Foreign Relations of the United States Diplomatic Papers, 1938, The American Republics, Volume V

611.2331/116

The Chargé in Peru (Dreyfus) to the Secretary of State

No. 714

Lima, October 25, 1938.
[Received November 2.]

Sir: I have the honor to refer to my telegram No. 70, of October 24, 11 a.m., and to enclose the text and an informal translation of the note from the Peruvian Foreign Office in reply to the note enclosed with the Department’s instruction No. 164 of September 7, 1938.

The Peruvian reply asks that any special privilege which Peru now grants or may in the future concede to any contiguous country be excepted from the operation of the most-favored-nation principle. The Foreign Minister had already indicated to me informally that the reply to our request (that Peru specify the exact nature of the exception she wished included) would be of this wide, general nature. (Despatch No. 712 of October 22, 1938.)

In support of its position, the Peruvian Government cites the commercial relations between Cuba and the United States as an example of the peculiarly close ties which bind neighboring countries. Apart from the fact that Cuba and the United States are not, strictly speaking, contiguous, it might be pointed out to Peru that this special relationship has existed for many years, dating from the time of Cuban independence, and is “generally recognized and of long standing”; whereas Peru, up to the present, has granted preferential treatment only to Chile (and Great Britain), and even the Chilean arrangement is of comparatively recent origin.

It might also be pointed out that, on the contrary, the United States does not ask that its commercial concessions to its two actual territorial neighbors—Canada and Mexico—with one of whom it has a trade agreement in force, be excepted from the operation of the most-favored-nation principle.

The citation of our recognition of preferential arrangements between the countries of Central America would appear much more pertinent to the Peruvian case; although the Honduran-Salvadoran free trade treaty²⁹ provided a situation which might be held to be “generally recognized and of long standing”.

In discussing Peru’s trade relations with Chile and Bolivia, the note leans heavily on the argument for bilateral trade balancing. Peru again states that she sells much more to these two countries than she buys from them; and apparently recognizes as valid their claim that this situation must be remedied through increased Peruvian purchases of their products. The contention that these two countries are important markets for Peruvian exports, especially sugar, is warranted.

Attention is invited to the statement that Bolivia and Peru are about to sign a new commercial treaty, to replace the convention of 1905.³⁰ The latter treaty did not concede preferential status to Bolivian exports; and the reference to it would hardly establish that the granting of special treatment to Bolivia is “generally recognized and of long standing”.

It is felt that the reference to the recent treaty with Colombia,³¹ providing special treatment for commerce in the Amazon basin, is hardly to the point. The United States has a trade agreement with Colombia,³² and has obviously felt that the concessions granted in the Colombian-Peruvian treaty were concerned with frontier traffic and thus exempt from generalization under the most-favored-nation clause of the trade agreement. The proposed (standard) general provisions of the trade agreement with Peru, already submitted to that country for study, make the usual provision for cases of this character. It might be wise, however, for the Department to emphasize this point in its reply to the Peruvian note.

In passing, it may be mentioned that the United States already has in force with three of the countries bordering Peru (Brazil,³³ Colombia and Ecuador³⁴) trade agreements containing the most-favored-nation clause. These three countries would thereby be prevented from joining any general scheme of preferences to neighboring nations, such as the Peruvian note would seem to contemplate; for the most-favored-nation provisions of the trade agreements would prevent their granting special privileges to Peru in return for those Peru apparently hopes to be able to grant them. In consequence, Peru’s suggested regime could only be unilateral in its preferential aspects.

Furthermore, since these three countries voluntarily assumed the obligations of most-favored-nation treatment with the United States, the contention that Peru could hardly grant preferential treatment to some of her neighbors and not to others, lest undesirable political distrust be created, would appear to have but limited validity.

In view of the Foreign Minister’s statement to me (despatch No. 712 of October 22, 1938) that he believed in asking for the maximum and receding as necessary, it is not believed that Peru has decided to adopt, as a general policy, preferential customs treatment for all her geographical neighbors. The decision to make the enclosed reply to the United States was not the result of a wide policy study by the entire Advisory Economic Committee, but was made by a sub-committee appointed especially to study the trade agreement with the United States. It is therefore considered probable that Peru will be willing to discuss all phases of the basic problem involved.

Adverting once more to my despatch No. 712 of October 22, 1938, the Department is informed that the memorandum attached thereto was delivered to the Foreign Office late in the afternoon of October 21st. It will be noted that the enclosed Foreign Office note is also dated October 21st. Nevertheless, it may be worth noting that it was delivered in a most unusual manner, being brought to my home by a messenger at 8 p.m., Saturday evening, October 22nd, instead of being taken to the Embassy during office hours, as is customary. It has occurred to me that the Foreign Office, upon receiving my memorandum, decided to give its reply the appearance of having been prepared before receipt of the memorandum, and that it was therefore pre-dated and rushed to completion. In any case, the Embassy was unsuccessful in its attempt to forestall this apparently unfavorable reply to its request for a specific indication of the nature of the exceptions Peru wished to make to the most-favored-nation clause.

Respectfully yours,

Louis G. Dreyfus, Jr.

[Enclosure—Translation]

The Permian Minister for Foreign Affairs (Concha) to the American Chargé (Dreyfus)

No. 6–3/89

Lima, October 21, 1938.

Mr. Chargé d’Affaires: I acknowledge the receipt of your note No. 219 of September 15, 1938, in which you inform me of the desire of the Secretary of State that the Government of Peru state clearly the terms of the exception which it expects to secure under the most-favored-nation treatment, which would regulate the commercial relations between Peru and the United States in case a Commercial Convention were agreed upon with the Government which you represent.

According to said suggestion, I have the honor to inform you that my Government understands that that exception should include all of the States bordering on Peru, and making the matter still more concrete, that it could be expressed in the following terms:

“The advantages already accorded or which may be accorded in the future by the Republic of Peru to contiguous countries shall be excepted from the effects of this Convention”.

The reasons on which the Peruvian Government bases its position, briefly stated, are as follows:

It is of course natural that all countries should try to establish special commercial relations with those countries that are neighbors along their borders and which, for that reason, are bound to them by political and every other kind of ties,—ties different from those that bind them to countries more distant from the geographical standpoint. The United States Government itself in refusing to grant to third States the advantages which it is accustomed to grant to Cuba, recognizes the evident force of this principle. In reviewing the Treaty of Commerce celebrated between your Government and Costa Rica, I note also that the United States has agreed to make exceptions concerning the advantages that Costa Rica has offered or might offer in the future to other Central American Republics, thus respecting the same criterion which I have mentioned.

Now then, if upon leaving aside considerations of a general character we come to study concrete cases, such as that suggested by our commercial traffic with Chile, we shall note that that country is an important buyer of Peruvian products, that its commercial balance with Peru is highly unfavorable to the point where it is difficult for Chile to obtain exchange in order to pay for its imports originating in Peru, and that there is a strong interest on the part of Peruvian producers not to lose the Chilean market which is essential for the maintenance and development of some of our industries, such as sugar.

Something similar occurs with Bolivia. Here, too, the commercial balance shows that Peruvian exports to Bolivia are enormously superior to Bolivian exports to Peru.

In view of these circumstances, it is easy to understand that the commercial relations, based on an accentuated unbalanced condition, do not favor the development of the mutually friendly and understanding spirit which Peru wishes to cultivate with her neighbors. Chile constantly demands that our importers acquire larger quantities of Chilean manufactured articles as compared with the amount that is being imported to date, and Bolivia, which is on the eve of concluding a Commercial Treaty with Peru, to replace the one in force signed in 1905, has presented the same demand, threatening us with supplying its needs for products similar to ours from other countries.

I must also call your attention to the special case of Colombia. Recently, Peru signed a Convention of Customs Cooperation with that Republic for the purpose of unifying the tariffs and establishing a special commercial regime in the Amazon and Putumayo River basins, said Convention being a development of the Protocol of Friendship and Cooperation signed on May 25 [24], 1934,³⁵ in the City of Rio de Janeiro, by the two States. It seems to be useless to state that, due to its nature, said pact contains stipulations which ought not to be and cannot be extended to a third country.

We do not have as yet commercial agreements binding us contractually with Brazil and Ecuador, but the Government of Peru contemplates negotiating them at an early future as a means to bring more closely together the bonds which unite us to those two bordering Nations, bound to Peru by special ties. On the other hand, you will doubtless not fail to understand that a regime of commercial facilities recognized in favor of determined bordering States must necessarily be granted to the other countries that find themselves in equality of geographical conditions, subject to creating distrust which, politically speaking, it is desirable to make efforts to avoid.

Resuming what has gone before, I have the honor to advise you that the Government of Peru would be disposed to negotiate a Treaty of Commerce with the United States Government on the basis of the unconditional and unlimited most-favored-nation clause with the express exception of the contiguous countries, viz: Bolivia, Brazil, Colombia, Chile and Ecuador, which in their commercial relations with Peru would enjoy special treatment which would not be granted to a third State.

I have [etc.]

Carlos Concha

29. Signed February 28, 1918, British and Foreign State Papers, vol. cxi, p. 750.
30. British and Foreign State Papers, vol. c, p. 805.
31. Peru, Memoria (Lima, 1939), p. 113.
32. Signed September 13, 1935, Executive Agreement Series No. 89, or 49 Stat. 3875; see also Foreign Relations, 1935, vol. iv, pp. 430 ff.
33. Signed February 2, 1935, Executive Agreement Series No. 82, or 49 Stat. 3808; see also Foreign Relations, 1935, vol. iv, pp. 300 ff.
34. Signed August 6, 1938, Executive Agreement Series No. 133, or 53 Stat. 1951; see also pp. 509 ff.
35. League of Nations Treaty Series, vol. clxiv, p. 31.