611.3531/1441: Telegram
The Secretary of State to the Ambassador in Argentina (Armour)
1. Confirming views expressed to you on the telephone this morning, the situation seems to us to be as follows:
The Argentines insist that they cannot accept the sort of general provisions we want on the basis of our Schedule II offers. Furthermore, they take the position that, while they are willing to accord us genuinely non-discriminatory treatment, the quota and exchange articles which we are insisting upon are far too rigid and do not allow for any flexibility if they get into real exchange difficulties.
Our position on the two articles in question, as it has been presented to the Argentines to date, is as follows: On exchange, first, we have agreed to give up the requirement of a single exchange rate. This recession subjects us to the danger of impairment of tariff concessions by special rates, but the Argentines insist that they will not use this measure of flexibility in such a way as to impair the concessions. The freedom of action which Argentina has obtained in this regard does not therefore permit her to take action which materially affects the exchange situation. Second, we have agreed that there may be delays in transfers. Even with clause (b) on a like article basis, we do not believe that there would in practice be much flexibility so far as allocation is concerned, since we interpret this clause to require prompt and complete coverage for any article of United States origin if such treatment [Page 292] is accorded the like article originating in any third country, and we consider it highly unlikely that Argentina would block payments to the United Kingdom.
Clause (a) as it now stands represents an obligation to provide in principle complete coverage in free exchange for all imports, but it does not make any provision as to the time within which exchange must be provided. It does prevent the application of a compensation requirement or a requirement that funds be invested in the importing country.
With reference to quotas, we have previously insisted that the base period be any two consecutive years in the period 1930 to 1937 without exception.
The only flexibility which our previous proposals permit is contained in Article XII. If either Government considered that circumstances had arisen which had the effect of nullifying or impairing any object of the agreement or of injuring its industries or commerce, or if it considered that any action taken by the other Government had either of these effects, this article provides broadly two types of remedy. First, in cases where action by the other Government is in question, it can make representations and, if it does not obtain satisfaction, terminate the agreement. For example, this remedy would be available to us if Argentina were to use differential exchange rates in such a way as to impair a concession. Second, and this is particularly of interest to Argentina, if the case involved circumstances beyond the control of either Government, the Government which considered itself injured might wish to seek the relaxation of other provisions of the agreement. For example, Argentina might propose to us the temporary suspension of particular provisions of the agreement or the adoption of some interim arrangement inconsistent with the provisions of the agreement. If we did not agree to the Argentine proposals, Argentina could terminate the agreement.
Article XII does not in our view authorize deviation from the provisions of the agreement except by mutual consent.
In view of the general position, as outlined above, we have felt that the only way in which we can do anything to meet the Argentine viewpoint is to give them some provision under which they would have greater freedom of action. Our latest proposals are designed to do this. However, since we feel that we have already gone very far in meeting their viewpoint, we must reserve the right to take whatever action may be necessary to protect our interests should Argentina abuse this flexibility.