The Chargé in Peru ( Dreyfus ) to the Secretary of State

No. 4682

Sir: Referring to the Department’s instruction No. 919 of August 4, 1936, concerning the pending Anglo-Peruvian Commercial Agreement, I have the honor to report that I had the opportunity, at an audience with the Minister for Foreign Affairs on August 19th, to lay before him the several points contained therein.

The existing legislation governing the importation of sugar into the United States was reviewed by us. I took occasion to point out [Page 918] that the Jones-Costigan Law is in no sense discriminatory, and I proffered the informal observations concerning the drafted and projected legislation with regard to quota reallocations, explaining the liberal administration of the existing legislation whereby on July 2, 1936, the Secretary of Agriculture authorized from the unallocated reserve the entry of 600,000 pounds of Peruvian sugar, over and above the quota allotted this country. I also reiterated the contents of the Department’s telegram No. 28 of June 23rd, explaining the attitude of the Department with regard to the conclusion of the Peruvian-British Commercial Agreement which seems to accord certain advantages, including exclusive preferences to Great Britain.

The Foreign Minister stated that Peru’s absolute need for an outlet for its sugar made necessary the negotiation of a commercial agreement with Great Britain at this time and that the agreement now being negotiated was similar to other bi-lateral pacts which had been signed between nations in recent years. He added that the Peruvian Government had taken the position recently that under present circumstances it was unable to favor the inclusion of a most-favored-nation clause in any commercial agreement which might be made. After explaining the fundamentals of Secretary Hull’s trade agreements program and his efforts to bring about economic rehabilitation throughout the world, I inquired whether the trade agreement between Great Britain and Peru was not in contradiction to the commercial and tariff policy adopted jointly at the Seventh International Conference of American States. To this, Dr. Ulloa replied that conditions had changed somewhat since the Montevideo Conference and that he had observed a growing tendency to get away from those principles, as the basic obligation of each nation is to insure foreign markets for its products, and in his opinion this could be more readily accomplished through the completion of bi-lateral trading conventions without the most-favored-nation clause.

At this point, I mentioned that the Embassy had been informed that the draft of the agreement between Peru and Great Britain contained a clause concerning purchases by Peruvian Government officers, which seemed to give preference to British firms. Dr. Ulloa replied that this subject was treated not in the agreement itself but in notes to be exchanged at the moment the agreement is signed. After calling for the treaty file, Dr. Ulloa read to me the section which provides that Government offices must request bids from British firms whenever purchases of goods are to be made abroad, and in cases of equal merit the bids of the British firms should be given preference over those of other countries, after giving due consideration to quality, prices and terms of payment. Dr. Ulloa inquired if in my opinion this was special preference, to which I replied that indeed it seemed to [Page 919] give British manufacturers a distinct advantage. The Foreign Minister did not agree with this view, saying that the British Government had drafted and insisted on the inclusion of the text as it stood but that he could not see that the British would benefit greatly therefrom as it produced a hypothetical situation which meant little, as only in rare instances could two articles be of equal merit, especially where British products were concerned, as he had observed that in general the prices of the British articles were noncompetitive and the products of other nations were often preferred. He added that this was not the only point on which there had been insistence on the part of the British who were pressing also for the inclusion of two other clauses which were not viewed with favor by his Government. One of these was the requirement that the Peruvian Government was to engage itself to declare that certain of its laws should be inapplicable to British firms doing business in Peru, and the other that the law requiring the registration of foreigners was to be amended so that the amount to be paid in connection therewith should not be called a tax but a registration fee. The Foreign Minister pointed out that this utter disregard on the part of the British for local laws seemed quite amazing to him.

Dr. Ulloa did not give any indication as to the date when the agreement might be signed. He said that the signature had been delayed by minor points which still had to be agreed upon. He stated that the British Government had objected that the decisions of the Peruvian negotiators in London were not final and that the final draft had to be submitted to Lima for approval. Dr. Ulloa added that the signing of the agreement would take place in Lima and that it contained the provision that a three-months’ notification by either party was required for abrogation which would allow its prompt termination any time that this might be desired.

Towards the end of our conversation, the Foreign Minister observed that he understood that nothing could be done at this time to amend the Jones-Costigan Law, inasmuch as our Congress was not in session. He then referred to the other situation which was causing so much concern to the Peruvian Government and to the Sugar Industry, viz: the dumping of Cuban sugar in the British and other foreign markets at illusory prices with which Peruvian sugar could not compete. He remarked that this dumping was made possible by the profits accruing to Cuban sugar planters as a result of the preferential tariff on their sugar imported into the United States. He added that the Cuban Government had urged sugar growers to increase their production so as to employ more workers and thereby help to relieve the unemployment situation. He explained that the local sugar growers as well as the National Agrarian Society were bringing heavy pressure on the [Page 920] Peruvian Government to take immediate action to rescue the sugar industry from imminent ruin, and that this compelled him to find some solution to relieve this situation, and to assure a permanent market for Peruvian sugar.

Dr. Ulloa then added that since the unemployment situation in Cuba is not a serious problem, there is no need for that Government any longer to urge increased sugar production under artificial conditions which owe their existence to the preferential tariff relations between Cuba and the United States and which permit Cuba to dump large quantities of sugar abroad, thereby ruining Peru’s normal sugar trade. (See Embassy’s despatch No. 4656 of August 1, 1936,41 particularly page 2, item 6.) He stated further that the Government of Peru would appreciate it very much if I could transmit to the Department of State the idea that the Government of the United States might possibly be willing to suggest to Cuba that this practice of dumping its surplus sugar abroad might be given up. I replied that I considered this question one that ought to be treated directly between Peru and Cuba. He assented to this, but added that the crucial fact should not be overlooked that Cuba was precisely enabled to dump her sugar in foreign markets as a direct result of the United States’ special preferential tariff on Cuban sugars, and that his statement was therefore predicated on this fact and that as a consequence the United States Government might be willing to study his suggestion and perhaps lend its aid in finding a method whereby Cuba’s sugar dumping in foreign markets may be curtailed or eliminated, or that Peru could be assured by special agreement of an import sugar quota in the United States of not less than 200,000 tons in order to save the Peruvian sugar industry from imminent ruin.

Respectfully yours,

Louis G. Dreyfus, Jr.
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