611.2231/382
The Secretary of State to
the Minister in Ecuador (Long)
No. 112
Washington, May 5,
1939.
Sir: Reference is made to your despatch no.
420 of April 5, 1939,24
enclosing a copy of an Ecuadoran law enacted March 3, 1939 dealing with
the determination of export values of crude petroleum, mineral earth and
gold bullion and specie and providing for the basing of quotas for
imports from individual countries upon the value of Ecuadoran exports to
such nations.
The possible effects of this law upon United States trade relations with
Ecuador and on the operation of the trade agreement, naturally are of
concern to the Department. There is enclosed a note which you are
requested to hand to the Foreign Minister at an early opportunity, which
sets forth this Government’s position on the broad question
involved.
While making it clear to the Minister that your Government cannot accept
the validity of the bilateral, country by country, trade balance theory
of the law under reference, you may wish to point out that even on the
basis of that questionable theory, the law is open to a number, of
objections. For example, the specified percentages of the export values
of mineral earth and crude petroleum which the law would permit to be
included for the purposes of calculating Ecuador’s balance of trade with
individual countries, would appear to be considerably less than the
actual proportion of the export value of those products which returns to
Ecuador. Regarding mineral earth, you might point out that the Ecuadoran
Government imposes an export tax of 12 percent of the value of the
shipments of that commodity. Under the new law, this would leave a
balance of only 8 percent as the estimate by that Government of the
value of exports of mineral earth which return to Ecuador to cover all
the production costs of that commodity in the country. You might cite
any recent data, such as that included with your despatch no. 447 of
April 19, 1938 [1939],24 which you believe to be
reliable, which you may be able to secure to show the actual percentage
of the value of exports of mineral earth returned to Ecuador in recent
years from exports of that product.
[Page 613]
With regard to crude petroleum you might also endeavor to secure reliable
information from local sources with which to support any statements you
may make to the Foreign Minister showing that the estimate of 15 percent
would appear to be much less than the proportion of the value of exports
of that product from Ecuador which actually returns to the country.
The law would also appear to be deficient in that it apparently fails to
take into account invisible credit items such as investments of foreign
capital, expenditures of tourists in Ecuador, and so forth. It is the
Department’s understanding that new capital investments in the country
are considerable, particularly in the case of the United States in
mining enterprises.
Supplementing recent instructions on the general question of Ecuadoran
import restrictions since the effective date of the trade agreement, you
should inform the Foreign Minister that while it is a matter of
increasing concern to your Government that the Ecuadoran Government has
up to the present time not modified the control system in respect of
imports from the United States so as to bring it into conformity with
the provisions of Articles VII and VIII of the agreement, your
Government views with sympathy and understanding the economic and
financial problems with which the Government of Ecuador is faced and
recognizes that in times of exchange stringency it may be necessary to
restrict the total amount of imports so as to keep that amount within
the actual exchange availabilities. However, any necessary restrictions
need not be applied on a bilateral balancing basis, which is unsound
economically and inherently discriminatory. They can be imposed on a
non-discriminatory basis, in accordance with the provisions of the trade
agreement and the broad principles of commercial policy endorsed
repeatedly by conferences of the American States and by other nations
pursuing liberal trade policies.
Please keep the Department fully informed of any pertinent
developments.
Very truly yours,
For the Secretary of State:
Francis B. Sayre
[Enclosure]
Note To Be Presented to the Ecuadoran Minister for
Foreign Affairs (Tobar
Donoso)
Excellency: At the request of my
Government, I desire to bring to the attention of Your Excellency’s
Government the concern of the Government of the United States with
respect to the possible effects upon the commercial relations
between the United States and Ecuador, with particular reference to
the provisions of the trade
[Page 614]
agreement between our Governments signed August 6, 1938, of the
law enacted by the Ecuadoran Congress on February 25, 1939 and
approved by the President on March 3, 1939, dealing with the method
of determining the export values of crude petroleum, mineral earth
and gold bullion and specie and providing for the basing of quotas
for imports from individual countries upon the value of Ecuadoran
exports to such nations.
With respect to the relation of that law to the trade agreement, the
arbitrary elimination from the value of exports from Ecuador to the
United States, for the purpose of computing such value, of mineral
earth and crude petroleum except for the percentages indicated,
would undoubtedly have the effect, in accordance with the terms of
Article 4 of the law under reference, of necessitating import
control measures on the part of Ecuador to reduce imports from the
United States. It may be pointed out that no provisions exist in the
trade agreement which would permit restrictions to be imposed upon
imports from the United States for the reasons set forth in the law.
Such restrictions of imports from the United States would therefore
appear to contravene the provisions of the trade agreement. The
method by which the Government of Ecuador might, if necessary,
restrict imports from the United States, is set forth in Articles
VII and VIII.
Further with respect to the relation of the Ecuadoran law under
reference to the trade agreement, it would appear that if a portion
or all the value of certain exports to the United States were
eliminated from commercial statistics for purposes of calculating
the balance of trade between Ecuador and the United States, those
statistics might reveal an import balance for Ecuador. The question
therefore arises as to whether Your Excellency’s Government would in
accordance with the provisions of existing legislation, increase
customs duties on all imports from the United States (unless such
legislation may be presumed to have been superseded by the new law).
It is evident that if such action were taken, there would result a
clear contravention of the provisions of Article I of the agreement
in so far as products included in Schedule I are concerned, and a
contravention of the provisions of Article XI of the agreement with
respect to all other articles imported into Ecuador from the United
States unless import duties were also increased to the same extent
upon like articles imported from all other countries.
From the foregoing, it will be clear to Your Excellency why my
Government views with great concern the possible effect of the law
under reference on the trade agreement between our countries. My
Government strongly hopes that the legislation referred to may be
amended at an early date, and before its provisions have become
effective in respect of the trade between the United States and
Ecuador, in
[Page 615]
order to take
into account the terms of the trade agreement of August 6, 1938.
From the above considerations with respect to the relation between
the law of March 3, 1939 and the trade agreement, it is equally
clear that the effectuation of that law would have a most
unfortunate effect on the general trade relations between the United
States and Ecuador, and in the opinion of my Government might well
lead to demands by various affected interests in the United States
for retaliatory action by my Government.
Further, with respect to the provisions of article 4 of the law under
reference, which would in effect place Ecuadoran foreign trade upon
a bilateral trade balancing basis, my Government cannot but feel
that this represents a complete departure from the broad policies
espoused by the United States and other countries in recent years
for the freeing of world trade from such restrictive and inherently
discriminatory measures. In the carrying out of these broad policies
my Government has continued to hope for the support of Your
Excellency’s Government in giving effect to the declarations adopted
at recent Pan American Conferences, through the trade agreement
between our Governments concluded on August 6, 1938, and
otherwise.
Accept [etc.]
