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

No. 1176

Sir: I have the honor to acknowledge the Department’s telegram No. 26 of June 18, 1 p.m., which was in reply to my telegrams Nos. 34 of June 13 and 35 of June 15, and to report the following developments to the Department:

On last Saturday, June 13th, when I called on Foreign Minister Jiménez with reference to terminating the trade agreement negotiations in accordance with his previous declarations to me and to discuss specifically the general provisions which was then the only pending subject, he told me that his personal efforts to modify and improve [Page 391] the Spanish translation of the general provisions as submitted by the Department, and which had previously been worked over by Mr. Drew of this Legation and by Mr. Beeche, the former Oficial Mayor of the Ministry of Foreign Relations, were proving so discouraging that he would like to substitute the entire general provisions of the agreement recently negotiated with the Republic of Guatemala, a copy of which he had received in the Official Gazette of that country.

After glancing over the Guatemalan agreement and making a hasty comparison of its provisions with the text of the proposed agreement for Costa Rica as prepared by the Department, I told him that I, personally, saw no objection to making the substitution if that would prove helpful to him, but that I preferred to telegraph the Department and receive its approval before making the substitution. Mr. Jiménez then added that if the Department did not object to the substitution, that he could have the agreement prepared in proper form by the facilities of his office and that perhaps the formal signature could be affixed on the following Thursday and if not on Thursday surely by Saturday, June 20th. At the same time Mr. Jiménez repeated his previous statement to me, that he desired to sign the agreement as soon as possible and personally advocate its ratification by the Congress. He went out of his way in this conversation to express his appreciation of the patience of the State Department and of the American Minister in Costa Rica as displayed during the two years that the conversations have been in progress and particularly during the past year when the American Government authorities were ready to terminate the negotiations whenever the Costa Rican authorities were ready to sign.

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At a conference with Mr. Jiménez on May 29th, following the receipt from the Department of telegram No. 20, he accepted with pleasure the reduction to 17½% on dried bananas. He also accepted the draft of my proposed letter (See despatch No. 1130 of May 14, 1936), with reference to exports to the Canal Zone. In reference to the points raised by Mr. Gurdián in my despatch No. 1099 of April 23, 1936, and the Department’s instruction No. 308 of May 23, 1936, he expressed his disagreement with his predecessor and the changes sought in the general provisions by Mr. Gurdián were dismissed by him as being “of no importance and not necessary”.

Anticipating at that time that Mr. Jiménez would conclude his study of the Spanish translation of the general provisions “within a few days” as he promised me and then proceed to approval of the final draft of the agreement, I did not notify the Department of that conversation, preferring not to burden the Department with any more details than necessary. I had hoped to report the final results of my negotiations within a few days thereafter. I believed then that the [Page 392] Foreign Minister was trying to make good his earlier promise to me to speedily terminate the negotiations.

On yesterday afternoon following the receipt of the Department’s telegram No. 26, of June 18, I asked the Foreign Office for an appointment with Mr. Jiménez for today and it was suggested that I call at two o’clock this afternoon. In order that there could be no mistaking of the final conversations with reference to the details of the agreement, I asked Vice Consul Satterthwaite, who speaks very excellent Spanish, to accompany me. I took with me the corrected text of the agreement including the general provisions and Schedules I and II in shape for transmission to the printer. I also wanted Mr. Satterthwaite present because this morning there appeared the attached article from La Tribuna, which declared in a streamer headline that the signature of the commercial treaty with the United States would be delayed. The article, which had all the earmarks of an inspired story, asserted that a study of the provisions of the agreement indicated that Costa Rica stood to lose 500,000 colones through decreased customs revenues. Obviously I was disturbed by the publication but I made no reference to it when we arrived at the Foreign Office. I am also enclosing copy of an article from page one of this afternoon’s La Prensa Libre, the data for which I feel certain came from Mr. Jiménez himself. (Time does not permit the translation of either of these articles in advance of the closing of the air mail tonight).

I informed the Foreign Minister of the Department’s acquiescence in his suggestion for a substitution of the general provisions and we then agreed upon the general provisions in this manner:

The preamble of the proposed original agreement with Costa Rica in which the names of the plenipotentiaries of the two governments are set forth at the outset. This is in accordance with the form followed in the existing treaty of July 10, 1851, between Costa Rica and the United States. Then we agreed upon the first fifteen articles of the agreement with Guatemala substituting only the name Costa Rica for Guatemala where such corrections were necessary and the name Guatemala for Costa Rica in the third line of the fourth paragraph of Article 14. For Article 16 we agreed upon Article 15 of the proposed text with Costa Rica as was prepared in the Department. This article refers to the Agreement of 1851.

Up to this point there was every indication that this was the final conference prior to the actual signing of the agreement.

Then Mr. Jiménez with apparent embarrassment said that when President Cortés and he had discussed ratification of the agreement with former President Jiménez and former Foreign Minister Gurdián they had been assured that the anticipated losses of the customs revenues as a result of the concessions made in the agreement would not [Page 393] exceed 200,000 colones a year. A “very recent” study of the statistics of anticipated losses prepared by the Government last year, he continued, revealed that the concessions previously agreed upon by Mr. Gurdián and former Finance Minister Brenes would “cause losses” of from 300,000 to 500,000 colones. Mr. Jiménez declared that he was not certain as to the accuracy of this estimate and that a new study of the probable effects of the reductions was being made at his request.

He declared that President Cortés as well as himself had the “utmost goodwill” toward the agreement and were anxious to terminate it as rapidly as possible but that they felt that if the anticipated losses ran in excess of 200,000 colones from world-wide imports, that the Government could not afford to sign the agreement on its present basis. And he added “nor would it”; he described such losses as “an insufferable obstruction.” He claimed that the Government now is being forced to impose the strictest economy in many of its departments in order not only to balance its budget but also to raise revenues for other purposes. He asserted that as an economy measure, 80,000 colones have been reluctantly curtailed from the budget of the Bureau or Public Health and that if, as he has been informed, the losses to the Government from the agreement would approximate 300,000 colones “many Government employees would lose their jobs and go hungry”.

I told Mr. Jiménez that I did not agree with his estimate and I showed him a copy of a memorandum which I prepared last December on the figures of estimated losses originally prepared by the Treasury Department of Costa Rica. This memorandum showed that on the basis of 1934 customs receipts the loss to the Costa Rican Government from all concessions proposed in the original suggestions of the Department would total 1,814,024 colones. These figures, however, included imports from the entire world and included the then anticipated losses from the then proposed reduction of duty on flour and the then proposed reduction of duty on lard.

Subsequently, as the Department is aware, the United States agreed to bind the duty on flour, an item involving anticipated losses of 1,015,514 colones on the basis of the 1934 customs receipts and also to bind lard at the 1935 figures which involved an anticipated loss of 476,648 colones in the 1934 customs receipts. These two items subtracted from the total left anticipated losses of only 321,862 colones on imports from the entire world.

Subsequent to the preparation of this memorandum Mr. Gurdián (see my despatch No. 961 of December 8, 193517) submitted his counter proposals which accepted in full only seven of the reductions recommended [Page 394] by the United States and bound eight other items, granting partial reductions on twenty-two additional items.

The net result of the reductions granted by this Government and accepted by the State Department reduced the one time estimate by the Government of anticipated losses of 1,814,024 colones to approximately 200,000 colones, as estimated by Mr. Gurdián and Mr. Brenes.

During all of the period of the negotiations with Mr. Gurdián and Mr. Brenes I insisted, however, that the proposed reductions sought by the United States would not, in fact, reduce revenues to the Government of Costa Rica but would actually stimulate consumption and thereby increase revenues. I pointed out that this has been the experience of every country which has negotiated trade agreements with the United States and I knew of no reason to anticipate that the result in Costa Rica would be different.

After the submission on December 7, 1935, of the Costa Rican counter proposals there has been no question as to the changing of those concessions or any suggestion from any source that the concessions would involve unbearable losses to the Government of Costa Rica. The newspaper articles today and Mr. Jiménez’ declarations to me were the first intimations since last year that the Government would be unable to “assume the losses.” As a matter of fact every tariff item upon which concession is granted to the United States affects the cost of living of the people and it is to be assumed that any reductions in the import costs of these commodities would be reflected in their lowered cost to the ultimate consumer. The Costa Rican negotiators, however, as the Department recalls, have never been cheerful over the prospect of any loss of revenue whatsoever nor have they been keen on the theory that lower tariff walls will stimulate consumption, and thereby increase customs revenues.

I told Mr. Jiménez today that I saw no reason to challenge the figures prepared by the Government agencies last year and I reminded him that many months were spent on their preparation by the same men who are now working for the Government. Mr. Jiménez admitted this and agreed that my attitude was correct, but, he declared he has reason to believe that in many instances the statistics previously prepared by the Government are inaccurate or at any rate are in such form that the Congress would have difficulty in accepting them. He said that at this moment the figures, in his opinion, are subject to challenge by congressmen and that it is undesirable to negotiate a treaty which will not overcome the opposition of the Nationalist Congressmen. He told me that his independent audit of figures will be completed by noon on Monday, June 22, 1936, and that he wanted to discuss the figures with me at that time.

“If”, he went on, “the audit shows that the original figures are correct and that the loss is only 200,000 colones as we were assured [Page 395] by Mr. Gurdián and by Mr. Jiménez, I am instructed by President Cortés to sign the agreement with the least possible delay. In such an event the President told me that he would submit the agreement to the Congress with a strong message and would utilize every effort to assure its passage. If, however, the audit shows that our losses will approximate 300,000 colones or more, then I am instructed by the President to reopen the negotiations with a view to curtailing the amount of the concessions given. I do not want to insert a single new word or to seek any additional concessions from you but, if necessary, I am directed to revise the concessions (in Schedule I) on a scientific basis so that the losses to Costa Rica will approximate only 200,000 colones.”

Throughout his entire discussion of this subject Mr. Jiménez, while seeking to assure me of his desire to sign a treaty with the United States and of Costa Rica’s desire for the maintenance of the utmost cordial relations with the United States, insisted that the financial situation of this country is such that it cannot afford to take a chance on a loss of more than 200,000 colones. Mr. Jiménez asserted also that Costa Rica “is really making great sacrifices to the United States” in that the Government is tying its hands in its ability to protect two “growing national industries”, first, the home manufacture of lard and second, the Costa Rican manufacture of medicinal and toilet preparations such as those specified in the agreement will compete with.

I expressed to Mr. Jiménez my disappointment that at this late stage of the negotiations these additional objections should be raised and I told him that unquestionably, in my opinion, the Department of State also would be disappointed as well as greatly concerned.

It is unnecessary for me to inform the Department how personally chagrined I feel at this additional and wholly unexpected last minute objection, particularly as there has been no indication for more than six months that Schedule I was not a closed issue.

I have been loath to believe that the former President of Costa Rica, that the former Foreign Minister who is now the Minister of Hacienda, that the present Foreign Minister and also the incumbent President, whose views on this matter have been conveyed to me informally for him since he became President by Mr. Ricardo Castro, the Costa Rican Minister in Washington, as well as by Mr. Jiménez and by Mr. Gurdián, and also Mr. Gurdián since he became Finance Minister in Mr. Cortés’ Government, have been deliberately “stalling” and I am reluctant to hold this opinion today.

I do feel, however, that the Department of State and this Legation have with such great patience met every request of the Costa Rican negotiators throughout the entire period of the negotiations and have given such sympathetic consideration to the economic situation of the [Page 396] country that the time has now come for the United States to inform Costa Rica that it is forced to reluctantly terminate the conversations and leave them to such time in the future as Costa Rica cares to reopen the negotiations.

This thought is based on the assumption that Mr. Jiménez on Monday will tell me that his revised studies show that the Government stands to lose substantially more than 200,000 colones and therefore it will be necessary for a substantial revision of the concessions provided for in Schedule I.

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In this connection may I remind the Department that this Legation has at all times assured the Costa Rican Government that the United States Government has no desire for Costa Rica to lose a five cent piece through the termination of the trade agreement with the United States and also that this statement was made to Mr. Gurdián by Secretary Hull, himself, in Washington last fall, so Mr. Gurdián told me upon his return from the States.

In all of my conversations with the Government I have endeavored to arouse the helpful cooperation of this Government to Secretary Hull’s program to restore world-wide commerce by the breaking down of tariff barriers and the removal of artificial obstructions to the free movement of commodities between nations.

Unfortunately the high ideals of the United States Government fall upon deaf ears in this country because Costa Rica’s fiscal system is based chiefly on import and export tariff revenues and upon excise taxes. The Government, therefore, is and has been reluctant to lower its tariffs and to seek its revenues from other sources.

I feel however that the commerce of Costa Rica with the United States in comparison with the commerce between the United States and other countries with which the United States has negotiated trade agreements is so small that the time has come for the United States to express its regrets and to declare that it reserves the right to resume its freedom of action, particularly since this Government has at no time showed a genuine desire to cooperate, but to the contrary has repeatedly resorted to dilatory tactics, and, is now, as disclosed by today’s inspired newspaper articles, seeking to arouse public sentiment to the dangers of the treaty and in this way encourage vituperative and vociferous opposition in the Congress.

Another factor which enters into my recommendations is the brazen statement made to me this afternoon by the Foreign Minister. He said then “after all Costa Rica is getting very little from the treaty”.

When I pointed to Schedule II, which lists nine articles free of all import duties whatsoever, including the three chief crops of coffee, bananas and cocoa, Mr. Jiménez replied: [Page 397]

“We have always had them free and furthermore we know that the United States has guaranteed continued free entry to other countries, so that under the most favored nation treaty which we have with the United States we will continue to enjoy it”.

Mr. Jiménez depreciated the value of free entry of coffee into the United States and claimed that coffee sales to the United States were not important since “you buy your coffee from Colombia”.

When I called his attention to reduced duties on pineapples, and other Costa Rican fruit products, which his predecessor, Mr. Gurdián, had been so anxious to obtain, he shrugged his shoulders and replied that “those exports do not, and probably will not, amount to anything”.

In other words, the attitude of Mr. Jiménez—and I know that he reflects the attitude of many prominent Costa Ricans—is that Costa Rica is now getting free from the United States most of that which it will get free after the agreement is signed, so why make any concessions at all. He made it clear that in his opinion the bargaining position of the United States is not strong. At the same time he displayed a spirit of national selfishness in direct contrast to the “good neighbor” attitude which motivates the United States Government. I appreciate how very anxious the Department is to conclude trade agreements with every Central American country and with perhaps every nation in Latin America, but on the other hand I feel in view of the great concessions that the United States has traditionally given to Costa Rica on its chief agricultural products, to wit, free entry of bananas, coffee and cacao, and in view of the concessions proposed which have for their purpose the stimulation of other Costa Rican exports to the United States, that the United States Government should refuse to accept any substantial modifications of the concessions heretofore agreed upon.

The Department, as well as the Legation, will be in a better position to judge of this Government’s ultimate intentions when we receive Mr. Jiménez’ figures which he promises for Monday at noon.

If, as I have written above, Mr. Jiménez advocates on Monday a substantial revision of the concessions heretofore granted by Costa Rica I feel that the United States Government will be making a mistake if it agrees to the Costa Rican request.

If on the other hand Mr. Jiménez’ figures should show the need for very slight revision I will then suggest that the Department give its consideration to his request.

Respectfully yours,

Leo R. Sack
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