611.2331/118
The Ambassador in Peru (Steinhardt) to the Secretary of State
[Received November 15.]
Sir: I have the honor to refer to the Embassy’s despatch No. 714 of October 25, 1938, and to report that in the course of a conversation with Dr. Concha yesterday afternoon at the Foreign Office, we discussed the present status of the negotiations looking towards a trade agreement between the United States and Peru.
I reminded Dr. Concha that in our last talk on the subject—prior to my departure on leave of absence—he had, at least in his informal discussions with me, virtually abandoned his request for exceptions to the unconditional most-favored-nation clause in favor of all of the countries contiguous to Peru, with the exception of Chile, and teased him about “backsliding” during my absence. His reply was a grin and the observation that the Department’s apparent unwillingness to grant him a general exception, both as to the present and future in the case of Chile, was causing him the utmost concern. He pointed out that Chile was buying seven times as much from Peru as Peru buys from Chile and said that the entire Peruvian sugar industry would be thrown into a state of chaos were Chilean purchases of Peruvian sugar to be discontinued or materially reduced, with disastrous consequences to the extensive employment in the sugar growing districts.
Dr. Concha said that the Peruvian-Chilean commercial agreement had recently expired and had been extended for a period of six months, but that he had been advised that during the period of extension, the Chilean Government intended to make demands for additional concessions from Peru in connection with any renewal of the agreement, and that as Chile was now beginning to fancy itself as an industrial nation, he had no idea as to what the nature of these demands would be. He said that the Chilean Government, recognizing the strength of its position, was constantly threatening him with an abrogation of the existing commercial agreement, and that he was seriously concerned with this threat, particularly as regards sugar.
Dr. Concha observed that if in addition to the existing sugar quota the United States were to admit another one hundred thousand tons of Peruvian sugar, he would not care what position the Chileans took and would be prepared to recede from his request for an exception to the unconditional most-favored-nation clause in the case of Chile. [Page 865] He added that he recognized the virtual impossibility of any substantial increase in the present sugar quota granted by the United States and that in consequence he must protect his Chilean sugar market.
I then asked him why he could not give me a memorandum of the exceptions which he would desire in the case of Chile and include sugar, to which he replied that he would be glad to do so if he only knew what the Chilean demands were to be from time to time; but that as Chile—as part of its threat—had been keeping the Peruvian-Chilean commercial relations on a year-to-year basis, and had now reduced this basis to six months, it was impossible for him to anticipate the demands which would be made by Chile from time to time for concessions by Peru in consideration of the continued acceptance of Peruvian sugar.
Dr. Concha’s argument was rather convincing and I am satisfied was wholly sincere. He summarized his position by saying that if he did not keep his hands free in dealing with Chile, the consequences to Peru of an abrogation of the Chilean treaty would unquestionably be more immediately disastrous than any benefits he could hope to achieve from a trade agreement with the United States.
He then asked me why the Department should be so insistent on limiting the exceptions to be granted Chile, pointing out that Chilean industrial products were, to use his expression, “mostly junk” and in no sense competitive with American products on either a basis of quality or price. He insisted that a general exception in the case of Chile would not have the slightest effect on American exports to Peru. Bearing in mind the Peruvian preference for American products, and after an examination of Peruvian imports of Chilean origin, I am inclined to agree with this contention. In reply to his question, I told him that in my opinion the Department’s position was based on principle rather than on fear of Chilean competition, and pointed out to him that as the result of the large number of trade agreements already negotiated by the United States, certain set principles and policies had been established from which the Department could not deviate, excepting to a limited extent in the face of the most urgent considerations.
At this stage of the discussion I became convinced that Dr. Concha was prepared to surrender his request for exceptions in the cases of Bolivia, Brazil, Colombia and Ecuador—subject only to the customary provision concerning limited frontier traffic—but that he was not prepared to recede from his insistence on a general exception in the case of Chile, and that his reasons in the case of Chile are of such force that he would be most insistent upon their being given the most serious consideration.
[Page 866]Dr. Concha then asked me whether it was my intention to reply to his note of October 21, 1938, so that he could lay my reply before his advisory committee. To this I observed that there did not seem to be any advantage in my making a reply to his note, to which he in turn would have to reply, until we had come to some kind of an understanding as to the nature of my reply and the nature of his response thereto. I pointed out to him that an exchange of informal memoranda, with the inevitable delays attendant thereon, would merely prolong our efforts to dispose of a preliminary question, and suggested that a further conference might be desirable with the object of seeing whether we could not come to some understanding before any further memoranda are exchanged. Dr. Concha readily acquiesced in my suggestion and November 8th has been fixed for a continuation of our discussion.
In proposing a continuation of our informal talk, it was and is my hope, but not expectation, that Dr. Concha may, on Tuesday, give some evidence of weakening—at least to some extent—from his position in insisting upon a general exception in the case of Chile. I thought it best to give him an opportunity to discuss the matter with the commercial division of the Foreign Office and with the members of his advisory committee before permitting him to commit himself to a written memorandum from which it might be more difficult to persuade him to recede at a later date. It seemed to me,—both in the interests of expedition and with due regard to the Peruvian characteristic to most reluctantly withdraw from anything in writing, occasioned by pride of authorship—that it might be preferable to make a further effort next Tuesday to convince him that specific limited exceptions in the case of Chile would afford him sufficient elbow room within which to meet even unpredictable Chilean demands.
I also pointed out to Dr. Concha that the Department was most unwilling to establish precedents which might affect its negotiations in dealing with other countries, particularly in South America, and that the exceptions which he was asking for had been denied Brazil, Colombia and Ecuador under the existing trade agreements with them.
I think I made it abundantly clear to the Minister that the Department’s position regarding most-favored-nation treatment was not and is not being advanced as a bargaining position, but has for its foundation the principles and policies on which the entire trade agreements program of the United States rests.
Dr. Concha assured me that he quite understood and appreciated this position by the Department and reiterated that he would gladly withdraw his request—even in the case of Chile—were it not for the [Page 867] fact that Chile—as he laughingly put it, “could and would blackmail us”.
I shall report to the Department immediately after my further conference with Dr. Concha on Tuesday and assume I will then receive further instructions as to the position the Department desires to take in connection with general or limited specific exceptions in the case of Chile.
Respectfully yours,