The Chargé in Uruguay (Chapin) to the Secretary of State

No. 897

Sir: In amplification of my telegram, No. 163 of April 22—6 p.m., and in view of the advanced state of discussions between the United States and Argentina, which are now being conducted in Buenos [Page 561] Aires, I have the honor to submit the following considerations with respect to the advisability of commencing trade agreement negotiations with Uruguay at the earliest opportunity. The Legation feels that the situation in Uruguay differs from that in Argentina in two important respects:

The President of Uruguay does not have the power to conclude an agreement without the prior approval by both Houses of the Legislature. The Department is already aware of the peculiar situation in the Uruguayan Legislature whereby the Herrerista group22 is in a position to block any legislative measure which it may choose. The situation suggests to the Legation that some difficulty might be encountered in obtaining ratification of the trade agreement, although I was recently assured by Uruguayan Minister for Foreign Affairs that he did not expect trouble on that score. In spite of Dr. Guani’s assurances, it would appear that the best way to avoid difficulties with the Legislature is to commence negotiations immediately, as even Dr. Guani hinted that public announcement of the proposed agreement with Argentina before the conclusion of negotiations here might seriously disturb Legislative action. The Department will readily appreciate that the Herrerista Nationalists would be only too glad, as a means of embarrassing the Administration, to show their colleagues that Uruguay, by failing to conclude the agreement, would reap all the benefits obtained by Argentina without having to give anything in return.
The United States’ position vis-à-vis Uruguay is far stronger than it is with respect to Argentina, and the chances of obtaining a trade agreement satisfactory to the United States exporters are correspondingly better; while Argentina’s balance of trade with the United States is unfavorable, Uruguay’s balance is distinctly favorable. For example, the United States has bought approximately ninety percent of Uruguay’s current wool clip; during the first three months of 1941, Consular invoices on file in this office show the United States purchased $15,814,035. worth of Uruguay’s produce, while it is estimated that sales to Uruguay in the same period amounted to well under $4,000,000.

The United States Department of Commerce figures for January–February, 1941, show $11,854,000. purchased against $1,736,000. sold. As related in the Commercial Attaché’s annual report, the Bank of the Republic, during 1940, purchased exchange arising from exports in the sum of $66,829,127. against estimated sales of $36,000,000., leaving a balance for the year of $30,000,000.

It thus becomes abundantly clear that the United States could, if it received a more equitable exchange treatment, sell a far larger [Page 562] amount to Uruguay than it does at present without having to increase its Uruguayan imports. The Legation is, therefore, of the opinion that our principal objective in concluding a trade agreement with Uruguay should be to obtain a larger share of the exchange which is created by our imports of Uruguayan produce.

If, for reasons of policy, the Department feels that it is desirable to permit Great Britain and the “sterling area” in general to obtain a larger share of the total available controlled exchange than their purchases create in Uruguay, it would still seem possible under the arrangement suggested in the paragraph above to release some of the exchange created by our imports to the sterling countries. Such a course seems preferable to the present exchange situation where sterling exports to Uruguay enjoy favorable exchange rates as compared to our own exports as a matter of right, and where our own exports are subject to varying discrimination dependent in degree purely upon the arbitrary decision of the Uruguayan authorities. A trade agreement in this form would seem to afford maximum protection to United States business, while not tying our hands in case we should wish to make some of our exchange available to “sterling area” countries.

So important does this matter of receiving equitable exchange treatment appear to the Legation that it feels reduction of Uruguayan tariff items by comparison of no real importance for the duration of the war.

The Legation’s principal interest in regard to the Uruguayan import tariff is the reduction of certain excessive gold surcharges which at the present time affect certain articles which form an important share of our exports to Uruguay, and which are considered the world over to be American export specialities. However, though the Legation feels that present conditions render it unnecessary to ask for much in the way of actual tariff reductions, the Legation does consider it advisable that all important American export items be bound at the present tariff rates. If the importer of all categories of American goods could, at the conclusion of this trade agreement, be assured of receiving imports from the United States by paying for them at the same controlled rates of exchange as do the importers of goods from the most favored nation, the Legation has every reason to believe that United States exporters would find themselves in a strongly commanding position in the Uruguayan market. Thus, in essence, what the Legation wishes to obtain is most-favored-nation treatment with respect both to duties and exchange for every class of articles exported from the United States.

It is possible that the questions of a more generous allotment of ocean-going cargo space for Uruguayan exports and of our existing [Page 563] export license system of strategic materials and products which are necessary to Uruguay’s economic life may be brought up in the trade agreement discussions. Dr. Guani has mentioned the subject of cargo space on several occasions, and it is believed he is now under pressure from local importers for aid in obtaining export permits for strategic articles such as aluminum. Although, undoubtedly, outside the scope of the usual considerations in trade agreement discussions, they are vital questions from the Uruguayan point of view.

In the light of the Department’s strictly confidential mimeographed instruction of April 1, 1941 (File No. 811.20 (D) Regulations/1729a),24 concerning the control of exports by the United States of strategic raw materials and the Department’s desire that they not be re-exported by American purchasing countries, it is possible that the Department might wish to suggest the inclusion in a trade agreement of suitable provisions prohibiting such re-exports by Uruguay as a part of the general provisions.

In discussing with members of the Embassy staff in Buenos Aires the progress of the trade agreement negotiations there, Mr. Adam learned that the provision with respect to nominal custom penalties and clerical errors in invoice manifests, etc. was causing difficulty. He also recalls that this subject, although one of apparently minor importance from the United States’ point of view, was one of the first objected to by the Uruguayan conferees in the previous negotiations and to which the objection was most emphatic. Mr. Silveira Zorzi25 held that basic Uruguayan law did not permit taking into consideration a declarant’s intent, and that penalties had to be assessed on the printed document exactly as presented. It is believed that unnecessary discussion will be avoided if the Department is willing to forego the article of the general provisions dealing with this subject.

In conclusion, it is not without interest to report that occasional articles have recently appeared in the more responsible Uruguayan newspapers, urging the cultivation of closer trade relations with the United States. A clipping of an editorial from this morning’s edition of La Mañana, semi-official Government organ, is enclosed as a typical example.26 While the article itself contributes little in the way of constructive suggestions, it is added evidence that announcement of negotiations for a trade agreement would be well received by public opinion at this time.

Respectfully yours,

Selden Chapin
  1. Followers of Luis Alberto de Herrera, five-time candidate of the Partido Nacional for the Presidency of Uruguay.
  2. Vol. vi, p. 151.
  3. Of the Bank of the Republic of Uruguay.
  4. Not printed.