The Minister in Costa Rica (Sack) to the Secretary of State

No. 807

Sir: I have the honor to enclose herewith a memorandum of a conversation held on the afternoon of August 14, at the Foreign Office, between Foreign Minister Gurdián and Minister of Finance and Commerce Brenes and Secretary of Legation Drew and myself on the subject of the proposed trade agreement between the United States and Costa Rica.

The conference was somewhat disappointing to me in that before I went to the Foreign Office I had every reason to believe from assurances previously given to me by Mr. Gurdián that the conference would mark the beginning of the actual clause by clause negotiations of the trade agreement.

Instead of being prepared to initiate specific negotiations, Mr. Gurdián confined himself to repeating statements he has made previously, while Mr. Brenes claimed that he had not yet had time to prepare his counter-proposals to the concessions sought in Schedule I, which Mr. Drew presented to Mr. Gurdián during my absence.

[Page 452]

The conference, however, gave to me additional assurance that the Costa Rican Government wants to negotiate a trade agreement with the United States and will do so, but not wholly along the lines proposed by the State Department. For example, the attitude of this Government is that any reduction in the duties on flour, in the present state of Costa Rican finances and shrinkage of import revenues, is unthinkable. Likewise Mr. Gurdián and Mr. Brenes—and as I happen to know, other officials—feel that a reduction in the duty on flour will not stimulate the sale of flour to this country. The impression here is that regardless of the high cost of flour, the nation is consuming as much as it would even if the duty were reduced in half. Arguments that Costa Rica would experience an increase in imports and a corresponding net increase in tariff revenues as a consequence of a reduction in the duties on flour seem to make no impression on the Costa Rican officials. They, in turn, ask where the foreign exchange is coming from to pay for additional flour.

In this connection Mr. Gurdián and Mr. Brenes point out, and it is an unanswerable fact, that all of the statistics show that more than 95% of Costa Rican flour imports come from the United States.

To a lesser extent Mr. Gurdián and Mr. Brenes make this argument on lard and point out also that Costa Rica is now and has been engaged for the past few years in a serious effort to stimulate the home production of lard and pork products.

Despite these objections by the Costa Rican negotiators, I nevertheless feel that a treaty will be negotiated between Costa Rica and the United States but I am not hopeful that the chief concessions sought by the Department will be obtained. I am reasonably sure, however, that the principal prevailing tariffs in which we are interested will be bound in cases where no reduction is granted.

In connection with the agreement, I am sure the department has in mind the negotiation of an agreement which subsequently will be ratified by the Costa Rican Congress; otherwise all of our labors will be lost. This, also, is a point that the Costa Rican Foreign Minister and likewise President Jiménez is keeping in mind. As the Department is aware, the Congress of Costa Rica takes itself as seriously as does the Senate of the United States in matters pertaining to foreign affairs, and already members of the Congress are beginning to concern themselves in the newspapers with what the Foreign Office intends to do in reference to the proposed commercial agreement with the United States.

The Department has for some time been kept informed through reports from this mission as well as from the American Consulate in San José of the really serious situation which now confronts this Government. Prospects for the future of the Costa Rican coffee trade on [Page 453]which the country is largely dependent, are indeed dark. The London coffee market, which has always consumed the bulk of the Costa Rican crop at fancy prices, shows signs of disintegrating because of the tendency for the premium on the fancy grades produced here to diminish, and the trend of Germany and other European countries to purchase their requirements directly from Costa Rica at reduced prices, or from other countries producing similar grades of “mild” coffee. In addition, the fall in the foreign exchange value of the colon in the past year has amounted to approximately 50%. Despite these unfavorable factors, as the Costa Rican negotiators pointed out, the United States is now furnishing Costa Rica with approximately 50% or more of its import requirements. Their argument, and it is a difficult one to answer, is “What more does the United States want”.

Another consideration which the Department should bear in mind in the course of these negotiations is that the many barriers to world trade which have been created in several countries of Europe and Latin America and which have prevented restoration of normal international commerce, do not exist in Costa Rica. Her tariffs are, according to information available here, unusually low as compared with many countries of Latin America. No quotas exist. No artificial sanitary requirements impede the free entrance of American goods.

Costa Rica’s exchange control law has recently been liberalized to the extent that American exporters are apparently encountering little if any difficulty in making collections. Costa Rica’s attitude in view of these factors is that the status quo is the most desirable situation. Despite my firm belief in the beneficial effect of Secretary Hull’s program on the United States and world commerce in general, I must admit that the Costa Rican viewpoint is understandable.

Nevertheless, I feel that the Costa Rican Government will sign a trade agreement if we do not insist on too drastic reductions in her present customs tariff. I believe that the strongest single factor which will induce Costa Rica to sign an agreement, and it is one which I feel I can properly emphasize in the course of the negotiations, is a fear of being isolated from a program which will include her neighboring countries in Central America in particular, and other countries in general.

In this connection I regard as significant a remark made to me by Minister Gurdián at the termination of our conference, and likewise as a hopeful sign. In the course of our conversations I told the Ministers that, as they knew, the United States was at the moment negotiating similar agreements with the sister Republics of Central America, and some of the South American countries, and my information is to the effect that excellent progress is being made in the Central American countries. To this Mr. Gurdián replied that the treaty [Page 454]between the United States and Costa Rica, he was sure, would be terminated well in advance of the treaties with Guatemala and Colombia and perhaps some of the other countries.

For the further information of the Department, and because of its direct bearing on the trade negotiations, may I repeat information which came to me last night from Don Ricardo Castro Beeche, the President of the Congress and President Jiménez5 right hand man on all legislative matters.

I was talking to Mr. Castro on Tuesday and in the course of our conversation he said to me, in an aside, that he would like to see me soon to tell me the Congressional attitude towards the ratification of the proposed trade agreement. I thereupon suggested that he and Mrs. Castro have dinner with Mrs. Sack and myself on Thursday evening (last night).

After dinner Mr. Castro told me that the Congress appreciates the need of stimulating and encouraging commerce between the United States and Costa Rica and that the Congress was very much concerned with the great increases in Japanese exports to Costa Rica which were not being compensated for by any Costa Rican exports to Japan.

Mr. Castro said that the Congress wanted to negotiate a treaty with the United States, which would show appreciation of, the fact that the United States does not charge Costa Rica duties on its chief exports, but at the same time the Congress felt that it could not afford to reduce import duties on products from the United States to an extent that such reductions would impair the already crippled finances of the country. Mr. Castro said that the Congress would be willing to reduce certain duties and to agree not to raise any duties in the future.

At the same time he declared that serious consideration is now being given to a plan to enact a law similar to the law recently enacted in El Salvador whereby a tariff ranging up to 200% of the present duties would be authorized on products from such nations which do not purchase from Costa Rica, and likewise have tariff barriers against Costa Rica. He mentioned Japan as the chief offender among non-purchasing nations and expressed the opinion that the constantly increasing importations from Japan are responsible for the collapse of the colón in relation to the dollar.

He made the point that Japanese products come into Costa Rica so cheaply that importers can afford to go into the “bootleg” market and buy dollars at the present excessive rate of exchange and still make a substantial profit. He expressed disappointment that the recently enacted exchange control law, which was calculated by Government officials to restrict Japanese importations, is not having the desired effect.

Obviously, I told Mr. Castro that I could not interest myself, and would not interest myself either directly or indirectly in any law [Page 455]such as he had in mind, which was aimed at a friendly nation and that under no circumstances could the proposed Japanese law be linked up with ratification of the proposed agreement between the Governments of the United States and Costa Rica.

Mr. Castro assured me that there would be no attempt in or out of the Congress to hook up the two matters but that the Government of Costa Rica is so concerned at the moment with Japanese importations and the disastrous effect these importations are having on the foreign exchange situation that it plans to take protective measures. Mr. Castro also pointed out that he and other Government officials, appreciating the value to Costa Rica of happy commercial relations with the United States, are hopeful of finding ways and means whereby Costa Rican exports to the United States can be legitimately increased, which increase would, in turn, provide additional dollars for Costa Rican imports from the United States.

I was happy to obtain Mr. Castro’s impressions and to receive his assurances that when the negotiations between the Foreign Office and this Legation are completed and approved in Washington, that he, in turn, would use his best efforts to obtain ratification in the Congress. I was likewise happy to be assured that the Congress would ratify a treaty which it considered fair to Costa Rica.

In the course of my future conversations with the Foreign Office negotiators, I shall, of course, endeavor to obtain their agreement to as many concessions recommended in Schedule I as possible, and where concessions can not be obtained, to obtain a guarantee that duties will not be increased. I nevertheless feel it my duty to inform the Department of the true state of feeling in Costa Rica at the moment in order that the Department can be accurately informed of the situation here and particularly as to points which the Costa Rican Government regard as of real significance to its economic security.

Respectfully yours,

Leo R. Sack

Memorandum by the Secretary of Legation in Costa Rica (Drew)

Following a request made by Mr. Sack upon his return to Costa Rica from his leave in the United States on the day on which he and Foreign Minister Gurdián discussed informally and generally the proposed trade agreement between the United States and Costa Rica, Mr. Sack and Mr. Drew went to the Foreign Office at five o’clock yesterday afternoon to discuss with Foreign Minister Gurdián and Minister of Finance and Commerce Brenes, specific provisions of the proposed agreement. It was the understanding of Mr. Sack and Mr. Drew prior to their departure for the Foreign Office that Minister Brenes [Page 456]would be prepared to discuss with the American negotiators specific tariff reductions. To their disappointment, however, Minister Brenes pleaded that he had not had sufficient time either to prepare the Costa Rican counter-proposal to the list of concessions contained in Schedule I, which was presented informally to Mr. Gurdián by Mr. Drew during Mr. Sack’s absence. At the same time Mr. Brenes said he wanted additional time to prepare the list of Costa Rican concessions sought from the United States.

Yesterday’s discussions, the first formal conference to be held since the Costa Rican Government was informed of the concessions requested in Schedule I, brought out very little new information of importance, Mr. Gurdián confining his statements chiefly to a repetition of arguments he has previously presented in conferences with Mr. Sack and more recently with Mr. Drew. Mr. Brenes contributed little or nothing to the conversations, confining himself to indications of approval of statements made by Mr. Gurdián.

Mr. Gurdián opened the conversations by pointing out the unsatisfactory state of Government finances, and the economic situation of the country as a whole. He referred to the recent decrease in Government receipts from all sources, in particular from customs revenues, caused in part at least by the fall in the exchange value of the colón, and the unsatisfactory state of the London coffee market. He stated that it would be impossible for Costa Rica to make any reductions in its present rates of duty which would further decrease customs revenues. He referred particularly to the revenues received from flour and lard. Mr. Sack pointed out that any reduction in the duties on these and other commodities would undoubtedly stimulate imports to a point where Government revenues would not be seriously affected, if at all, but to the contrary, in his opinion, would be substantially increased as has been the experience in Cuba and in other nations where reciprocal agreements have been concluded. Mr. Gurdián replied that while that might be very true, he could not see where the country would find the foreign exchange to pay for the increased imports.

Mr. Sack emphasized to the Costa Rican negotiators his conviction that conclusion of the trade agreement would result in a general stimulation of Costa Rican trade with the United States which would prove of great benefit to the country. He stated that during his recent visit to the Department of State he had found all the officials of that Department convinced that the trade agreement would prove greatly beneficial to both countries. Mr. Sack told the Costa Rican negotiators that progress was now being made in other countries of Central America in the negotiation of trade agreements, and that he hoped that Oosta Rica would not fail to enter into the general program. [Page 457]Mr. Gurdián at this point made a significant remark to the effect that he was sure that the agreement with Costa Rica would be concluded before the Guatemalan or Colombian agreements were negotiated.

Mr. Gurdián stated that Mr. Brenes is now awaiting statistics from the Government statistical office and that as soon as they are received further conversations will be arranged. When asked whether the Costa Rican Government was preparing a counter-proposal, he indicated that such was its intention.

Mr. Gurdián again in this conversation expressed his desire to give complete publicity at the appropriate time to the terms of the proposed agreement, as had been done in the United States. Mr. Drew stated at this point that he had discussed this policy with Mr. Sack who was in complete agreement therewith, adding that it was, of course, desirable for complete and accurate information to be given out, referring to recent newspaper articles attacking the treaty, based on inaccurate and incomplete information. Mr. Gurdián expressed his agreement with this point of view.

Mr. Gurdián stated that he would shortly request the Legation for information on customs duties now in force in the United States on a number of Costa Rican products. He made it plain that it was his intention to give an opportunity to interested parties in Costa Rica to present requests for concessions on various Costa Rican products not included in Schedule II as prepared in the Department of State. Mr. Gurdián was assured that the Department would give sympathetic consideration to any additional requests which might be presented. It was pointed out to him that the Costa Rican Government itself was, of course, in a better position than the Department of State to know what articles might be successfully marketed in the United States following customs concessions on the part of the American Government.

The conference terminated with the understanding that Mr. Brenes would complete the studies which his Department is now making of Schedule I, and that further conversations would be held within the next two weeks.

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