The Ambassador in Uruguay (Dawson) to the Secretary of State

No. 290

Sir: I have the honor to refer to the Department’s telegram No. 296 of November 5, 1941, in response to the Embassy’s telegram No. 454 of October 28, reporting our impression that a satisfactory formula assuring us most favored nation treatment as respects exchange control is the principal stumbling block in the current trade agreement discussions and presents a problem which may require difficult and protracted negotiations.

[Page 580]

In view of the statement in the Department’s telegram that:

“It is believed that there should be no great difficulty in regard to the general provisions or schedule two”

it should be emphasized that neither during the negotiations of 1939 nor at present have the representatives of the Uruguayan Government ever expressed—except in the most general and non-committal terms—a willingness to accord non-discriminatory exchange treatment to imports from the United States if this means relinquishing control over the exchange created by their exports to Great Britain and to certain other countries with which payments agreements are in force.

In spite of the more favorable dollar position of the Bank of the Republic at the present time as a result of our heavy purchases of Uruguayan products, the conversations so far have followed almost exactly the same course as those in 1939, and the Uruguayan representatives, notably Mr. Silveira Zorzi, had merely repeated in almost identical terms the views which they formerly expressed.

A résumé of the past negotiations regarding this aspect of the problem, as reported at the time by the Legation, may serve to make more apparent the impasse towards which the present conversations are believed to be tending.

The question of exchange treatment was raised very early in the 1939 negotiations.43 The following is a quotation of the relevant portions of the Legation’s memorandum of the meeting on January 17, 1939, between Mr. Fowler, Mr. Sappington44 and myself, and the Uruguayan representatives:

“Señor Silveira said that following yesterday’s meeting he had discussed the possibility of an agreement with the Directors of the Bank of the Republic and with the Minister of Finance, that they had canvassed the various possible suggestions to be made by the American Delegates, among them that contained in the memorandum presented this morning, and that the conclusion of the Uruguayan officials had been that it was not practicable for the Uruguayan Government to abandon its system of bilateral trade. He stated that he had been authorized to express the point of view of the Uruguayan Government at the meeting today in preliminary form and that this statement would subsequently be amplified and confirmed by a written memorandum in reply to the American memorandum, if desired. Mr. Fowler decided that in view of the very informal character of these discussions the preparation of a memorandum would not be necessary.

“Explaining the point of view of the Uruguayan Government, Señor Silveira Zorzi stated that it was prepared to admit that a [Page 581] reduction of import duties by the United States Government such as envisaged in the discussions of the previous day would increase Uruguay’s exports to the United States. He added that the main cause of the present commercial difficulties was the high American duties, and that if they should be reduced Uruguayan exports to the United States would doubtless increase, and that under such circumstances an import quota would be assigned for American goods and the present difficulties would be over.

“He repeated the often-stated position of the Uruguayan Government that theoretically it favored multilateral trade, but because of pressure on the part of European nations, which together have purchased some 80 percent of Uruguayan exports, Uruguay was not in a position to engage in multilateral trade.

“Mr. Fowler pointed out that the memorandum proposed restriction of imports by classes of merchandise rather than by countries, and that the former plan would offer Uruguay ample opportunities for balancing payments. Señor Silveira Zorzi said, however, that this system did not provide exchange, and that its adoption would undoubtedly result in an immediate decrease of Uruguay’s exports.

“Mr. Fowler stated that the British officials now in charge of foreign trade matters were not the same as those of a few years ago, and that he believed that they were willing to consider a more liberal treatment of the River Plate countries, and asked whether, in the event that the British Government should relax its pressure on Uruguayan exchange, the Uruguayan Government would be willing to consider the abandonment of the bilateral system. Señor Silveira Zorzi said, and was supported by Señor Grucci, that such a possibility was extremely interesting to the Uruguayan Government, and that if it existed the Government would be glad to give serious consideration to an alteration of its policy.

“Failing any alteration of policy, however, by the British Government, the American proposal was not acceptable at present.”

Following this meeting the negotiations were in abeyance until the receipt of the Department’s instruction No. 152 of June 28, 1939,45 transmitting the draft of the general provisions. On August 29, 1939 (Legation’s telegram No. 5846) there was reported the following reaction:

“The Minister (i.e. of Foreign Relations) said that unfortunately the American proposals were predicated on Uruguay’s departing from its bilateral commercial policy but that he felt confident nevertheless that some form of agreement could be worked out saying that he was much interested in negotiating a trade agreement with the United States during his incumbency.”

In the Foreign Office’s note of October 8, 1939 (Legation’s telegram No. 8147) agreeing to a public announcement of intention to negotiate, there were contained the following significant statements: [Page 582]

“The bilateral agreements which Uruguay has made with countries which at present purchase the greater part of its products are due, generally, to the desire of those countries that the exchange created by their purchases be devoted preferentially to the payment of the financial and commercial services which Uruguay owes them.

“The Government of the United States of America recognizes that our Government is compelled to exercise control over imports with a view to safeguarding the service of the foreign debt and other remittances of funds abroad and to protect the exchange rate of Uruguayan currency during period of foreign exchange difficulties.

“The Government of the United States recognizing the necessity of this measure, it is possible, in the opinion of the Uruguayan Government, that the control may be effected on the basis of quantitative regulation as suggested by the Government of the United States, it being admitted also that this system of regulation may be implanted without causing disturbances in the commerce which the Republic is maintaining with other countries, provided that action in this regard is exercised with the elasticity of viewpoint demonstrated in the memorandum under acknowledgment.”

Perhaps the clearest reflection of the difficulties which impeded the past negotiations and are still a fundamental problem, is found in the Legation’s despatch No. 14 of November 8, 1939,48 reporting Minister Wilson’s conversations with Dr. Charlone, Minister of Finance, Sr. Vicente Costa, President of the Bank of the Republic, and Sr. Silveira Zorzi, Exchange Manager of the Bank. A copy of this despatch is enclosed. Dr. Charlone is no longer Minister of Finance, but Sr. Silveira Zorzi is taking an active part in the present negotiations.

At the meeting held on December 11, 1939, to discuss the general provisions, the following objections to the exchange control articles were raised by the Uruguayans (Legation’s telegram No. 12648):

  • “2. Article 8: They state that under their treaty with Great Britain49 they are obliged, in case they restrict imports, to maintain as between different classes of British goods the proportions in which such classes of goods were imported in 1934 (see Article 9, Treaty of 1935, despatch No. 61, of August 15, 193550). They therefore propose to take 1934 as the ‘previous representative period’ in fixing the initial quotas. They believe this would cause no discrimination against United States trade and request our views. (Apart from the question of whether 1934 might be accepted as a satisfactory representative period for fixing the initial quotas, it occurs to us that if and when a situation arises in the future in which, in order to protect its exchange, Uruguay is obliged to reduce quotas, it will be most difficult if not impossible for Uruguay to satisfy both the equality of treatment provisions of our agreement and the special requirements referred to above in the British agreement).
  • “3. Article 10 [4]: They insist upon different exchange rates for different products, the rate for each product being the same for all countries (the arguments are generally similar to those used by Argentina). They mention the possibility that a single rate might be used for most products, freedom being reserved to Uruguay to use a second rate on a specified list of products.
  • “4. They insist that because Uruguay has so little freedom to dispose of exchange created by purchases by other countries, particularly Britain, it will be necessary to insert an escape clause to take care of a situation in which United States purchases from Uruguay might fall to such a low point as to make it impossible in fact for Uruguay to comply with the provisions of the agreement; in other words, a provision whereby, if such a situation arises, Uruguay can denounce the treaty. In this connection they refer to the reservation made by the United States regarding modification of concessions should the agreement with Argentina be terminated (paragraph No. 3 Department’s 72, November 16—6 p.m.51) and suggest that both questions might be dealt with by modification of Article 18.”

The termination of the negotiations on January 6, 1940, left these problems unsolved.

It is true that the draft of the general provisions as revised for the present negotiations provides more liberal escape features and should, in our opinion, meet the objections raised by the Uruguayans in the earlier discussions. As indicated in the Embassy’s despatch No. 270 of November 5, 1941, however, these concessions to the Uruguayan viewpoint have apparently served only to prompt a request that Uruguay be allowed in effect to continue the complete latitude with respect to the allocation of exchange for American products that has heretofore been exercised. Reference is made also to the Embassy’s telegrams Nos. 163 (April 22, 1941) and 440 (October 20, 1941) reflecting the emphasis laid upon the exchange control articles of the general provisions in the current negotiations.

Respectfully yours,

William Dawson
  1. See Foreign Relations, 1939, vol. v, pp. 786 ff.
  2. William A. Fowler, Assistant Chief of the Division of Trade Agreements, and James G. Sappington of the same Division, sent by the Department to Buenos Aires and Montevideo to participate in trade agreement discussions.
  3. Foreign Relations, 1939, vol. v, p. 787.
  4. Not printed.
  5. Foreign Relations, 1939, vol. v, p. 795.
  6. Not printed.
  7. Not printed.
  8. Anglo-Uruguayan Trade Agreement signed June 26, 1935; for text, see Great Britain, Treaty Series No. 1 (1937), or Cmd. 5343.
  9. Despatch not printed.
  10. Reference is to telegram No. 72, November 17, 1939, 6 p.m., not printed.