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

611.3181/171

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

No. 250

Washington, March 7, 1938.

Sir: Reference is made to your despatch No. 910, of January 18, 1938, enclosing (1) the Venezuelan Government’s revised list of products for consideration in connection with this Government’s public announcement of intention to negotiate a trade agreement with Venezuela, and (2) a memorandum of the Venezuelan Government with respect to petroleum and petroleum products.

The interdepartmental trade-agreements organization has carefully examined the Venezuelan Government’s revised list with a view to the publication of the products contained therein at the time of this Government’s second public announcement. There is enclosed a memorandum⁷ embodying this Government’s comments on that list which has been divided into three groups as follows:

1. Those products which this Government is now prepared to publish in connection with its announcement.

2. Those products in regard to which further information would be necessary in order for this Government to determine the desirability of their publication.

3. Those products on which this Government would be unable to grant any concession to Venezuela.

As you are aware, the United States in general follows the rule of granting concessions in the first instance to the principal or important suppliers of a given product. In accordance with this Government’s commercial policy, however, such concessions are immediately generalized to smaller or potential suppliers. Were the United States to grant concessions to Venezuela on products which that country either does not supply at all to the American market, or supplies in negligible quantity, the benefit thereof would accrue entirely or primarily to those countries which actually do export appreciable amounts of such products to the United States. On the other hand, Venezuela would be assured, under the most-favored-nation clause of a trade agreement, of obtaining the benefit of any concessions which may be granted to third countries on products which Venezuela may in future export to the United States.

You are requested, unless you perceive objection, to present the enclosed memorandum to the Foreign Minister, in order that the Venezuelan Government may have an opportunity to reconsider its list in the light of this Government’s comments thereon; and with a view to obtaining that Government’s acquiescence in the publication by this Government of the products comprised in group 1 of the memorandum. Unless the Venezuelan Government could supply information sufficient to warrant such action, this Government could not publish any of the products included in group 2. This Government cannot publish the products included in group 3 as it is not in a position to grant a concession to Venezuela on any of those products. In this connection, it will be noted that the products contained in group 1 of the memorandum constituted, on the basis of 1936 figures, approximately 93 percent by value of Venezuela’s exports to the United States. The remaining 7 percent includes numerous products of which Venezuela ships only small quantities to the American market as compared with imports into the United States from the principal or important suppliers. From these figures it is obvious that, subject to the rule of principal or important supplier, this Government has sincerely endeavored to identify and to include in the list it proposes to publish all products imported into the United States in which Venezuela has a material interest.

There is also enclosed a memorandum for transmission, unless you perceive objection, to the Venezuelan Foreign Minister in reply to the Venezuelan Government’s memorandum of January 17, 1938, in regard to petroleum and petroleum products.

You are requested to report fully to the Department any conversations you may have with Venezuelan officials in regard to the foregoing matters. In addition, the Department would be glad to receive any comments which the Legation may consider pertinent or helpful.

Very truly yours,

For the Secretary of State:

Francis B. Sayre

[Enclosure]

Draft of Memorandum To Be Presented to the Venezuelan Minister for Foreign Affairs (Gil Borges)

The Government of the United States has given careful consideration to the views of the Venezuelan Government, as set forth in the memorandum of January 17, 1938, with respect to petroleum and petroleum products. The Government of the United States is prepared to include crude petroleum and fuel oil in the list of products to be published in connection with its formal public notice of intention to negotiate a trade agreement with Venezuela. United States import statistics show that these are the only petroleum products of which Venezuela is an important supplier to the American market. Shipments of these two products from Venezuela to the United States in 1936 constituted about 69 percent by value of the total imports for consumption into the United States from Venezuela.

While the Government of the United States will consider granting concessions to Venezuela on crude petroleum and fuel oil, it is specifically precluded by the provisions of the Trade Agreements Act,⁸ under the authority of which trade agreements are negotiated, from limiting the application of any concession which may be granted to direct shipments. The Trade Agreements Act provides that the “proclaimed duties … shall apply to articles the growth, produce, or manufacture of all foreign countries, whether imported into the United States directly, or indirectly.…” This principle is embodied in this country’s international agreements with many countries. It may be pointed out that by far the greater part of Venezuelan crude petroleum and fuel oil imported into the United States now enters by direct shipment.

Since crude petroleum and fuel oil constitute so large a proportion of the total value of Venezuelan exports to the United States, the maintenance or improvement of Venezuela’s position as a supplier of those products to the American market must necessarily be of considerable importance to the Venezuelan economy. The Government of the United States could not consider binding the existing tax on those products, much less a reduction therein, unless the Venezuelan Government granted concessions on American products in return. As stated in the memorandum of December 20, 1937⁹ of the Legation of the United States at Caracas, in accordance with its commercial policy as embodied in trade agreements, this Government has not approached the question of granting or requesting duty concessions on the basis of a narrow balancing of the volume of trade represented by products affected by concessions granted and concessions obtained. As evidence of this, the Government of the United States is prepared to consider granting concessions on Venezuelan products constituting approximately 93 percent by value of Venezuela’s exports to the United States on the basis of 1936 figures. On the other hand, this Government does not expect to request concessions from Venezuela on substantially more than 46 percent by value of total United States exports to that country in 1936.

With respect to the suggestion contained in the last paragraph of the memorandum of the Venezuelan Government to the effect that a concession on petroleum be made contingent upon the establishment of refineries in Venezuela by the companies operating there, it is believed that the Government of Venezuela will readily recognize that this matter, relating as it does to the conditions under which private interests may operate in Venezuela, is not one which could be dealt with in the proposed trade agreement.

7. Not printed.
8. Approved June 12, 1934; 48 Stat. 943.
9. Ante, p. 957.