611.2231/207
The Minister in Ecuador (Gonzalez) to the Secretary of State
[Received October 18.]
Sir: With reference to the Department’s telegram No. 42 of October 6th, 7 p.m., 1937, and in confirmation of my telegram No. 57 of October 8th, 4 p.m., 1937, I have the honor to report that I interviewed the Minister for Foreign Affairs yesterday morning during which we discussed the situation which has arisen because of his insistence upon the inclusion of the Ecuadorean trade balance clause in the proposed trade agreement. I anticipated no success in persuading him to recede sufficiently from the position taken in view of his previous categorical statements on the subject and his assertion that the President and the Minister of Finance share the same views. Notwithstanding, I thought it desirable to go over the whole question again in the hope that he might reconsider his position.
I told the Foreign Minister that my Government had learned with keen regret of the incident which had developed in the negotiations, and that it was not disposed to take the step of considering the suspension of the negotiations pending a frank and thorough [Page 514] discussion of the conflict which had developed. I then permitted him to read a memorandum in which I had incorporated the three points made in the Department’s telegram under reference.
The Minister immediately replied that the situation has not changed and that he must state categorically that his Government is not in a position to abandon the conditional trade balance clause. He then proceeded to cite arguments previously presented and he emphasized, in particular, that the abandonment of this clause would imply the abrogation of the several Commercial Treaties recently or about to be concluded by Ecuador with foreign countries. He stated that the primary purpose of the clause and the policy based thereon, is to stimulate foreign markets for Ecuadorean products, and that the policy has had signal success in support of which he referred to the increase in exports to Germany, France and Japan. He also stated that the policy has been a means of increasing the price of many Ecuadorean products, especially vegetable ivory which is now being purchased in large quantities by Japan. He said that in previous years the price had been so low that Ecuadoreans were little disposed to collect the nut, but now with the increased demand and the easy placing of this product in foreign markets, the price has improved and there has been a consequent increase in exportation. The Minister also stated that the abandonment of the trade balance clause would involve a complete disregard of the pertinent law. I ventured to point out that it is my understanding that the clause is not the subject of a law but of an Executive Decree, in view of which an amendment or change would seem to require action only by the Executive Department.
At this point I called to his attention the statistics on export trade for the first seven months of this year (see my despatch No. 916, October 4, 193753), and explained that exports to Japan, France and Germany appear to have increased about 21,000,000 sucres, but that this increase has been made at the expense of exports to the United States inasmuch as a corresponding decrease seems to have occurred in their value. Under these circumstances the consequences of the policy seem to be a direct dislocation of the exports from their natural channels. The Minister for Foreign Affairs immediately replied that this dislocation of trade is due to the policy but also to the fact that the price paid for the articles is higher in those countries than in the American market which accounts for their being diverted to those markets. I would add parenthetically that I learned this morning that this question was bitterly debated in Quito a few days ago at a bankers conference on the internal credit situation. One banker pointed out forcibly that the Central Bank of Ecuador now has in its [Page 515] portfolio credits of 14,000,000 sucres of askimarks, and he charged the Board of the Central Bank as being directly responsible for the present stringent credit situation. He added that the higher prices paid by Germany is a myth since they are entirely dependent on the quotation of the askimark in sucres which he considers excessively high. He further said that the present accumulation of credits in Germany might be better described as the poor country of Ecuador’s having made a loan to Germany in that amount.
The Minister then proceeded to state that Ecuador is a small country and that it cannot afford to make any innovations in the restrictive systems practiced by the larger countries. I immediately pointed out that we had already concluded trade agreements on the unconditional principle with Costa Rica,54 Honduras55 and Nicaragua,56 and that the position of those countries appeared to be in a great number of respects analogous to that of Ecuador. The Minister immediately changed his tactics and replied that Ecuador could not afford to make any sacrifices.
The Minister then referred to financial conditions within the country and stated that his Government could not afford to reduce substantially its customs revenues. I stated that while my Government is seeking to stabilize customs charges and to reduce excessive rates, it would be disposed to view the situation sympathetically and not demand more than Ecuador is in a position to grant.
I then asked the Foreign Minister whether he would be disposed to reconsider his position in the light of the points made in the Department’s telegram under reference. I added that it would seem desirable in doing so to determine whether the consequence of a change in the principles of Ecuadorean commercial policy would be as detrimental economically to the country as he seemed to think. In this connection I ventured to express the opinion that Ecuador’s adoption of the unconditional most-favored-nation principle would be an important contribution to the improvement of world trade which, according to my knowledge of local economic conditions, could be made without any sacrifice to national economy. I also reminded him that the Constituent Assembly has designated a special committee to formulate a complete plan for the financial and economic reorganization of the country and that he might desire to obtain their views. The Chairman of this Committee has broad views and I intend to discuss with him the principles and reasons of our trade policy which [Page 516] may be helpful. The Foreign Minister agreed to reexamine the whole matter and to consult again with the President of Ecuador and the Minister of Finance. Inasmuch as today through the 12th are local holidays I do not believe that a decision in the matter will be taken before the end of next week at the earliest.
Respectfully yours,
- Not printed.↩
- Signed November 28, 1936, Department of State Executive Agreement Series No. 102, or 50 Stat. 1582; see also Foreign Relations, 1936, vol. v, pp. 373 ff.↩
- Signed December 18, 1935, Executive Agreement Series No. 86, or 49 Stat. 3851; see also Foreign Relations, 1935, vol. iv, pp. 729 ff.↩
- Signed March 11, 1936, Executive Agreement Series No. 95, or 50 Stat. 1413; see also Foreign Relations, 1936, vol. v, pp. 782 ff.↩