The Ambassador in Peru (Dearing) to the Secretary of State
[Received October 10.]
Sir: I have the honor to refer to the Department’s instruction No. 800 of August 9, 1935, and to my despatch No. 4176 of September 29th, 1935, and to inform the Department that while I was talking with the Minister of Foreign Affairs about another matter a day or two ago, he brought up the subject of the basis for a trade treaty with our country and said that he had spoken to the President in the sense of the instructions given me in the Department’s instruction No. 800 of August 9, 1935, and that he would be ready to discuss the situation with me, in a general way, on the 1st of October. The Minister has been unable to take up the matter before on account of the great pressure of work due principally to a third wave of influenza now going over Lima which has incapacitated about half the Government personnel, including the President himself, and has brought about the virtual paralyzation of the activities of the Constituent Assembly.
Dr. Concha told me, as a preliminary to our next talk, that he had examined my instructions and the statements that came with them with care. He had before him on his desk some sheets, evidently prepared in the Ministry of Hacienda, showing Peru’s exports to the United States and pointed out to me that they amounted to less than fifty million soles per annum, according to the last figures; that two-thirds of this could be ascribed to copper and other metals and that Peru was consequently not faring especially well in her trade with the States. He gave me to understand that both the President and he himself considered the sugar situation to be the central and all important point for Peru in any agreement that might be drawn up. He said he felt sure, from the information he had received, that there was a need for sugar in the United States and that he could not understand why our market could not take up to 300,000 tons of Peruvian sugar. At the same time he pointed to the difficulties of disposing of it in Peru’s natural markets, which are Chile and Great Britain.
The Minister seemed to feel that regardless of the quotas established by the Department of Agriculture under the Costigan–Jones Act,5 if the price at home rose high enough, it would enable some Peruvian sugar to enter the American market, but he and the President both wish for a rate of duty or for a reallotment of quotas which will assure a sale of Peruvian sugar up to 300,000 tons in the United States.
For reasons which I have given the Department in my telegram of August 28, 10  p.m. (No. 99),6 the Department will understand how [Page 936]critical for the Peruvian Government the sugar situation is. I may add that it is deep in the mind of the President who has not failed to speak to me along exactly these same lines for the last two and a half years, and that neither the President nor the Foreign Minister are quite willing to find complete justification for the exception that has been made in favor of Cuba. The making of this exception, in their minds, does away with the argument that to award a larger quota to Peru would establish an embarrassing precedent and cause a claim for larger quotas from other countries. They even somewhat dislike the favor shown to Hawaii and the Philippines.
Speaking in a general manner but evidently seriously and after some consideration, the Minister told me that Peru was not even inclined to go much into the matter of a trade treaty unless this sugar situation could be given definite and preferential attention.
I endeavored to keep the plane of discussion on a higher and broader ground. I explained to the Minister, as I have done before both to him and to the President, the mandatory nature of the Costigan–Jones Act and the handicap it places upon the Department; and I endeavored, also, to make him understand that the act had grown out of very serious and special conditions at home, and in spite of what he had intimated about Cuba and our Island possessions, I tried to make him see that the Peruvian quota could not be increased without creating a very difficult situation with other producing countries.
I then left the discussion to be taken up later, and when I see him again I will show him what has been done in the cases of Canada, Colombia and Sweden and see whether or not a broader view cannot be taken of the situation. I agree, however, with the Minister’s thinking that the Peruvian sugar situation should be helped if possible, and that since we so completely bar Peruvian products from our market, there will have to be some market concessions on our side before a trade treaty can be arranged.
It is, of course, the obligation of the Peruvian Government to meet its responsibilities abroad in the case of its foreign loans, and it is desirable for Peru to begin to pay the interest and amortization on bonds held by American citizens. Some time ago the hint was given that the way might be found to devote the proceeds of the export tax on petroleum to the service of American held bonds, as this would avoid some difficult exchange operations. President Benavides and his Ministers of Finance and Foreign Affairs have several times spoken to me, in connection with a possible trade treaty, of the inducement of entering into mutually satisfactory arrangements which would come from resumption of service and amortization and at a more reasonable figure. I have tried to make them see that this is an [Page 937]obligation, whatever the practical consideration may be, that should march by itself, and as politely as possible to make them realize that to offer to do something which they ought to do anyway was hardly quid pro quo for consideration in connection with a trade treaty.
The same idea, in different dress, was brought out by the Foreign Minister in connection with the sugar problem when he told me that if it should prove possible to market a larger amount of sugar in the United States, the taxes on sugar production could then be devoted to the service on American held bonds and that in this way the service could be materially increased.