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

No. 962

Sir: Supplementing my despatch No. 961 of yesterday6 on the subject of the proposed trade agreement with Costa Rica, I have the honor to submit for the Department’s information a few additional details on the conversations which led to the submission to this office on Saturday afternoon, December 7th, of Foreign Minister Gurdián’s counterproposals and supplemental requests. Until such time as I had something definite to report I did not care to burden the Department with details of all of my conversations seeking to speed up action by the Costa Rican Government.

As I heretofore informed the Department, the negotiations between this Legation and the Costa Rican Government were delayed by the attitude of Finance Minister Brenes, who has consistently proceeded on the theory that any reductions in customs duties would adversely affect the finances of this Government and particularly so at a time when the exchange value of the colón was depressed and the prospect of additional revenues for the Government was discouraging by virtue of a short coffee crop and other adverse business conditions. As I have also informed the Department, Mr. Brenes delayed the negotiations because of a desire to arm himself completely with statistics to show hypothetically how much Costa Rica might lose from the tariff reductions proposed by the United States on the basis of 1934 imports. The preparation of these statistics was prolonged for several months, although during this period of delay Mr. Brenes frequently assured this Legation that they were being prepared “as speedily as possible”.

When Foreign Minister Gurdián returned from his visit to the United States on Saturday afternoon November 23rd, I saw him in his office on the following Monday morning November 25th (see my despatch No. 950 of November 257), and enumerated to him the delays which had occurred during his absence. In this connection it should be borne in mind that Mr. Gurdián, as well as President Jiménez, had [Page 462]personally assured me before Mr. Gurdiáin’s departure for the United States on September 22nd that there would be no delay whatsoever in the negotiations during his absence. In our conference on November 25, Mr. Gurdián expressed his regret that delays had occurred and promised me to discuss the matter immediately with President Jiménez and Minister Brenes in order that the negotiations could then go forward to a speedy conclusion. He promised to advise me within a few days on the answers of the President and the Finance Minister.

On Friday afternoon, November 29, not having received Mr. Gurdián’s promised answer, I again discussed the matter with him and was told that the Finance Minister was ready and I would be informed the next day of the date of the resumption of negotiations. On Tuesday, December 3rd, I received from Finance Minister Brenes a letter enclosing statistics showing hypothetically what Costa Rica might lose in customs revenue from its commerce with all nations assuming the agreement did not stimulate imports above the 1934 figures. This statement showed a hypothetical loss of ¢1,814,024 from world imports, whereas the earlier estimate showed an imaginary loss of ¢1,718,526 from United States imports.

Following receipt of Mr. Brenes’ communication I telephoned Mr. Gurdián and we agreed to meet again on Thursday afternoon December 5th. In the meanwhile I prepared a brief informal memorandum to show that with the duty on flour removed, Brenes’ estimated losses of ¢1,814,024 would be reduced to ¢798,510. (In 1934 Costa Rican customs receipts on flour imports totaled ¢1,015,514, of which amount ¢990,056 were received on flour imports from the United States). On the basis of the Department’s instructions, as outlined in Schedule I, I also proposed in the same memorandum to recommend to the Department that it agree to bind lard at ¢0.40, the duty prevailing in 1934, and showed by deducting the ¢476,648 received from lard imports in 1934 that the anticipated losses to the Costa Rican Treasury would be just ¢321,862 instead of the original anticipated loss of ¢1,814,024 or a difference of ¢1,392,162 from Mr. Brenes’ first figures, although the Costa Rican negotiators insisted on binding the rate at the 1935 figure of ¢0.50. I took this action because of my conviction that any agreement which sought to reduce the tariff on lard to ¢0.24 would arouse such widespread opposition that it might defeat the entire agreement. Further considerations on this question were presented to the Department on pages two and three of my despatch No. 961 of December 8, 1935. In my informal memorandum I added this language:

“This memorandum, however, is not to be regarded as an admission by the American Legation of the theory that any losses in tariff revenues whatsoever to the Costa Rican Government will result from the [Page 463]operations of the proposed tariff reductions, but to the contrary it is contended that net revenues to the Government will increase through the stimulation of additional exchange of commodities. This has been the universal experience of other countries and it has been particularly true in the past eighteen months in the experience of those countries which have ratified new trade agreements with the United States. There is no reason therefore, to anticipate any decrease in net revenues to the Costa Rican Government. On the other hand there is much reason to believe these revenues will be stimulated.”

On the morning of December 5, a few hours before I was to meet Ministers Gurdián and Brenes, I took occasion to go to the Casa Presidencial to express to the President my gratification over the signing of the contract between the Government of Costa Rica and the Goodyear Tire & Rubber Company, providing for the establishment of a crude rubber industry in Costa Rica (See my despatch No. 958 of December 5th8). While there I again informally discussed the proposed agreement with don Ricardo.

I gave him on a piece of memorandum paper the figures which I had prepared for Mr. Brenes and Mr. Gurdián in an effort to prove to the President that Mr. Brenes’ fears of losses were not justified. At the same time I discussed items in Schedule I, upon which the United States Government was seeking tariff reductions to show to him that in my opinion these reductions would not reduce Costa Rican revenues but to the contrary would stimulate them and that for the most part they would result in a reduction in the cost price to Costa Rican consumers of many necessary articles of food and medicines, paints, et cetera.

The President agreed with me, and I have reason to believe that he informed Mr. Brenes of my visit because later in the afternoon when I saw Brenes I found him more inclined to come to an agreement than he had been heretofore.

During my conference with Brenes and Gurdián I, of course, gave them a copy of my figures and used the arguments verbally that I had put in writing in the memorandum in reference to the estimated losses. At the conclusion of the conference the two Ministers agreed to submit other counter-proposals to me without delay in order that, as I pointed out to them, I could advise the Department immediately so that the negotiations would be completed, if possible, before the rapidly approaching Presidential elections.

On Thursday afternoon, Mr. Gurdián discussed the additional items he wanted included in the agreement. These items embrace commodities which have been given special consideration in the agreements heretofore negotiated with other countries. Gurdián’s idea was, as I explained in my despatch No. 961, that even though Costa Rica [Page 464]would be automatically entitled to these benefits under Most Favored Nation treatment, yet their inclusion specifically will arm the Costa Rican advocates of the agreement with additional sales talk when the agreement reaches the Congress for ratification.

During our conversations, Mr. Guardián informed me that he, Mr. Brenes and the Administration leaders in the Congress, will fight vigorously for ratification of the agreement and he expressed the opinion that ratification will be obtained.

Until such time as I hear from the Department as to whether it acquiesces to Costa Rican requests, I shall not discuss with Government officials their plans for obtaining early ratification of the agreement. But as soon as the Department authorizes me to accept or seek modifications to the Costa Rican proposals and this is out of the way and unless otherwise directed, I shall then very informally and discreetly discuss ratification with the President and Mr. Gurdián and will endeavor to have them submit the matter to the Congress at the earliest possible date in order to obtain the necessary ratification.

Respectfully yours,

Leo R. Sack
  1. Not printed. Under cover of this despatch the Minister in Costa Rica forwarded to the Department Costa Rican counterproposal for concessions under Schedule I and supplementary requests to Schedule II (611.1831/78).
  2. Not printed.
  3. Not printed.