The Secretary of State to the Minister in Ecuador ( Long )
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 ,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,