611.3131/181
The Minister in Venezuela (Nicholson) to the Secretary of State
[Received April 2.]
Sir: I have the honor to refer to the Department’s instruction no. 250, dated March 7, 1938 (File no. 611.3131/171), and to forward herewith a copy of my note no. 336 of March 12, 193812 to the Minister of Foreign Affairs, based thereon.
Since presentation of my note, I have kept in touch almost daily with the Foreign Office to learn what action was being taken by the Venezuelan Government on the trade agreement.
On March 21 the Foreign Minister suggested to me that a modus vivendi be concluded which would guarantee between the United States and Venezuela unconditional most-favored-nation treatment pending completion of the trade agreement negotiations. Dr. Gil Borges thus appeared to expect that some time would elapse before the agreement could be finished. He showed concern with respect to the inclusion of petroleum in the discussions and the possibility that a concession on petroleum might benefit primarily the British and Dutch islands in the Caribbean which are now refining most of Venezuela’s crude oil. I reassured him on the latter point and explained that the agreement as contemplated would not include refined petroleum products.
The Foreign Minister then spoke of the necessity of limiting the agreement to direct trade between the two countries. I have long been aware that the Venezuelan Government has a deep-seated fear of any move which would tend to develop an entrepot or reshipment point in the Caribbean area for foreign goods destined to Venezuela. I reminded Dr. Gil Borges that Venezuela was protected in this respect [Page 967] by the condition agreed to earlier in the discussions whereby Puerto Rico would be included in the agreement only as regarded goods the produce of that island.
The Minister of Foreign Affairs went on to say that Venezuela had incurred a heavy trade deficit last year, and that the Government had determined upon a general policy of trading on the basis of equivalents to remedy the situation. He stated that Venezuela could not afford to adopt in its own relations the rule of principal supplier as it was the principal supplier of practically nothing to any country. I endeavored to make clear to the Foreign Minister how the application of this rule in the present agreement was to the advantage of Venezuela as well as the United States, and pointed out that on a substantial number of the products which it had been found necessary to eliminate from the Venezuelan list Venezuela would receive the benefit of concessions made by the United States to third countries. Dr. Gil Borges remarked that such benefits were insecure since they depended upon the continuation of relationships to which Venezuela was not a party. He promised, however, to consult with the Minister of Hacienda as soon as possible for the purpose of drafting a reply to my note. This reply, he stated, would have to be submitted to the Cabinet for its approval.
The suggestion made by the Foreign Minister of a modus vivendi surprised me as it had long been my understanding that the United States was already receiving unconditional most-favored-nation treatment from Venezuela as the result of an exchange of notes between the Legation and the Foreign Office dated December 21, 1936,13 and January 11, 1937,14 respectively. Dr. Gil Borges informed me, however, that the extension of this treatment had been specifically limited to the concessions included in the French agreement.
On March 23 Secretary of Legation Daniel M. Braddock called on Dr. Ramon Eduardo Tello, Director of Economy and Finance in the Ministry of Hacienda, who is charged by the Venezuelan Government with the details of the discussions in their present stage, and explained to Dr. Tello the reasons why it had been necessary to eliminate various items from the Venezuelan list. While recognizing the advantages of the principal supplier rule as applied in general, Dr. Tello argued that there should be some legitimate exceptions, such as salt and magnesite. The Venezuelan Government expected, he said, that salt and magnesite would shortly be produced in this country in large quantities, and it was most anxious to export these products to the United States. A duty reduction on salt and magnesite, according to Dr. Tello, would enable these Venezuelan products to compete in the American market [Page 968] where now they are unable to do so. If Venezuela could ship these commodities to the United States, it would be able to solve in large part its vexing transportation problem, since a major cause of the existing high freight rates is the fact that vessels from the United States which call at Venezuelan ports must at present return not fully loaded.
Dr. Tello stated that there might be a few other products as well which his Government would have special reasons for wishing to include in the trade agreement. He suggested that a formula might be found for granting provisional concessions on these items which would become effective only when Venezuela were in a position to take its place in the American market as an important supplier.
There has been no change in the status of the question since the conversations with Dr. Gil Borges and Dr. Tello reported above.
The Department has invited my comments on the subject of the trade agreement negotiations. It is respectfully suggested that a consideration of the following factors might be helpful toward bringing the discussions to a fruitful conclusion.
The concept of unconditional most-favored-nation treatment, which the Venezuelan Government has indicated that it would be willing to extend to the United States, is an exception to its now well established policy of trading on the basis of equivalents. There would appear to be definite advantages to the United States in securing this treatment, together with the removal of the thirty percent surcharge on direct imports from Puerto Rico, by means of a trade agreement, even if the lists of specific concessions in the agreement should be small.
It is my impression, developed from numerous conversations with the Foreign Office and the Ministry of Hacienda on the subject, from a study of press comments, and from informal exchanges of views with Venezuelans in private life, that the Venezuelan attitude towards the projected trade agreement with the United States is one not of enthusiasm but of willingness provided a strictly fair and mutually useful exchange can be obtained. In the light of this lukewarm sentiment, unreasonable demands on the part of the United States for concessions might easily cause the breakdown of the negotiations and might even make it impossible to secure on a permanent basis the advantage of the unconditional most-favored-nation treatment. I believe it very important for the two countries to agree on the basis for exchanging concessions before the United States presents any list of specific requests.
How far the United States can safely trade on a possible concession on crude petroleum and fuel oil will be one of the most important points to determine. The Department has undoubtedly perceived some merit in the Venezuelan contention that petroleum shipments [Page 969] have only an indirect interest for the Venezuelan Government in as much as these shipments belong entirely to foreign interests, and chiefly American interests. The Venezuelan Government is well aware, however, that no concession on these products could be considered unless some compensation were offered in return. I venture to suggest that a practical proposal would be the inclusion of a certain percentage of the value of petroleum shipments for purposes of trading. This percentage should probably range somewhere between 10 percent, the rate at which royalties are collected by the Government, and 50 percent.
The Department is possibly not aware that the Venezuelan Government is likely to encounter considerable difficulty in making the trade agreement acceptable to the Venezuelan public. Part of the local press has already urged the Government to follow the practice of the United States in publishing lists of products on which concessions are being considered and in holding public hearings. The reaction will be unfavorable when it becomes known that the Government does not intend to publish any list.
The press has also stressed the importance of seeking advantageous outlets for products which offer promise of substantial exportation in the future but which are now exported in very small quantities or not at all. It would meet this desire and improve materially the prospect of reaching an agreement if the United States Government were able to make one or two exceptions to the rule of principal supplier, such as on salt and magnesite, with the stipulation that such concessions would become effective only upon the exportation, or the assurance of exportation, of these products to the United States in certain minimum quantities.
Finally, the Government is certain to be criticized for securing any benefits for the foreign oil interests at the cost of concessions in the Venezuelan tariff.
I shall not fail to keep the Department informed of developments in the discussions and of any new phases which may appear.
Respectfully yours,
- Not printed.↩
- See note No. 167, December 21, 1936, from the American Chargé in Venezuela to the Venezuelan Minister for Foreign Affairs, Foreign Relations, 1936, vol. v, p. 962.↩
- See telegram No. 2, January 11, 1937, 6 p.m., from the Chargé in Venezuela, ibid., 1937, vol. v, p. 746.↩