The Minister in El Salvador (Corrigan) to the Secretary of State

No. 532

Sir: I have the honor to refer to my despatch No. 519 of December 7, 1935, and to previous correspondence on this same subject.

As reported in my despatch No. 473, of October 31, 1935 (last paragraph), Dr. Rochac prepared a second, more extensive study of the proposals of the United States. Dr. Max Brannon, Undersecretary of Finance, promised to give a copy thereof to Third Secretary Cochran, after exacting a promise that it would not be sent to the Department, since it did not represent the official viewpoint of the Salvadoran Government, being a study prepared by Dr. Rochac because of his (Dr. Brannon’s) absence from the country. In view of the known, unfavorable character of Dr. Rochac’s memorandum, this was considered a propitious indication.

Mr. Cochran then requested that, before the Government determined its attitude in the matter, he should be allowed to discuss the memorandum in detail, informally, with Dr. Brannon, in order to present our reply to the statements made therein; and Dr. Brannon promised that he would be afforded this opportunity.

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Repeated efforts to obtain a copy of the memorandum were unsuccessful, the Minister of Finance, Dr. Rodrigo Samayoa, finally deciding that the reply of the Ministry would be prepared on the basis of the memorandum, and formally delivered to the Legation through the Foreign Office.

This was done on December 10, 1935. The reply, in the form of a 35-page memorandum, was forwarded under cover of a short, noncommittal note of transmittal by the Foreign Office. It is substantially the same as the short memorandum previously prepared by Dr. Rochac, forwarded as enclosure No. 1 to my despatch No. 473 of October 31, 1935. The reply to this short memorandum, submitted by the Legation, appears to have had no effect whatsoever on the attitude taken by the Ministry of Finance, as the official reply to the proposals of the United States begins with the statement, “The celebration of a new treaty on the bases proposed by the American Government is not desirable (no conviene)”.

Thus, the Minister of Finance took the matter out of the hands of his Undersecretary, Dr. Brannon, and delivered Dr. Rochac’s study (apparently with a few modifications) to the Foreign Office for transmission to the Legation as the Government’s official reply to our proposals. Since that date, the Minister has discussed the matter with the President. On December 11, he had a conversation with President Martinez, and told him frankly and definitely that he considered that the reply to the proposals of the United States had been prepared by an opponent of the treaty, interested in presenting only its most unfavorable aspects, rather than by a pure student, intent on an unbiased study of the probable economic effects thereof.

Minister Corrigan pointed out that it was obviously unfair to use the point that coffee enters the United States free of duty, in other words the generous treatment accorded to El Salvador’s principal export, as an argument against the treaty. He called attention to the fact that the United States is the best market for Salvadoran coffee; that American commerce with El Salvador is but a small fraction of the total trade of the United States; that the United States is engaged in a world-wide effort to free the commercial interchange of the world from excessive tariff barriers, exchange restrictions, quotas and other repressive factors; and that the success of the program would unquestionably affect El Salvador favorably. He added that the cooperation of El Salvador was needed.

The President had seen the memorandum used by the Ministry of Finance, and replied that the loss of revenue resulting from granting the American proposals would reach alarming proportions. Minister Corrigan replied that, while there would have to be taken into consideration the risk of a temporary loss of ¢200,000 to ¢300,000 [Page 566] in customs revenue, by El Salvador in lending its support to the American trade agreements program, he was personally convinced that no such loss would result. He repeated his statement that the study presented to the Government was partisan and misleading, and asked for an opportunity to present studies of several of the calculations and statements used in the memorandum, to prove that the presentation was not detached and impartial, but represented the point of view of a person opposed to any change in the present treaty structure. The President promised to afford this opportunity.

The President then stated that the Finance Minister was alarmed over the possible revenue losses, not so much from granting the concessions asked to the United States, as from the generalization of these reductions of duty to the other countries with which El Salvador has treaties containing the most-favored-nation clause. The fact is, of course, that according to the calculations used by the Salvadoran Government itself, as contained in its memorandum reply to the American proposals, 87.8% of the calculated loss of revenue would derive from imports from the United States.

On Tuesday, December 17, Minister Corrigan had another conversation with the President. At the time, he presented him with a short memorandum relative to the unfairness of the study prepared by Dr. Rochac. For simplification, the memorandum was limited to pointing out that the study discussed only bilateral trade with the United States, rather than multilateral trade, which we are trying to reestablish, and therefore was an incomplete discussion of El Salvador’s economy and commercial exchange. The memorandum also pointed out that the world has lost 22 billions of dollars in international trade through high tariffs, and quota, exchange, and other restrictions; and gave figures to show the decline in El Salvador’s trade and in customs income from import duties.

In order to bring the point sharply to the President’s attention in a brief way, figures were presented to show that the calculations of loss of revenue were exaggerated. Under three items (dried milk, hog lard and phonograph records), it was shown that in none of the last three years had the total revenue from import duties on these commodities amounted to as much as (or more than slightly exceeded) the alleged loss of revenue. Thus, unless trade should disappear entirely under the influence of lower duty rates (which is a ridiculous assumption), and sometimes not even then, the revenue loss could not possibly reach the level calculated in the report of the Ministry of Finance.

The President said that he had to consider the internal needs of the country; that revenue was low; and that the calculated loss of revenue was a matter of serious concern. The Minister repeated that [Page 567] the possible loss of two or three hundred thousand colones in customs revenue might have to be considered; but that he did not think that such a result would obtain; that we had calculated the revenue loss at most as being between $50,000 and $90,000—a very different matter from the $800,000 to $1,500,000 shown by the study.

The President then stated that he had ordered that there be drawn up a list of the concessions requested which involved only a small loss of revenue, presumably in order to grant them.

On December 21, 1935, Minister Corrigan called on Dr. Avila, the Acting Minister of Foreign Affairs, to discuss the trade agreement negotiations. Dr. Avila, when asked, said that he had seen the study of our proposals forwarded by the Ministry of Finance, and that he frankly did not understand what advantage would accrue to El Salvador through the signing of a new treaty; that the one now in effect had been signed over severe opposition; that the beneficial effects thereof were only now beginning to be apparent to Salvadorans; that it was working satisfactorily; and that it was difficult to see what could be gained by negotiating a new treaty.

The Minister pointed out that the program of the United States was a world-wide attempt to reestablish former levels of international trade and prices, which El Salvador could and should support; that the benefits accruing to El Salvador through the success of the program would far exceed any immediate gain from any concession we the United States might grant El Salvador, or vice versa. He added that it was simply a question of whether or not El Salvador was going to support this program, unanimously approved by the Conference at Montevideo, which Dr. Avila had attended, and more recently approved by the Economic Committee of the League of Nations; or whether it was to be the only country to refuse its cooperation, by not signing—pointing out the unfavorable effect on the good will of El Salvador’s best coffee customer of the latter action. Dr. Avila’s reaction was that he had now received a satisfactory explanation of the reasons for negotiating a new treaty; and that of course some treaty could be signed.

The loss of revenue question was discussed, with emphasis on the fallacies in the calculation thereof as contained in the study. Dr. Avila’s attention was also drawn to the fact that no attention whatsoever had been paid to the memorandum prepared by this Legation, which was presented to the Ministry of Finance before the submission of its study, but replying to most of the points made therein. A copy of this memorandum was given to Dr. Avila, who assured the Minister that the President should see it. He was also given a copy of the memorandum already presented to the President, attacking the study. He promised to study both documents; and to afford an opportunity [Page 568] for full, detailed and unofficial discussion of our proposals—an opportunity which has not heretofore been furnished.

On December 27th, Dr. Avila called by appointment at the Legation, to inform the Minister that he had come to bring good news; that he had discussed the trade agreement with the President, who had called the Minister of Finance and instructed him to make the United States a proposition containing as much as he felt he judiciously could, in the way of concessions, without too serious prejudice to the national revenue. This was to be submitted as soon as possible.

The Acting Minister of Foreign Affairs obviously felt optimistic and desired to impart that feeling to Minister Corrigan. He wished to leave the impression that in as much as the President had definitely aligned himself on the side of the trade agreement program, and had so instructed the Minister of Finance, he feels, as does Minister Corrigan, that we may look forward to some definite proposals in the near future. These will be submitted to the Department as soon as received.

Respectfully yours,

Frank P. Corrigan