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

No. 34

Sir: I have the honor to refer to the Department’s despatch dated June 13, 1935 concerning the difficulties encountered by the Douglas Fir Exploitation and Export Company in competition with Russian lumber in Uruguay and to report the results of our investigation in the premises.

The bid on one tentative transaction involving three million feet of lumber, which was cited in particular, originated from an offer of purchase by one of the most responsible lumber importers in this market who has dealt extensively with American exporters. He deals through the well known firm of Leng Roberts & Company, Buenos Aires. He stated that the price of the American company was good and the quality of its merchandise superior, compared with the Russian product. The Russian price laid down in Montevideo, however, was much lower due to more favorable exchange facilities and to lower customs duties; in fact, so much lower that the American offer could not have been reasonably accepted.

The Department is aware of the provisions of the various laws and decrees concerning liquidation of imports under the present quota and exchange restrictions from despatches and reports from this office and from the Consul General at Montevideo. Up to the present time no permits have been granted by the Exchange Control Board to importers of American lumber for purchase of exchange at the “controlled free” rate. They have been forced to liquidate at the less favorable “free” rate. The exchange cost alone is approximately 20% more to dealers purchasing exchange at the “free” rate than to others who are privileged to purchase “controlled free” exchange.

In addition to that handicap, however, the importer of American lumber now has a higher customs duty to pay than the importer of Russian lumber. This difference is the result of several acts of local authorities.

It was reported by the press on Saturday, May 4, 1935, that new rates of calculation of the equivalent in Uruguayan paper pesos of that part of customs duties (25%) payable in gold pesos, was to be effective as of May 1, 1935*. No decree embodying those provisions has ever been published nor has it been admitted to exist by either the Foreign Office or the Ministry of Finance. The Bank of the [Page 952] Republic admitted the application of the duties involved but insisted that the measure was “an Internal Administrative Resolution”. The effect was to increase the customs duties chargeable on goods for which no permit for purchase of “controlled free” exchange could be obtained, to a figure approximately 39% higher than the customs duties charged on goods favored with such “controlled free” exchange permits. It is of importance to bear in mind that this charge is a customs duty, payable on the customs valuation, and not an exchange charge on the liquidation of the purchase.

A subsequent presidential decree dated May 9, 1935, and published in the Diario Oficial of May 18, 1935, implicitly admitting the existence of the former action, modified the amount of the increase in duties by 50% at the request of local importers. A further decree§ extended the date of effectiveness to June 15 in response to allegations of the importers that both measures were retroactive and confiscatory in character. Since the expiration of the period of extension, the first measure has now gone into effect as originally established.

It would appear that these measures are discriminatory insofar as they affect customs duties since they penalize particular goods coming from particular countries which are not in possession of a permit for purchase of “controlled free” exchange—a permit which is arbitrarily granted or withheld by the Exchange Control Board. While the customs duties are established on the basis of the class of exchange granted to the importer, it would not appear to be a defensible argument that they are not discriminatory because they are so dependent upon a system that has not yet been successfully challenged. In application they do appear to be discriminatory since they assess two different rates of duty on similar products from different countries of origin.

The Bank of the Republic, during the latter part of March, or early April, 1935, is understood to have entered into a contract, or agreement, with Russian interests (asserted to be the Iuyantorg) for barter of various national products, principally Uruguayan hides and Russian lumber. The amount is stated to be £300,000. The agreement has not been published in detail although the press has referred to it in a general way. The Foreign Office states that it is not in possession of a copy and the Bank of the Republic will not inform this [Page 953] office of its terms. It is known, from various responsible importers and bankers, that the agreement allows imports of specified Russian products, including lumber, to be liquidated at the “controlled free” rate of exchange. This agreement is distinct, and aside from, the quota applying to Russian imports by virtue of the quota law. As stated previously, that permission carries with it (under the terms of the “Internal Administrative Resolution”) the privilege of lower customs duties.

The importer who was the interested agent in the bid of the Douglas Fir Exploitation and Export Company provided this office with a detailed account of the difference in customs duties only, which would have obtained in the importation of that lot of lumber from the United States and the same lot from Russia. His figures show that the former would have been charged at the rate of 32.146 Uruguayan paper pesos per thousand feet while the latter would have paid only 29.0912 pesos per thousand feet. On the lot of 3,000,000 feet, therefore, the total difference would have been 9,164.40 paper pesos in customs’ duty. The duty on American lumber would be, therefore, 10.5% higher.

I have withheld formal protest to the Foreign Office in view of two important considerations: the fact that assurance has been given that American lumber dealers will secure preferred exchange after July 1, when the quotas for the next period will be established and my desire not to prejudice that eventual favorable action, and to a desire for the Department to consider the advisability of protesting on general principle rather than on this specific lumber case.

It is possible that the interests of American lumber interests might be best served by delaying protest until after the fixing of the quotas for the next period. Formal protests’, on this lumber case, might tempt the Import and Export Commission to establish less favorable conditions than they otherwise would.

It appears to me that the United States has grounds for protest on general principle. Customs duties have been made unequal in application on similar goods’ coming from the United States and other countries. They have been established without any officially acknowledged treaty, agreement, or other usual instrument. They are termed internal administrative measures and have not been published nor have the Foreign Office, the Ministry of Finance, or the Bank of the Republic provided copies of these measures on request. They would appear to be discriminatory in character and effect.

It is suggested that a general protest might be supported and illustrated by reference to the effect on American lumber interests, but it is believed that a specific protest on this case would have less effect and might adversely affect the imminent action of the Commission on [Page 954] Imports and Exports. Finally, it should be noted that these measures’ affect not only American lumber interests but all exporters of American products which have come, or may come, into competition with goods from third countries enjoying privileges similar to those granted to Russia.

For the reasons stated, I respectfully request that the Department consider the desirability of a protest on general, rather than specific, grounds, and that I be instructed further in accordance with its decision.

Respectfully yours,

Julius G. Lay
  1. Note. See report of Consul General at Montevideo dated May 7, 1935, entitled “Alterations of Customs Duties Payable in Gold”. [Footnote in the original: report not printed.]
  2. Note. See text in report of Consul General at Montevideo dated May 15, 1935, entitled “Further Alterations in Customs Duty Payable in Gold”. [Footnote in the original; report not printed.]
  3. Note. See report of Consul General at Montevideo dated May 18, 1935, entitled “Reporting Publication of Decree Modifying the Uruguayan Customs Duties Payable in Gold”. [Footnote in the original; report not printed.]
  4. Note. See Consul General’s report dated May 27, 1935, entitled “Increase in Portion of Customs Duties Payable in Gold”. [Footnote in the original; report not printed.]