611.2231/46

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

No. 306

Sir: With reference to my despatch No. 296 of March 10, 1936,12 regarding the proposed commercial modus vivendi between Ecuador and the United States, I have the honor to report that I saw the Under Secretary for Foreign Affairs at lunch on March 11th when he informed [Page 492] me that his scheduled conference on our proposed modus vivendi for that morning with Mr. Riofrio, Chief of the Technical Department of the Ministry of Finance, had been postponed on account of discussions of a commercial arrangement with Chile. In view of the fact that I had learned that Chile is requesting preferential treatment on certain products originating in that country but which compete with similar American products, and that it was desirable to ascertain the effectiveness of our agreement vis-à-vis the contemplated arrangement with Chile and to expedite consideration of our proposal, I again approached Mr. Riofrio that same afternoon.

Mr. Riofrio stated that he had finished preparing his report on the proposed agreement and that he would submit it on the following morning to the Minister of Finance. He added that four months previously he had given an opinion to the Foreign Office that the preferential tariff must be extended to the United States. Therefore, his present report was a confirmation of that opinion with the exception that he considered, in conformity with Ecuador’s commercial policy, that the suggested modus vivendi should be modified to indicate that the preferential tariff was being extended to the United States, not because of the most-favored-nation provision of the modus vivendi, but simply because the United States had fulfilled the requisites of the Ecuadorean Government for granting the preferential tariff.

I expressed my appreciation of the favorable report made by Mr. Riofrio, but I added that I felt that any modification of the proposal made by my Government might not necessarily be acceptable, regardless of the friendly and favorable spirit in which it might be made. In explanation of this statement, I pointed out effectively that the commercial policy of the United States at the present time is not to seek any particular or specific advantages in any country, but simply to assure equality of treatment in the sense that the commerce of any third country is not obtaining advantages greater than those accorded to the commerce of the United States. I also expressed the fear that any modification of the agreement might affect unfavorably the purpose of my Government in proposing the convention under consideration. I reiterated that the object of the convention was simply to obtain and maintain equality of treatment and, therefore, if a statement were made in the agreement to the effect that the preferential treatment was being accorded to the United States not by virtue of the unconditional most-favored-nation clause, but simply because we had fulfilled the immediate requisites of Ecuador, the agreement itself might not be sufficient to provide for future changes in the Ecuadorean tariff, such as those at present under consideration with the Republic of Chile. Mr. Riofrio assured me that his purpose in making the suggested amendments to the agreement was simply to make the agreement [Page 493] conform to Ecuador’s commercial policy, namely, as pointed out in the first paragraph on page 2 of the Legation’s despatch No. 225 of January 10, 1936, that the preferential tariff cannot be accorded by his Government simply because of the existence of a most-favored-nation clause in a treaty of commerce with a foreign country. In other words proof must be established, and recognition thereof given, that the country to whom the preferential tariff is accorded, has conceded advantages to Ecuador. I pointed out that it seemed unnecessary to reiterate that the United States had already conceded special advantages to Ecuador by extending to that country the concessions already made in the agreements concluded by the United States with Brazil, Colombia, Haiti and Honduras,13 which involve the binding on the free list of bananas, coffee, cacao, raw reptile skins, ginger root, platinum and tagua nuts. I carefully reiterated that under our commercial policy we had ipso facto extended these same concessions to Ecuador. Mr. Riofrio assured me that he recognized and appreciated these concessions. Notwithstanding, he felt that the statement indicated should be included in the proposed agreement in order to prevent other foreign nations having trade treaties with the most-favored-nation clause from demanding the preferential tariff simply by virtue of such clauses. I expressed my appreciation of this explanation, but suggested that he revise his opinion in such a way that it would not be incumbent upon his Foreign Office to insist upon the inclusion of such a statement in the event that it should be found inacceptable. In this connection I stated that I was not sure that the proposed modification might not be considered by Washington as a substantial change or amendment of our general policy in which case it would not be acceptable. Mr. Riofrio stated that he would change his report so that the Foreign Office might have latitude in discussing this point with the Department.

It is important to point out that Mr. Riofrio is insistent upon this point only as concerns the preferential tariff for the reasons already stated. In connection with any special advantages which might be accorded separately to Chile in a special arrangement, for example, he stated that these would be ipso facto extended to the United States by virtue of the unconditional most-favored-nation clause in the proposed modus vivendi.

It will be seen from the foregoing that the desire of the authorities is to accord us immediately the same preferential treatment at present granted to France and Germany. The only difficulty is as to the manner [Page 494] in which the treatment should be extended in view of the provisions of the local law. The Minister of Finance left Quito last Thursday, for reasons of health, and is not expected to return until March 20th. He was unable to pass upon the report before his departure, but I intend to ascertain the exact authorization granted the Foreign Office so that the Department may be informed when discussing this matter with the Ecuadorean Legation in Washington.

During the course of my conversation with Mr. Riofrio he referred to the exigencies of France. He recognized that the purchases of France are far in excess of the importation into Ecuador of French products, in view of which he considers that France is entitled to preferential treatment. He added that the French Minister had already approached the Ecuadorean Government and pointed out this very advantageous trade balance between the two countries and had objected to the extension to Germany of the same privileges already granted his country. Mr. Riofrio stated that he recognized as just this objection and was contemplating certain means of extending further advantages to France. He added that he thought of recommending an increase in the rate on the preferential tariff from 30 to 40 percent for French products, maintaining it at 30% with countries such as the United States, 20% with countries such as Belgium, and the regular tariff for countries such as England. I pointed out to Mr. Riofrio that any such policy could not be viewed with favor by the United States Government since it involved from its very inception a discrimination against the products of the United States. In view of the fact that Ecuador must, as a result of the exigencies of France, extend apparent preference to the products of that country, I suggested that it might be possible to apply the policy adopted by the United States in its trade negotiations with other countries. I then pointed out that where we find it necessary or desirable to accord special treatment in compensation for advantages granted, we select articles of special interest to American trade and to the trade of the foreign country and then fix preferential or special import duties on those specific products. Under our policy of the most-favored-nation we immediately extend those advantages to other foreign countries and no discrimination exists. However, as the articles are specially selected, the advantages are not really extended to all countries. I therefore suggested in lieu of his proposal, that he, in conjunction with the French Legation might pick out items of special interest to France and non-competitive with products of other countries, and apply reductions in the import duties on those articles. I added that under our proposed most-favored-nation modus vivendi we would obtain these same benefits but naturally as we do not produce such articles we would not enjoy the benefits of these reductions nor could we claim it a discrimination against the commerce of the United States. Mr. Riofrio considered [Page 495] this suggestion applicable and stated that he would substitute it for his previous ideas as to how to concede special advantages to France.

Another point of interest is that Ecuador in conceding to the United States the advantages accorded to France and Germany, is not contemplating the extension of the reduction in duties only on such products imported from those countries which are also imported from the United States. I have been given to understand that we shall be granted the whole preferential tariff without any discussion as to whether France and Germany may at present be availing themselves of all the articles included therein. I have not yet had an opportunity to investigate this particular question to determine whether we would obtain any special advantage by this treatment, but I feel that it is certainly a gain in principle and that it will simplify considerably the whole question.

Respectfully yours,

Edward J. Sparks
  1. Not printed.
  2. Reciprocal trade agreements were concluded with Brazil, February 2, 1935, Department of State Executive Agreement Series No. 82; Colombia, September 13, 1935, ibid., No. 89; Haiti, March 28, 1935, ibid., No. 78; and Honduras, December 18, 1935, ibid., No. 86. See also Foreign Relations, 1935, vol. iv, pp. 300 ff., 430 ff., 642 ff., and 729 ff.