611.2331/92

The Ambassador in Peru (Steinhardt) to the Secretary of State

No. 312

Sir: I have the honor to report that in the course of a conversation yesterday afternoon at the Foreign Office with Dr. Concha, he explained to me that the delay in expressing his readiness to enter upon the negotiations for a trade agreement on the unconditional most favored nation basis, had been occasioned by inquiries propounded to him by the President9 and the Minister of Finance10 as to the extent to which Peruvian governmental income might be affected by a reciprocal trade agreement with the United States upon an unconditional most favored nation basis.

Dr. Concha said that the President was “jittery” about governmental income for 1938 and that between the financial conservatism of the President and the Minister of Finance, it had become necessary for him to undertake to satisfy them that the budget would not be seriously affected by the acceptance of the unconditional most favored nation clause as a basis for a trade agreement with the United States. He observed that there had been a substantial loss of revenue resulting from the treaty with Great Britain and that he was now engaged in assembling a great many facts and figures in order to demonstrate to the President and Minister of Finance that there would not be any further substantial loss in revenue arising out of the proposed trade agreement with the United States.

I said to Dr. Concha that I hoped he would not confine his study—as appears to be the point of view of the President and Minister of Finance—to a possible substantial loss in import duties, and suggested that in his future discussions with the President he refer to the fact that export duties and other taxes played just as important a role as did import duties in relation to governmental income, and that even assuming a moderate loss in import duties,—which I doubted would be the case—there was every reason to believe that [Page 843] any such loss would be more than made good by increased export duties and receipts from various internal sources such as income and corporation taxes.

I also pointed out to Dr. Concha that the desirability of the proposed trade agreement did not rest solely with import and export duties or other tax revenues, but that if the general level of the economy of the country was raised by such a trade agreement, the resultant greater assurance of political stability, general contentment, increase in all values and economic improvement must eventually be reflected in expanding governmental revenues. I referred to several of the large number of internal taxes from which the Government receives substantial revenues and indicated how, in my opinion, each one of these sources of income might and probably would be augmented as the result of a trade agreement with the United States. Dr. Concha said that he would make use of the points brought out by me in his next discussion with the President and the Minister of Finance.…

In view of the fact that Dr. Concha personally favors a trade agreement with the United States, based on the unconditional most favored nation clause, I have little doubt that the facts and figures which he is assembling will eventually satisfy the President and Mr. Roca that their fears in respect of loss of revenue are exaggerated.

While I do not expect a reply from Dr. Concha in the immediate future accepting the unconditional most favored nation clause as the basis for negotiations, I have no reason to believe that his reply will be long delayed. He is at the moment preoccupied with several other important matters, particularly the Ecuadoran boundary dispute,11 but assured me that as soon as he has a little more time to devote to the subject, he will press the trade agreement matter as rapidly as possible.

Respectfully yours,

Laurence A. Steinhardt
  1. Oscar R. Benavides.
  2. Benjamin Roca.
  3. See pp. 217 ff.