611.3131/97a
The Secretary of State to the Minister in Venezuela (Nicholson)
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 [Page 764] 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 [Page 765] 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,