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

No. 308

Sir: With reference to point one raised in your despatch No. 1099 of April 23, 1936, concerning the proposed trade agreement with Costa Rica, you are authorized to suggest the addition to Article I of the general provisions of the following language:

“However, the Government of Costa Rica reserves the right to increase the charge imposed pursuant to the provisions of Decree No. 48 of April 20, 1931, establishing a wharfage service tax, but agrees that no increase in such charge shall be such as to impair appreciably the benefit of any concession granted in this Agreement.”

The Department is obviously not desirous that the above language should be incorporated in Article I unless absolutely necessary, and relies on your discretion in this matter. In case it still proves necessary to satisfy the Costa Rican Government on this point, it is believed [Page 387] the language quoted above will do so, since it would allow Costa Rica reasonable latitude. At the same time, it would assure this Government of a substantial measure of protection, particularly in respect of the heavier products, such as lumber, in Schedule I.

With regard to question two, concerning consumption taxes, you may, in case of necessity, agree to embody the following in a letter to the Costa Rican Foreign Minister prior to the signature of the agreement: With regard to the so-called consumption taxes levied by Costa Rica on imported beer, wines and liquors, and cigarettes, the Trade Agreement to be signed between the United States and Costa Rica will not require the reduction of any of these taxes, nor will it prevent an increase in these taxes on imported beer, wines and liquors. The tax on imported cigarettes, however, will be bound against increase. In respect of all these taxes, the Trade Agreement will provide for most-favored-nation treatment.

The provisions of Article I relate only to ordinary customs duties and all other charges imposed on or in connection with the importation of the products of the United States enumerated and described in Schedule I. Under the provisions of Article IX, all products of either country are assured most-favored-nation treatment in respect of all customs duties and other charges imposed on or in connection with importation into the other country. The provisions of Article IV relate only to internal taxes imposed by either country, on products of the other country, after their importation into the country. In other words, Article IV does not relate in any way to charges imposed on or in connection with importation, before imported products are released from customs custody.

The tax on imported beer is levied on importation, hence it will not be affected by Article IV, nor, since beer is not in Schedule I, will the tax be covered by Article I. The same considerations apply to imported wines and liquors, that is, the consumption taxes thereon will not be affected by either Article I or Article IV. The tax on imported cigarettes is a charge imposed “on or in connection with importation”. Since cigarettes are in Schedule I, the Costa Rican Government agrees (in Article I) not to increase this tax over the amount collected on the date of signature; this tax will not be affected in any way by Article IV. The provisions of Article IV do not cover such a case of indirect advantage to domestic raw materials over imported raw materials as is involved in the higher internal tax on cigarettes made in Costa Rica from imported tobacco; hence Article IV does not require the Costa Rican Government to bring the internal tax on cigarettes made from foreign tobacco into parity with the tax on cigarettes made from domestic tobacco.

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With reference to point three, you are advised that studies are under way on the possibility of granting some concession to Costa Rica on dried bananas. As soon as a final decision has been reached in regard to dried bananas you will be promptly advised.

In view of the fact that the imports of tomatoes have come entirely from countries other than Costa Rica, and in view of the importance of the trade in this product, no concession is possible.

Consideration is also being given to the preparation of a list such as was envisaged in the Department’s instruction No. 271 of February 27, 1936,12 and it now appears likely that the Department will be able to authorize you to present such a list to the Costa Rican Government either before or at the time of signature.13

The Department would like to conclude the negotiations at the earliest possible moment, and is encouraged to believe that this may be possible in light of your despatch No. 1123 of May 7, 1936.12

Very truly yours,

For the Secretary of State:
Sumner Welles
  1. Not printed.
  2. This refers to a list of tariff benefits which a country would enjoy by virtue of the trade agreements program but which could not be written into the agreement with a particular country.
  3. Not printed.