The Minister in Venezuela (Nicholson) to the Secretary of State

No. 323

Sir: I have the honor to report that the Venezuelan firm of Capriles Hermanos, local representatives of Chesterfield cigarettes, has approached the Legation through the office of the Commercial Attaché in regard to a bill recently introduced in the Congress which provides, in part, for an increase in the internal revenue tax on imported cigarettes from Bs. 10, the present rate, to Bs. 25 per gross kilogram. It has been estimated that in the case of American cigarettes imported into Venezuela, the effect of such a measure would be to raise the retail price of each package from Bs. 1.50 (37½ cents) to about Bs. 2.25 (55 cents), an increase of approximately 50 per cent.

The bill in question is understood to have for its purpose the encouragement of Venezuelan agriculture and the section referring to tobacco is reputedly designed to benefit the Venezuelan tobacco grower as well as to provide additional revenue from cigarettes imported from [Page 964] abroad. However, according to information supplied the Legation by Capriles Hermanos, the consumption of imported cigarettes is only about two per cent of the total production in Venezuela and thus offers but little competition to the native industry; moreover, it would appear that any increase in the already high price of imported cigarettes would make the cost prohibitive, resulting in an actual loss in revenue to the Venezuelan Government. It is stated that about 90 percent of the foreign cigarettes imported into Venezuela are of American manufacture, the balance being British or Cuban, so that the effect of the measure would be felt chiefly by products of the United States.

On June 9, 1936, I brought the above considerations to the attention of the Minister for Foreign Affairs, leaving with him an aide-mémoire on the subject, a copy of which is enclosed.11 In the absence of the Commercial Attaché, who was on a trip to Ciudad Bolívar, and having been approached on the subject not by the American interests concerned but by the local agents whose business was likely to be affected, I did not feel justified at that time in making a formal protest against the bill in question. Instead, I limited my representations to an inquiry as to the accuracy of the report regarding the provisions of the bill and as to the present status of the measure. Under date of June 17, 1936, 1 received a note from the Foreign Minister, a copy and translation of which are enclosed,11 stating that the matter had been referred to the competent Ministry and that I would be informed as soon as a reply was received.

The bill under reference is understood to have the backing of the Minister of Hacienda and to have had its first reading in the Senate on June 8. Capriles Hermanos, who have the Chesterfield agency for all of Venezuela except the Maracaibo district, state that about $8,000 worth of American cigarettes are imported into Venezuela every month and that the local representatives of other American cigarette manufacturers are equally concerned at the proposed legislation. About 40 per cent of these American cigarettes, according to Capriles Hermanos, are Chesterfields; they add that the prospects seem favorable for an increased business for American exporters provided no heavier tax burdens are imposed.

The Department will, of course, be kept informed as to developments in this matter.

Respectfully yours,

Meredith Nicholson
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