611.2231/91

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

No. 632

Sir: With reference to my despatch No. 631 of December 11, 1936, relative to the contemplated trade agreement with Ecuador, I have the honor to report that the Minister for Foreign Affairs informed me on Sunday that his Government desired to expedite as much as possible the study of the points raised in my conversation with him. He added that Dr. Francisco Banda, the Chief of the Commercial Section of the Foreign Office, is now studying the proposal preparatory to submitting it to the Treaty Committee.

This afternoon I called upon Doctor Banda to ascertain what progress was being made. He stated that he had studied our proposal and that he found it most reasonable. With regard to the concessions desired on flour and lard, he informed me that his Government would communicate to me its willingness to reduce the present duties by 30 %, I replied that I did not believe that my Government could consider sufficient a reduction of 30% since Ecuador collects customs duties, consular Fees and other fiscal charges on these imports of a total ad valorem equivalent of approximately 45% and 34%, respectively. On this basis a reduction of 30% on the customs duties alone would be equivalent to solely a 20% concession on the total fiscal charges. I suggested that his Government in giving consideration to this request might find it expedient to bear in mind that under the American tariff system the basic charge is the customs duty since the consular invoice fee is purely a nominal one. Therefore, any percentage reduction conceded to Ecuador is virtually that percentage of the total charges. Doctor Banda argued that the suggested 30% reduction is based on the authority conferred under the Preferential Tariff and that in view thereof this maximum percentage could be conceded without further legislative authority. In this connection I deemed it pertinent to recognize that while the Ecuadorean Preferential Tariff might be construed to establish the principle of a maximum reduction of 30%, the legislative authority is now vested in the Executive and that, therefore, the Ecuadorean Government would seem to have the authority to accord a reduction greater than 30%. I suggested that in view of the several fiscal charges on imported articles, a reduction to be considered substantial must be at least 50% of the existing duties. After further conversation Doctor Banda expressed his conviction that the United States is entitled to a 50% reduction on these items. He added, however, that it would be necessary to obtain authority from the President to make this commitment and that he would endeavor to do so tomorrow.

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Doctor Banda then discussed informally some of the minor export products in which Ecuador is interested in obtaining concessions. He first referred to naranjilla juice which has been the subject of previous despatches by this Legation. I pointed out that my Government desires particularly to give sympathetic consideration at this time to those products of Ecuador now being exported to the United States. I observed that this is not the case with naranjilla juice which is solely a potential export. I added that, as he is aware, “Fruit Juices” is a general classification under the American Customs Tariff and that, it seemed to me, any reduction on a particular fruit juice must necessarily be extended to all other fruit juices. Therefore, should Ecuador seek a reduction in the existing duty on naranjilla juice, any benefit obtained would immediately accrue to a number of other countries whereas it is now problematical whether Ecuador will be able to take advantage of such a concession.

Doctor Banda said that his Government would also be interested in obtaining a concession on lentils. I observed that the export of Ecuadorean lentils to the United States is practically in the same class as is naranjilla juice, and Doctor Banda recognized that any such benefit would accrue principally to Chile.

Doctor Banda further stated that Ecuador is interested in the sale of natural carbonic gas to American Government agencies in the Canal Zone. He said that this product in the past was shipped in relatively large quantities to the Canal Zone for use by the American Navy; that the price thereof was reasonable; and that the quality was especially high. However, this market had been entirely closed as a result of the American law prohibiting the purchase of foreign products by American Government agencies when analogous American products are obtainable, notwithstanding the price of the latter may be higher. I explained that this measure was one of domestic policy and concerned only purchases by the American Government. I added that the modification of the law to permit the sale of Ecuadorean carbonic gas to the United States Navy would seem to be beyond the scope of the authority contained in the Trade Agreements Act, and that a special act of Congress would have to be enacted to amend the law.

Respectfully yours,

Edward J. Sparks