611.2231/41

The Chargé in Ecuador ( Sparks ) to the Secretary of State

No. 262

Sir: With reference to the Department’s confidential instruction No. 84 of December 24, 1935,9 transmitting a copy of the note addressed to the Ecuadorean Legation in Washington proposing a most-favored-nation [Page 489] modus vivendi pending the outcome of further discussions concerning the possibility of initiating trade agreement negotiations, I have the honor to report that I have not been approached in regard to this proposal and that, in compliance with the instruction under reference, I have not had an opportunity to endeavor to expedite consideration of the proposed modus vivendi by the authorities.

I would state for the information of the Department that my British colleague recently inquired of me what we propose to do with respect to the Ecuadorean-French Modus Vivendi and the Ecuadorean-Ger-man Modus Vivendi. He said that his Government apparently is indifferent with regard to this matter inasmuch as its trade relations with Ecuador leave a balance of trade very favorable to it. It appears that Ecuador does not include in the trade balance the exports of Ecuadorean petroleum to Great Britain on the grounds that a British Company operates the oil fields and that not more than forty percent of the proceeds returns to the country. The British Minister further stated that he had been informed that on the other hand, Ecuador is disposed to conclude as soon as possible an agreement with the United States granting treatment to American products equivalent to that already accorded to French and German exports to this country, provided that we are willing to secure Ecuadorean products on their present tariff basis. I replied that these negotiations are being conducted in Washington but that in all probability we would seek only equality of treatment.

Yesterday evening I had an opportunity to converse with Mr. Eduardo Riofrio, Technical Adviser of the Ministry of Finance, and I inquired what effect he thought the German and French modus vivendis would have upon the foreign trade of Ecuador. He stated that the underlying purpose of these agreements according preferential treatment to imports from those countries, is a mutual endeavor to increase the trade between those countries and Ecuador. He added that in September of this year it would be possible to determine the effective results of the German Treaty and that, if it did not work out as anticipated, Ecuador would immediately denounce it effective January 1, 1937. At this point he referred to Ecuadorean-American trade relations and said that his country was disposed to conclude an agreement with the United States according it the same preferential treatment now granted to Germany and France. He stated that the trade relations between the two countries are very good, but that there must be deducted from the apparently large favorable Ecuadorean balance of trade the value of petroleum and gold ores. He holds that Ecuador profits little in the sale abroad of these two products inasmuch as they are produced by British and American capital, respectively, and that no more than forty per centum of the proceeds remains in the country. However, even after deducting these items the balance is favorable to [Page 490] Ecuador. He further stated that he understood that a proposal from the United States had been received by the Foreign Office, but that it had not yet been brought to his attention.

It will be observed from the foregoing that those responsible for recommendation in the matter of the proposed Ecuadorean-American modus vivendi are apparently in accord with the terms thereof. However, it is evident that the matter is being handled in a dilatory fashion.

Respectfully yours,

Edward J. Sparks