Foreign Relations of the United States Diplomatic Papers, 1937, The American Republics, Volume V

839.51/4489½

The Minister in the Dominican Republic ( Schoenfeld ) to the Assistant Secretary of State ( Welles )

Ciudad Trujillo , February 23, 1937.

My Dear Mr. Welles: Many thanks for your letter of February 15¹⁷ received yesterday, with its enclosures, being a copy of the Secretary’s memorandum of February 11, 1937 recording a conversation with Ministers Pastoriza and Henríquez Ureña of the Dominican Republic, and a copy of their note of February 10 [11] to the Secretary with an attached draft protocol for revision of the American-Dominican Convention of December 27, 1924.

In the last two paragraphs of the Dominican note I observe that the readiness of the Dominican Government is intimated to lift the discrimination against American imports here upon the condition that negotiations for a trade agreement with the United States are initiated “immediately thereafter.” Not having seen the Secretary’s note of February 10 to which this intimation seems to be an answer, I can not comment intelligently on this point but venture to refer to my letter to you of February 1¹⁸ suggesting that the Dominican Government considers the discrimination a useful weapon in its relations with us. Rumors have been current here lately and have perhaps been put out for our benefit that the discrimination will be lifted shortly.

With reference to the first part of the Dominican note and the draft protocol, the Dominican Ministers are certainly candid and unmistakable in their statements of their Government’s aspirations. Little seems to have been overlooked in the draft to strip from the holders of Dominican external bonds issued under the Convention of 1924 the last tattered remnant of the guarantees provided in the Convention, save only the good faith of the Dominican Government. That, of course, is much, if we are prepared to rely on it, and calls for no uncharitable comment in view of the record of the Trujillo administration. Nevertheless, in view of the Secretary’s reference to the possible attitude of our Senate towards the proposal, some comments on the draft protocol suggest themselves, as follows:

• Article 1. The phrase “customs duties” requires explicit definition in view of the Dominican Government’s past action in the matter of levying customs duties and so-called internal revenue taxes on imports.
• Article 2. This article makes only incidental reference to the Fiscal Representative who under the language used lacks authority to see that the order of payments is followed.
• Article 3. Under this language the Fiscal Representative will receive payments to be made by the Dominican Government but will not collect revenue. This is confirmed by the contingent power given him in Article 5 to collect. His role will be a passive one except that he must see that his office expenses do not normally exceed 3% of customs collections (presumably excluding internal revenue taxes levied on imports). If he is to collect, as distinguished from merely receiving, he will have to be granted the power.
• Article 4. Since the supervisory powers of the Fiscal Representative as defined in this Article are illusory, the statistical service to be rendered by him can not be effective. His ineffectiveness is greatly increased by the second paragraph of this Article which precludes his control over his own subordinates.
• Article 5. Is our Government to determine when the Fiscal Representative shall take charge of customs houses? If so, this should be stated. But this seems not to be the intent of the language used.
• Article 6. Due regard to the sovereignty of the Dominican Republic would, of course, counsel acceptance of this Article if the trusteeship for the creditors is to be vested in the debtor government.
• Article 7. This Article is the frank negation of our latest representations in 1936¹⁹ as to the significance of Article III of the Convention of 1924. It will be accepted or rejected as we may decide whether or not the time has come to divest ourselves of the obligation imposed by Article III of the Convention. Of course, if we accept the principle of this Article, discussion of much of the remainder of the draft protocol becomes almost superfluous. I see no middle course between accepting and rejecting it.
• Article 8. The language of this Article is obscure and its meaning uncertain but the considerations outlined under Article 7 above apply substantially to Article 8, with the addendum that, in the absence of a consolidated customs tariff in the Dominican Republic, this Article as drafted is so much “eye-wash.” We have shown (my despatch No. 3511 of September 14, 1936,²⁰ page 3 et seq.), and the Dominican Government knows (last paragraph of my despatch No. 3600 of November 3, 1936²¹) that there is no practical limitation on this Government’s tariff bargaining power except the Modus Vivendi of 1924. Further, it seems inadvisable to insert in the protocol the “one and one half” protective provision, since the external funded debt service in 1936 required only 39% of customs revenue (excluding internal revenue taxes on imports) or about 10.6% of the Dominican Government’s total budget, and the cost of the Receivership is included in these percentages.
• Article 9. A Fiscal Representative exercising the powers defined in the earlier articles of the draft protocol can hardly be held responsible for any accounts, save those relating to funds received (but not revenues collected) by him.
• Article 10. Who is to formulate the compromis of arbitration if the two governments do not agree on its terms within the three months provided?
• Article 11. The sweeping significance of the draft protocol is fully revealed in the first paragraph of this Article, purporting to make effective at once and in advance of ratification, as “interpretations” of Articles III and IV of the Convention, the 7th and 8th Articles of the draft protocol.

These comments suggest the essential modifications which would have to be made in the proposed protocol if it is decided that the Fiscal Representative shall have real power to safeguard the interests of the bondholders. If, however, he is not to interfere with control by the Dominican Government over all its fiscal operations, the Dominican draft would seem to require but little change or, better said, it is evident that the Dominican proposals offer a practicable basis for an agreement upon the hypothesis that the Fiscal Representative is to be a screen for complete fiscal autonomy in this Republic.

I presume it would be possible to have the proposed Dominican National Bank perform the functions of the Fiscal Representative unless the bank scheme has recently been changed. In that event, it seems to be a case of putting the cart before the horse to discuss the proposed protocol (I should call it a treaty) in advance of the establishment of the National Bank and consultation with the management of the proposed Bank. The timeliness of the proposals embodied in the draft protocol is correspondingly doubtful.

The present urgency of the Dominican Government in pressing for the conclusion of the protocol and in responding so promptly to the Secretary’s solicitation of proposals for revision of the Convention of 1924, is perhaps to be explained by the fact that the 1936 fiscal year ended with an operating deficit of nearly half a million dollars (see my strictly confidential despatch No. 3778 of February 22, 1937²²). It is doubtless a source of no little anxiety to President Trujillo to achieve the settlement represented by the proposed protocol and to achieve it at once. He feels he must have even greater freedom than at present to manipulate the finances, aside from the conspicuous political triumph the conclusion of such an agreement would afford him.

There is still, so far as I can see, no half-way station between enforcement and abandonment of the Convention of 1924. We have not enforced it. On the presumption that we will not enforce it, I see no advantage nor even international honesty in keeping up the fiction that the two governments concerned are governed by it. At the same time, I am well aware that the fiction remains a solace to a considerable body of informed opinion, not to mention bondholders and floating debt creditors of the Dominican Government.

Sincerely yours,

H. F. Arthur Schoenfeld

17. Not found in Department files.
18. Not found in Department files.
19. See Foreign Relations, 1936, vol. v, pp. 435 ff.
20. Not printed.
21. Foreign Relations, 1936, vol. v, p. 456.
22. Not printed.