The Chargé in Nicaragua ( Warren ) to the Secretary of State

No. 1130–A

Sir: Referring to the Legation’s despatch No. 1130 of November 1, 1935,33 relative to the Foreign Exchange Situation and American Trade with Nicaragua, I have the honor respectfully to suggest that existing conditions in Nicaragua might be taken into consideration in connection with the proposed trade agreement between the United States and Nicaragua. The Legation appreciates the principle involved, and the negotiation of a trade agreement with Nicaragua might ultimately be of some value to the United States, but so long as present conditions continue here, it seems doubtful that such an agreement would be of any real benefit. American exporters are not receiving payment for the goods that are now being sold until some 13 months after arrival of the merchandise in Nicaragua, and, as pointed out previously, there is a distinct possibility that they will never receive full payment.

Not only does it appear that the United States would derive little benefit in the near future from a trade agreement, but it is also difficult to see what tangible advantages would accrue to Nicaragua. The Consulate has heard the views of a number of Nicaraguan exporters, some of whom stated that they had discussed the question with Government officials, and the general opinion is that the only product on which Nicaragua might request any useful concession from the United States is sugar. A prominent local merchant told an officer of the Legation that a Government official had remarked to him that unless the United States was willing to make it profitable for Nicaragua to export sugar to the United States there was no point in Nicaragua’s negotiating an agreement. Outside sugar, there appear to be very few useful concessions which the United States could make to Nicaragua.

During the fiscal year ending June 30, 1934, the United States imported from Nicaragua a total of C$2,598,211 worth of products. Bananas, coffee, and gold, all of which are admitted free of duty into the United States, went to make up C$2,419,654 of our imports from [Page 839] Nicaragua, leaving a balance of only C$178,557 or slightly less than 7% for other products. Balsam, ipecac, and hides and skins are the more important items included in the figure of C$178,557. These products are either free or subject to a very low rate of duty. Wood once was an important export from Nicaragua to the United States, but is now negligible. The decline is not due to any import duty imposed, but rather to the general depression and particularly to the fact that the supplies in Nicaragua which are near available transportation have been practically exhausted.

The present Government is occupied with political matters and will probably continue to be increasingly so because of the presidential elections which are to take place next year. It appears to have no interest in the negotiation of a trade agreement.

A local official remarked to an officer of the Legation recently that the Government had no list of concessions to request of the United States, that it was considering sugar but was doubtful as to the possibility of exporting that product to the United States on the basis of any concession which might be obtained. He added that he personally did not see what concessions Nicaragua could request as the principal exports were already on the free list of the United States. He said a reduction of the duty on balsam or lumber would be insignificant and hardly worth considering. He remarked that he was a sincere friend of the United States and hoped we would not “impose” on Nicaragua a treaty which would appear to be one-sided and give Nicaragua no apparent advantages. He admitted that if the United States committed itself not to place a duty on bananas or coffee Nicaragua could well afford to make a few concessions to the United States, but said it would be difficult to make the average person in Nicaragua see that point.

The few concessions which the United States proposes to request from Nicaragua would apparently not be of great benefit to us. American exporters already sell more of the articles in question to Nicaragua than all of the other countries combined, and in many cases have a practical monopoly of the market. The proportion of American sales probably would not be greatly increased, and there would be no great increase in consumption because of the low standard of living and the lack of purchasing power. The Government probably attaches more importance to the loss of customs duties than to the possible increase in consumption.

Leaving wheat flour out of consideration, the loss of duty on the nine articles on which the United States suggests a reduction of duty, on the basis of the quantities imported in 1929, would have been approximately C$106,000, and on the basis of 1934, approximately C$30,000.

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Except insofar as the Department feels that it should negotiate an agreement with Nicaragua as a matter of principle, there appears to be no real reason for pushing the Nicaraguan Government on the matter at present. There seems to be little hope of any great benefit, at least in the near future, from an agreement with Nicaragua. In view of recent developments, there is little or no chance of obtaining a reduction of the duty on wheat flour. Please see Legation’s despatch No. 937 of July 17 [18], 1935.35

There is a movement on foot to increase the duty on flour, and the best we could obtain probably would be to secure an agreement on the part of Nicaragua not to increase the duty. Unless a concession could be granted Nicaragua on sugar, it is probable that the best arrangement the United States could make with Nicaragua would be to agree to bind certain articles in which each of the two countries is primarily interested. The value of the products on which the United States might agree not to levy a duty is so great and so important to Nicaragua in comparison with the value of the few articles on which the United States is asking concessions that an agreement on our part to bind should certainly be equivalent in value to the small concessions to be made by Nicaragua. However, it probably would be difficult to impress that point of view on Nicaraguans, and the criticism which would result from an agreement offering them no concessions might be so vehement and bitter as to make the negotiation of such an arrangement inadvisable.

Respectfully yours,

Fletcher Warren
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