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, to the Embassy’s despatches No. 4176 and 4183 of September 29 and October 2, 1935, respectively, concerning the possible eventual negotiation of a reciprocal trade treaty with the Government of Peru, and to inform the Department that I had an opportunity to speak to the Foreign Minister yesterday regarding Peru’s trade policy and Peru’s reaction to our own commercial policy.
The Minister evidently had given the matter consideration and had discussed it with the President and with other members of the Government. Dr. Concha stated that he was entirely in accord with the objects of our policy as set forth in the memorandum7 accompanying the Department’s instructions under reference. During the course of our conversation he limited his accord to the extent of saying that while he did not in general favor the most favored nation policy, he did favor it so far as a trade agreement between the United States and Peru was concerned. He took note of the fact that our commercial policy is in harmony with the resolution on economic, commercial and tariff policy approved by the Seventh International Conference of American States at Montevideo in December, 1933, to which resolution the Peruvian Government is a party.
The Minister began his remarks by stating that the main consideration for Peru was the necessity to market her products abroad. Peru, he stated, is primarily an exporter of raw materials and it must find markets abroad in which to dispose of them. He recognized the fact [Page 938]that our own country is, to a considerable extent, a marketer of raw materials although it is also an exporter of manufactured products. The Minister stated that Peru is, therefore, entirely in favor of the reduction of all barriers, restrictions, controls and other arrangements which interfere with the free flow of articles and products in international commerce.
Dr. Concha went on to say that Peru, for some time past, has been developing a new tariff. It has been a matter of intensive study for at least two years past and he said while it is considered to be a scientific tariff so that the incidence and the degree of the rates fall logically and reasonably upon the articles concerned, the tariff is in no sense discriminatory and will not discriminate against products and exports of the United States. The Minister admitted that while the chief objective had been to draw up a rational and justifiably scientific tariff, the tariff was also expected to produce increased revenues estimated at about two and one-half million soles per year.
The Minister next stated that it was expected the new tariff would be put into force within about three months’ time and informed me that it might even have been put in force already had it not been for the request of the British Government that it be kept in abeyance pending the completion of the trade treaty now being negotiated with Great Britain, a treaty, by the way, which has come to somewhat of a standstill on account of difficulties arising in connection with the sugar situation and other matters to which I shall briefly refer later, but which the Foreign Minister evidently expects to move forward to completion within the next month or two.
The Minister next expressed the opinion that now is the time for our own Government and Peru to act, and states that Peru is anxious to negotiate a trade agreement with us, provided it is possible for Peru to realize some of her objectives, the first and foremost of which is a market for Peruvian sugar. Peru, he told me, produces some 400,000 tons of sugar per year as a rather constant crop, adding that he thought the crop would remain more or less constant on account of stable weather conditions and the fact that there will be no increase in acreage. The natural markets—Chile and Great Britain—take about 100,000 and 250,000 tons each respectively, leaving always a surplus of from fifty to one hundred thousand tons which so far has completely demoralized the Peruvian market. Moreover, the fact that Great Britain grants most favored nation treatment for sugar, makes it impossible for Peru to market there at an advantageous price, and this probably explains the Minister’s bias against the most favored treatment procedure as indicated above.
In the case of Chile, Peru sells more to Chile than she buys from Chile and that will indicate the weakness of the Peruvian sugar market [Page 939]there, although there is, as the Department is aware, a question regarding wheat and the rival interests of Argentina and Chile in the Peruvian market which complicates the issue.
The Minister returned to the desirability of doing something at once and before the new tariff is put into effect and inquired how soon I thought I could hear from the Department. I reminded him that our exchange of views was purely informal in character and restricted to general considerations of policy and suggested that it took some time to take up negotiations of this kind, but said I would put the matter before the Department as soon as possible. I reminded him of the special difficulties attending the opening of the American market to Peruvian sugar, whereupon he recalled that the trade agreement act of June 12, 1934,8 authorized the President of the United States, under certain circumstances, to reduce or to continue the rates of duty on imports into the United States in connection with reciprocal trade agreements.
The Minister stated he felt the time to discuss an agreement was now and that if our Government was ready to make concessions, Peru was already prepared to do so and would like very much to have our Government say what it wants. He returned then to the question of sugar, saying that this was Peru’s greatest desire and that in order to provide for all eventualities, it would like to make sure of a market for at least 300,000 tons, as the British and Chilean markets could not be absolutely depended upon.
The Minister stated that Peru would also be glad to have reductions in our copper duties and while he stated Peru was not so much interested in cotton, it would be glad to have concessions there also. He said he knew we did not need copper and cotton, although the long staple Peruvian cotton might be good for automobile tires, but that he felt we did not have enough sugar and could take more. I tried to give him the picture of the difficult situation of our western beet sugar growers. With regard to cotton, the Minister stated Peru was selling constantly greater amounts to Germany, to Italy, and that the Japanese purchases were increasing enormously.
From this remark regarding the Japanese market, the Minister passed to a discussion of the whole Japanese situation. He informed me that on October 5th the present treaty between Japan and Peru9 will come to an end and assured me that I could not conceive of the pressure the Japanese Legation had brought to bear upon him and upon the Peruvian Government to secure an extension of the present treaty. He stated that all of this was of no avail, however, as his government was determined that the treaty should come to an end [Page 940]on the 5th and that it would not be renewed in its present terms. The Department is doubtless aware that a special Japanese commission is en route to Peru at the present time for the purpose of negotiating a new treaty. Japan, as always, is intensely interested in the whole West Coast of South America, both as a market for textiles and other manufactured products and as a vast reservoir of raw materials.
Incidentally, the Minister told me that it had fallen to him to prepare the legislation for the restriction of Japanese immigration and that the Government was definitely committed to a policy of rigid exclusion. It is the story of the Japanese in California all over again. They continue to acquire land on all occasions, they can outwork even the native Peruvian Indian employees, the employers of labor are delighted to have them, but their steady pressure and increase is so menacing to the native population and in its implications for the future, that the Government feels it must close the gates but wishes to do so with as little offense to Japan as possible. The Minister requested me to consider what he has said in the greatest confidence.
This discussion of the Japanese participation in Peruvian trade brought up the question of the market for textiles in this country where there are a certain number of spinning mills but where the Japanese continue to dump large quantities of cloth. One of the objectives of the new tariff is to rigidly restrict this importation from Japan. The Minister tells me that the British Commercial Attaché feels that the rates established in the new Peruvian tariff, however scientific they may be, do not really blockade the Japanese importation, and I understand that one of the reasons why the negotiation of the British-Peruvian trade treaty goes slowly is the endeavor to find a way to make the new tariff rates such that they will restrict the Japanese importations and insure more business for Great Britain. I understand from our Commercial Attaché that such restriction will be beneficial to the American spinners also.
In speaking of the British Trade Treaty, the Minister gave me still another side light on the sugar situation by saying that he understood India was greatly increasing its sugar production and that this was a menace to the Peruvian market in Great Britain.
Incidentally, the Minister stated the British were asking that the so-called labor law, No. 7505,10 be made more flexible. The Minister seemed to be in favor of such flexibility. The Department will recall that this law provides that 80 per cent of the personnel of foreign companies operating in Peru must be Peruvians.
I inquired of the Minister whether the rights established under the new Peruvian tariff would be susceptible to change as a result of any [Page 941]trade agreement negotiations. The Minister stated that they would, and that once the tariff is put into force and the new rates established, they may be changed, removed, continued, et cetera, in accordance with whatever reciprocal arrangements are made in the trade agreement. He indicated that new rates could be negotiated to serve the purpose of such a treaty. He again referred to the fact that it is possible for our President to reduce tariff rates and assured me that Peru wished as extensive arrangements as possible under any trade agreement that might be set up and was willing to make the maximum number of concessions for maximum concessions on our part. He stated, as I have reported in the first part of this despatch, that while he was personally adverse to most favored nation provisions, that if Peru could get what she would like to have, namely a market for her sugar, Peru would most cheerfully negotiate a trade agreement on the most favored nation basis, would provide that there should be no discrimination whatever against our trade and would be willing to give an engagement to that effect and to agree to the complete generalization of concessions.
To sum up, the Minister stated that Peru is greatly interested in having had brought to its notice the desire of the United States to learn what the situation is. The new Peruvian tariff will be put into force within about three months’ time. The sugar question is of paramount importance for Peru and Peru feels that both countries should move at once to set about the initiation of negotiations for a trade agreement. Peru is willing to accept most favored nation provisions in such an agreement, is against discriminatory practices, and feels that since our country has, in various trade agreements already negotiated, made reduction in American tariff rates, that it can do so in the case of certain Peruvian products; the Minister means, of course, primarily sugar.
Dr. Concha would like to have some expression of how our Government feels about the matter as soon as possible. In passing he remarked—as he has done before—that if something could be done for sugar, Peru could do more towards meeting her obligations to American bondholders. I told him I thought it would not be wise to hold this out as an inducement. He replied that he did not mean to hold this out as an inducement in the sense of giving a quid pro quo, but that since he felt our Government was friendly, it seemed to him that our Government would wish to assist Peru to develop and prosper so Peru could meet her obligations.
I shall appreciate the Department’s instructions. Meanwhile I have requested Dr. Giesecke of the Embassy staff to make a precís of all of the Embassy’s correspondence for the last five years bearing upon trade agreement possibilities, and I have asked the Commercial Attaché [Page 942]to be prepared with such information as he can supply for the Department’s assistance in the event it decides to go any further, at this time, in taking advantage of the opening presented by the Foreign Minister’s remarks.