The Minister in Honduras (Lay) to the Secretary of State

No. 1351

Sir: I have the honor to report the present status of the negotiations between this Legation and the officials of the Honduran Government [Page 734] in connection with the proposed Trade Agreement between the two countries.

Immediately upon receipt of Schedule I it was presented, on February 11, to the Foreign Office with the Memorandum or Aide-Mémoire transmitted with the Department’s instruction No. 663 [664] of February 5. The Minister of Finance, Señor Julio Lozano, who is the only official in the Government who understands the purpose of the proposed agreement and the effect of the reduction in rates requested on revenues and domestic industries, studied Schedule I for a week and then told me that a number of Deputies in the Honduran Congress, who are interested in local industries, would not consent to any reductions on soaps of all kinds, butter, cotton shirts, eggs, hog lard, wheat flour and biscuits and crackers, sweetened, but that he thought that the tariff treatment requested on the other articles might be granted. He stated that he did not wish to express a definite opinion, however, although he agreed that some of the present duties were entirely too high and in some cases resulted in loss of revenue to the Government, but that he was unwilling to take the responsibility of even recommending that any of the rates we proposed or modifications thereof should be accepted inasmuch as Congress had refused last year to lower rates on flour which he had proposed.

Finding it impossible to carry on satisfactory negotiations with Señor Lozano, I informally appealed to the President to break the impasse and he has appointed a committee composed of the three members of the Committee on Finance of Congress, a local merchant, and the Under Secretary of Finance to study Schedule I and send the Legation a memorandum of its views. This committee have held two meetings this week but to date I have heard nothing from them. The draft of the General Provisions for the proposed Trade Agreement was transmitted to the Foreign Office on the day after its receipt, February 25.

Señor Lozano is in Salvador as Special Minister for the Inauguration of President Martinez. I strongly suspect that President Carias does not wish to antagonize any of the deputies at this time when the President needs all the support he can muster in Congress for his plan to extend his term of office, and that he will not bring pressure on the Committee to expedite the Trade Agreement negotiations before the adjournment of Congress on April 10, 1935. I understand that several Deputies are seriously considering introducing a measure at the present session of Congress providing for a maximum-minimum tariff like the plan adopted by Salvador and subsequently by Guatemala. While the President and the Minister of Finance do not strongly favor such a plan, it seems that several Deputies advocate the enactment of this measure as a sop to the United States for declining to grant many of our requests for tariff reductions in the proposed trade agreement. [Page 735] This plea is reinforced with money by the representatives here of American textile interests.

As explained in telegrams No. 12 of February 26, and No. 13 of February 28, and despatch No. 1349 of February 28, 1935,8 the failure of the Honduran Congress to pass a bill repealing the prohibitive municipal taxes on imports on soap, butter, lard and upper leather, renders nugatory our representations in connection with these articles and complicates the negotiations with regard to the General Provisions of the Trade Agreement. In this connection the Minister of Foreign Affairs told me that inasmuch as the above-mentioned action had been taken by the present Congress on this measure, the municipal taxes could not be repealed until the next session, in 1936.

It may be possible to make some progress in the negotiations on the agreement before my intended departure from Honduras about March 15 but it is very unlikely that a satisfactory agreement can be reached in time to be submitted for ratification to the present Congress which adjourns on April 10 next. I will, therefore, leave here for the United States about March 15 unless the Department cables me that it desires me to remain here longer.

Respectfully yours,

Julius G. Lay
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