633.113/21

The Minister in Uruguay ( Lay ) to the Secretary of State

No. 148

Sir: I have the honor to refer to my Despatch No. 94, of October 1, 1935,7 with which was enclosed a copy of my Note No. 16 to the Foreign Office in Montevideo concerning customs discrimination against American products, and to my Despatch No. 140 of December 27, 1935,8 transmitting copy and translation of the reply from the Foreign Office to that Note; and to submit for the consideration of the Department a further presentation of the case designed to secure an adjustment of this situation by local authorities.

It will be immediately manifest that the Bank of the Republic, to which the protest was submitted for consideration, has failed to show that my allegation of unequal customs treatment for American goods was not well founded. On the contrary, the reply admits that only certain articles within quota limitations receive the benefits of the lower rate.

The Bank enters into an explanation of how certain articles become eligible to receive more favorable rates and indicates that increasing amounts of American goods in more and more categories are being granted those rates but leaves the argument and the real issue unanswered. Whatever the cause of establishing various rates, or whatever the means of applying them, the fact of their application to numerous American products constitutes actual discrimination.

The reason for the adoption of varying rates is the same as the reason for adoption of the quota system on imports. The mechanics consist of the conversion of 25% of the customs duties (which part is stated in gold but payable in paper currency) at two different rates of exchange established by the terms of admission of the merchandise into this market; i. e., whether the articles are brought in under a quota and are consequently paid for by controlled exchange, or are outside the quota and must be paid for at the free exchange rate.

The Bank’s implied argument is that the rate of conversion of 25% of the duties is dependent on the quotas which are granted to American importers which, in turn, depend upon the balance of payments [Page 943] (it should be noted that the Uruguayan Government does not say balance of trade) between the two countries.

If my interpretation of the policy of the American Government is correct, I desire to point out to the Foreign Office that customs duties constitute a question apart from quota limitations and that unequal duties assessed against like products from two countries constitutes de facto discrimination regardless of the fact that such duties depend upon quota limitations. With that object, I respectfully submit a draft9 of a further Note on this subject which I shall submit to the Foreign Office upon approval by the Department.

It is respectfully requested that the Department’s reply be transmitted to me by air mail.

Respectfully yours,

Julius G. Lay