The Minister in Ecuador ( Gonzalez ) to the Secretary of State
[Received October 6.]
Sir: With reference to my despatch No. 502 of August 26, 1936, in which I reported on certain problems which may arise in connection with the application of the Ecuadorean law establishing a system of exchange control and licensing of imports, I have the honor to state that the French Minister and the German Chargé lodged protests with the Ecuadorean Government in anticipation of the application of this measure in a manner which would affect unfavorably their commerce with Ecuador. The French Minister, in particular, anticipated that in the classification of imports a large proportion of French products, especially wines, liqueurs and perfumes, would be placed in the luxury class and their importation prohibited. Accordingly, he demanded that 70% of French exports to Ecuador be exempted from the import licensing system.
I had occasion this week to inquire informally of the Minister for Foreign Affairs as to what action had been taken in the matter of the French protest. The Minister stated that the French were justified in the position taken and that in view of the appreciable commercial [Page 525] balance favorable to Ecuador it would be necessary to comply with the request. He added that under our commercial modus vivendi 45 the United States will obtain any concessions or privileges conceded to France. It appears that he took this matter up with the Central Bank of Ecuador, which has charge of enforcing the Exchange Control law, and I enclose herewith a copy of his communication with English translation addressed to me on September 23rd46 communicating the results of his action. It will be observed that he pointed out to the Minister of Finance and the President of the Central Bank of Ecuador the expediency of carrying out the provisions of the American-Ecuadorean modus vivendi, and that statistics for the years 1934, 1935 and the first six months of 1936, show a balance of trade with the United States favorable to Ecuador. It will also be noted that the Central Bank of Ecuador has definitely instructed the Director of Exchange and Import Control not to hinder imports from countries whose balance of trade is favorable to Ecuador, except such items as may be absolutely superfluous and undesirable.
I would add in this connection that in an informal conversation with the Under Secretary of Finance he referred to the protest lodged by France against the exchange control. He said that when this demand was received by the Exchange Control Commission, it was not disposed to meet it. The argument was advanced that French commerce is not important to Ecuador and that a large share of Ecuadorean exports to France are eventually consumed in Switzerland and other inland countries of Europe. The Under Secretary added that he was able to convince the Minister of Finance and the Central Bank of Ecuador that Ecuadorean exports to France are a most important item in Ecuadorean commerce and that Ecuador could ill afford to take any measure which would certainly result in the curtailment of French imports from this country. He anticipated that a failure to meet the French demands would mean the immediate establishment of a system of absolute compensation and that consequently Ecuadorean exports would be reduced to a fraction of their present value. He also pointed out that in his opinion Ecuador could not, and should not, take measures against any foreign country whose trade balance is favorable to Ecuador, and that the measures contemplated in the Exchange and Import Control Law might be applied only to those countries whose trade balance should be unfavorable to Ecuador.
No information is as yet available concerning the results of the operation of the exchange control. In view of the restrictions in the granting of foreign currency for the past month and a half the gold [Page 526] stocks of the Central Bank have probably increased. However, there is no confidence that this will continue. In fact, the concensus of opinion is that the measure will not achieve the purpose in view and that it will at least be necessary to modify its provisions to a point where the effect will be nugatory.