interchange of goods, and that an effective means to that [Page 391] end is to be found in the reduction of the barriers to international trade. It is with this object in view that the Government of the United States has negotiated trade agreements with certain countries, is now negotiating with others, and contemplates entering, in due course, into negotiations with additional countries with a view to the exchange of reciprocal concessions in tariff rates and the reduction or removal of other barriers to trade. In the negotiation of these trade agreements, the United States is prepared to grant reductions in its import duties on goods supplied by the other country, or to agree not to increase existing duties or to impose new duties on such goods, in return for tariff reductions, increased quotas, and liberalization of restrictions by that country on products supplied by the United States.

It is hoped that in the negotiation of these agreements the governments concerned will exchange as extensive concessions as the nature of their trade and their domestic situation will permit. It is the general policy of the United States to grant concessions in its import duties on products of which the other country participating in the negotiations is the principal or an important source of importations into the United States. The application of this rule gives assurance that the chief benefit of the concessions exchanged will inure to the trade of the countries entering into the reciprocal agreement.

In cases where there are several important foreign suppliers of an important commodity on which a concession might reasonably be granted, negotiations with those countries may be carried on concurrently or a relatively small reduction may be made in one case and a further reduction, within the 50 percent limitation and subject to careful consideration of the extent to which it is deemed reasonable to reduce the duty within that limitation, may be granted under a trade agreement with another important supplier.

2. The Most-Favored-Nation Policy.

The principle of unconditional most-favored-nation treatment, which is a basic element in the commercial policy of the United States, is not affected by the program of concluding reciprocal trade agreements. It remains an integral part of the policy of the United States as developed in connection with the negotiation of reciprocal trade agreements. The Government of the United States believes that the spread of discriminatory practices in the regulation and restriction of international trade constitutes a serious hindrance to the revival of that trade. The use of preferential tariffs, quotas and exchange allocations as bargaining devices for the securing of exclusive advantages is disruptive of normal trade relations, diverts trade into uneconomic channels, and thus tends to reduce the volume of trade. Since [Page 392] third countries are discriminated against, retaliatory measures tend to be provoked, and in the end the cumulative effect of these discriminatory practices is destructive of international commerce and finance.

It is felt that the restoration and further development of the world’s trade requires the discontinuance of these practices as rapidly as may be possible, and the most widespread return on a broad basis to the principle of equal treatment, which is the essential element of the unconditional most-favored-nation principle. It is recognized that the various measures of restriction and control of international trade and exchange, out of which the current discriminatory acts have largely arisen are themselves the results of endeavors to meet the pressing difficulties of recent economic situations. The Government of the United States is deeply sympathetic with the governments of countries whose currency and debt situations require the application of measures designed to reduce or control the total volume of merchandise imports. However, it is the view of the Government of the United States that tariff rates, quotas and licensing systems, foreign exchange controls, clearing and compensation agreements, governmental monopoly purchases, as well as all other methods employed for restricting and controlling foreign trade, should be administered in such a way as not to discriminate against American commerce; that specifically they should be administered in such a way as not to alter the relative share which the United States would enjoy in the total import trade of the country in which they are administered in the absence of the restrictions in question. It is the belief of this Government that irrespective of the effect of such measures on the total trade of the countries which adopt them, they should be administered in such a manner as not to divert trade arbitrarily from one country to another and so to disrupt the normal channels of international commerce.

3. Generalization of Concessions Granted By the United States.

The foregoing is recognized in the application of the trade agreements policy of the United States. The Trade Agreements Act provides that the duties and other import restrictions proclaimed in connection with any trade agreement shall apply to the like articles originating in all foreign countries except those which discriminate against American commerce or take actions or pursue policies which tend to defeat the purposes of the Act. In the development of the trade agreements program the principle is followed that if a foreign country does not discriminate against American commerce, that is, if American commerce is given treatment by that country substantially no less favorable than that accorded the commerce of any third country, then it is considered that the commerce of that country is entitled to receive the benefits of the concessions granted by the United States [Page 393] under trade agreements with, other countries. (The special relationship between the United States and Cuba is, of course, an exception based upon the special and historic circumstances of the case).

If, on the other hand, any foreign nation engages in practices which discriminate against American trade, then the President is authorized, under authority of the Trade Agreements Act, to refrain from extending, or may withdraw, the application of the reduced rates effected under the Act to the like products of that country. A full discussion of the policy of the United States with respect to the generalization of tariff concessions granted in connection with trade agreements is contained in a press release issued by the Department of State on April 1, 1935, a copy of which is attached.

  1. Vol. i, p. 536.
  2. Resolution V, Economic, Commercial and Tariff Policy, approved December 16, 1933, Report of the Delegates of the United States of America to the Seventh International Conference of American States, Montevideo, Uruguay, December 3–26, 1988, pp. 196–198.
  3. 48 Stat. 943.