The Minister in Costa Rica (Sack) to the Secretary of State

No. 1099

Sir: I have the honor to acknowledge receipt of the Department’s instruction No. 299 of April 16, 1936,8 transmitting tentative final drafts in English and Spanish of the proposed trade agreement with Costa Rica and to refer to recent correspondence with Department officials on this subject.

I have not yet had an opportunity to go over these drafts with Mr. Gurdián as I desire first to check the Spanish text of the general provisions with the previous draft to which Mr. Gurdián had agreed, as well as to have a check made of the Spanish and English texts. I do not believe, however, that there will be any objections to the minor changes in phraseology which have been made.

In the course of a conversation with Mr. Gurdián on the trade agreement on April 20, I discussed with him, among other things, the Department’s point of view with regard to the desire of the Costa Rican Government to increase the wharfage tax (impuesto de servicio de muellaje). Mr. Gurdián expressed the opinion that the proposed increase would receive prompt approval in Congress whenever introduced, explaining that he had not wished to rush the measure through Congress during the course of negotiations, as he felt any such action would have been improper at this time. I also discussed with him the consideration that such an increase would weigh heavily on bulky articles, such as lumber, machinery, et cetera. In reply he pointed out that such articles cause more wear and tear on wharves and dock facilities and should consequently be taxed proportionately. I also discussed with Mr. Gurdián his interpretation of the nature of this tax. He again explained (see despatch No. 1013, of February 4, 1936) that the purpose of the increase in the wharfage tax was to obtain additional funds for the construction of a new customhouse in Puntarenas, as well as one or more schools in that city, which funds would not otherwise be available due to the stringent financial situation of the Government. He expressed the opinion that this tax would not be reduced after the termination of the projects contemplated but would remain as a permanent tax in order to help finance future public construction.

With regard to the possibility of considering this tax as a service charge and hence not contemplated by the provisions of Article I of the general provisions, neither the information obtained from Mr. Gurdián nor the terms of the decree creating the tax appear to support [Page 382] this interpretation. The terms of the law establishing the tax (Decree No. 48, April 20, 1931, La Gaceta No. 88 of April 22, 1931) are as follows:

“Article 1—The first paragraph of Article 5 of the Customs Tariff is amended as follows: ‘Article 5—The introduction of all merchandise will pay in addition to customs duties, a tax of two cents per kilo as wharfage service tax …’”

It may be pointed out that this tax is collected on all baggage and merchandise arriving in the country, including parcel post packages and baggage and express packages arriving by air plane.

It appears to me, therefore, that only two alternatives are available: either to delay signature of the treaty until after the adoption of the proposed law increasing the wharfage tax or to include in Article I of the general provisions a clause authorizing the Costa Rican Government to increase this tax by not more than 50%. I respectfully request an expression of the Department’s views on this point.

I also discussed with Mr. Gurdián the question of the differences in the so-called consumption taxes levied on imported beer, wines, liquors and cigarettes, and suggested to him the possibility that as these taxes are paid on or in connection with importation they could properly be considered as not coming into conflict with the terms of the general provisions, in particular Article IV. Mr. Gurdián does not agree with this interpretation, however, and insisted that in his opinion every effort should be made to avoid any possible grounds for subsequent misinterpretation of the terms of the treaty. He explained that these consumption taxes, in so far as they apply to imported articles, are payable in the form of stamps which are affixed to the containers either at the time the merchandise is withdrawn from the customhouses or in the case of cigarettes, at the factory.

As I have previously suggested to the Department, it occurs to me that if it is not considered desirable to provide for these exceptions in the general provisions it might be less objectionable from the Department’s point of view to cover these questions in connection with wharfage tax and consumption taxes in an exchange of notes to be annexed to the agreement itself.

With regard to Schedule II of the proposed trade agreement, there now appears to be agreement on its provisions with the exception that Mr. Gurdián still holds out for some concession on dried bananas, as well as on fresh tomatoes. Mr. Gurdián has submitted to me a memorandum setting forth his point of view on these two items, copy and translation of which are enclosed.9 In my last conversation with Mr. Gurdián I again informed him, as I have frequently done in the past both orally and in informal memorandums, of the Department’s point [Page 383] of view with regard to concessions on products not actually appearing in the trade statistics between the two countries, as conveyed in telegram No. 43, December 26, 1 p.m.9a He insisted, however, on his desire to obtain some concessions on these two commodities, pointing out that in most of the other trade agreements a concession has been made on a product not included in the concessions to other countries. He argued that these concessions would be of great assistance in securing support of public opinion for the agreement and in obtaining Congressional approval. He also said that all of the commodities included in Schedule II are already included in agreements with other countries and that by virtue of the most favored nation clause in the existing treaty with the United States, Costa Rica would in any case be entitled to the concessions which have been made with other countries. I reluctantly agreed with Mr. Gurdián again to submit his requests to the Department, although I informed him that I was not hopeful of receiving favorable action.

May I also refer to the Department’s instruction No. 271 of February 27, 1936, and my reply thereto, despatch No. 1053 of March 6, 1936,10 with reference to an exchange of letters listing commodities to which “Most Favored Nation” treatment will be automatically extended. As pointed out in my despatch this will be of great value with the Congress and public of Costa Rica.

I hope within the next few days to have an opportunity to go over the tentative final drafts with Mr. Gurdián and shall of course inform the Department promptly of the outcome of these conversations.

In the meantime I respectfully request instructions on the question raised above in connection with: (1) the proposed increase in wharfage tax; (2) consumption taxes and (3) requests for concessions on tomatoes and dried bananas.

Respectfully yours,

Leo R. Sack
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