The Secretary of State to the Minister in Nicaragua ( Lane )
20. Referring to yesterday’s telephone conversation and to your telegram No. 44, February 27, 7 p.m.
Point 3. We are unable to accept the wording proposed by Nicaragua since it would not be consistent with the purpose of Article V, hence our wording must be accepted or the sentence omitted. We believe that if Nicaragua thoroughly understands the purport of this article it will be willing to accept our wording. For example, in calculating the amount of duties payable on imported goods subject to the payment of ad valorem duties there are two steps involved. The first is to convert the value of the shipment expressed in terms of the foreign currency into terms of the local unit. In the present case we are concerned with the conversion of values expressed in dollars into cordobas. We understand that Nicaragua is now converting dollars into cordobas at par, or one dollar equals one cordoba. Therefore a shipment of American radios for example valued at one hundred dollars would be translated into one hundred cordobas by this method. The second step in this case would be the application of the ad valorem duty of 15 per cent, plus surcharges, to the total of one hundred cordobas. The first operation determines the base upon which the ad valorem rate and surcharges are calculated. Article V as drafted is designed to assure no change in the bases and methods of determining dutiable value and of converting currencies. It refers only to the first step described above; not to the second step. As we have stated before Nicaragua would retain complete liberty to fix the selling rate of dollar exchange.
With reference to conversion of currencies for customs purposes (the first step referred to above) Article V as drafted would prevent Nicaragua changing its method from the par of exchange to the official selling rate of exchange. In the event of devaluation the new par of exchange might be one fifty to one in which case Nicaragua would convert in conformity with Article V a one hundred dollar shipment of radios into one hundred and fifty cordobas. If Nicaragua were free to convert on the basis of the official selling rate of say one hundred and seventy-five to one the value of the shipment in cordobas would be one hundred and seventy-five.
Point 7. On basis of assurance during telephone conversation that Nicaragua does not now operate any system of import control covered by paragraph in question the Department is considering authorizing you to include in the proposed memorandum the first two sentences [Page 805] of explanation in Department’s telegram No. 14.36 Before giving such authorization however the Department wishes to make certain that the system reported in your despatch number 27 of October 26, 193537 from Vice Consul Bay38 cannot be construed to be covered by the paragraph. Your views in regard to this are requested.
Point 9. Acceptable.