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

611.3131/97a

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

No. 171

Washington, April 14, 1937.

Sir: Reference is made to the Department’s instruction of February 16, 1937, in regard to the general provisions which it is proposed to include in a trade agreement with Venezuela.

The provision on exchange control has now been completed and the text of this provision is enclosed herewith as Article X of the general provisions.

The intention of this article is to ensure the availability of exchange for all future imports of American products at the most favorable rate which is in effect with respect to any current commercial transactions. It does not, however, mean that exchange control must be abolished, but merely that exchange must be made available to pay for all permitted imports of American products. If there is a shortage of exchange for this purpose, Venezuela may limit importation of American products, provided that such limitations do not violate the other provisions of the agreement.

The theory underlying the new provision on exchange control is that, unless we are assured that exchange will become available at the most favorable rate for all imports of American goods, there can be no assurance that the concessions which may be granted by Venezuela with respect to tariff duties, quantitative restrictions, et cetera, will not be rendered ineffective through exchange control. Hence, if Venezuelan officials should claim that they cannot accept this article, you should ask them what form of assurance they would be prepared to give to the effect that the other provisions in an agreement would not be rendered ineffective through exchange control.

The result of the inclusion of the new provision on exchange control in a trade agreement would be that if Venezuela should find it necessary, in order to protect the value of its currency, to restrict payments for imports from the United States, such restrictions would have to be effected through the restriction of importations, and such restrictions would have to conform to the provisions contained in Articles VII and VIII. If, however, Venezuela should suffer from a serious shortage of exchange, the Venezuelan Government might find that the provisions of Article VII, as transmitted to you on February 16, do not allow sufficient freedom of action to impose the necessary restrictions.

Hence it has been decided to modify Article VII in order to provide greater flexibility. The text of that article is accordingly amended in the manner indicated below.

At the end of the first sentence of the second paragraph, delete the period following the word “articles” and insert a comma, followed by:

“or imposed in order to maintain the exchange value of the currency of the country.”

This amendment to Article VII would permit Venezuela to impose quantitative restrictions on articles named in Schedule I if this were necessary to protect the value of its currency. It would, however, be necessary for Venezuela to give notice of such restrictions thirty days in advance of their imposition and to satisfy this Government of their necessity for the purpose envisaged. It must of course be understood that the provisions of Article VIII would apply to such restrictions.

Your attention is drawn to a typographical error in the general provisions as sent to you on February 16. In Article VII, second paragraph, eleventh line, the word “subparagraph” should read “paragraph.”

Very truly yours,

For the Secretary of State:

Francis B. Sayre

[Enclosure]

Draft of Article X of General Provisions on Exchange Control

In the event that the Government of the United States of America or the Government of the United States of Venezuela establishes or maintains, directly or indirectly, any form of control of the means of international payment, it shall, in the administration of such control:

(a) Impose no prohibition, restriction, nor delay on the transfer of payment for imports of articles the growth, produce, or manufacture of the other country, or of payments necessary for and incidental to the importation of such articles;

(b) With respect to rates of exchange, taxes or surcharges on exchange transactions in connection with payments for or payments necessary and incidental to the importation of articles the growth, produce, or manufacture of the other country, accord unconditionally treatment no less favorable than that accorded in connection with the importation of any article the growth, produce, or manufacture of any third country; and

(c) With respect to all rules and formalities applying to exchange transactions in connection with payments for or payments necessary and incidental to the importation of articles the growth, produce, or manufacture of the other country, accord unconditionally treatment no less favorable than is accorded in connection with the importation of the like article the growth, produce, or manufacture of any third country.

In the event that the Government of either country shall make representations concerning the application by the Government of the other country of the provisions of this Article, the Government of such other country shall give sympathetic consideration to such representations, and if, within thirty days after the receipt of such representations, a satisfactory adjustment has not been made or an agreement has not been reached with respect to such representations, the Government making them may, within fifteen days after the expiration of the aforesaid period of thirty days, terminate this Agreement on thirty days’ written notice.