611.1231/442
Memorandum of Conversation, by Mr. John M. Leddy of the Division of Commercial Policy and Agreements
| Participants: | Sres. Saenz, Bueno and Arroyo; Messrs. Fowler, Sams (Commerce), Pierce (Tariff Commission), and Leddy |
The Mexican negotiators were handed two memoranda, dated July 30,28 proposing or confirming certain changes in Articles I, V, VI, VIII, X, XI, XII, XV and XVI of the general provisions.
[Page 510]The Mexicans raised no objection to the inclusion in Article I, relating to most-favored-nation treatment, of language extending such treatment to laws and regulations affecting the distribution as well as the taxation, sale and use of imported articles. Likewise, they suggested no change in the language of paragraph 1, Article V, incorporating their proposal that the provisions of this paragraph refer to “exclusive agencies” rather than monopolies. They thought there would be no objection to extending the provisions of this paragraph to exclusive agencies for export as well as import and were told that language would be drawn up accordingly.
The Mexicans had no objection to offer to the proposed second paragraph of Article VIII reserving to the United States the right to withdraw or modify Schedule III concessions at any time after the termination of the unlimited national emergency proclaimed by the President of the United States on May 27, 1941.29 Señor Saenz inquired, however, whether this paragraph would not be a suitable place for including provisions which would bind on a permanent basis existing rates on Schedule III products. He was told that this proposal, which had been advanced by the Mexicans in discussions relating to the schedules of concessions, had not yet been fully considered by the trade-agreements organization but that if accepted suitable language could of course be found.
With regard to paragraph 1 of Article X, relating to quotas on scheduled products, it was explained that the words “subject to the provisions of the second paragraph of this Article and to the provisions of Article XI,” had been omitted from this paragraph because they seemed to imply that the provisions of the paragraph were not subject to other provisions of the agreement, e.g. the exception in Article XV in regard to sanitary regulations, and because the intent of this paragraph and of the second paragraph of the Article (outlining the circumstances under which quotas may be imposed) were clear without them.
In proposing language which would make reciprocal the second paragraph of Article XV (reservation in regard to constitutional limitations on federal authority) to which the Mexicans raised no objection, it was suggested to the Mexican negotiators that it might be desirable, since it was implicit that each government would be limited by its constitution, to drop this paragraph entirely; in lieu thereof an explanatory memorandum would be handed the Mexican negotiators which would outline the restrictions on federal power, in respect of internal taxes on liquor imposed by the states, implied in the twenty-first amendment to the Constitution.
[Page 511]With regard to paragraph 1 of Article XVI, bringing the agreement into force, the Mexicans stated that there would be no legal difficulty on their side in complying with the provisions of this paragraph, that following approval of the agreement by the Mexican Senate the President would proclaim the agreement by means of a decree which would have a similar status to the President’s proclamation in this country. It was suggested to them that they might wish to refer to the Mexican document as a decree rather than a proclamation. However, they felt that the word “proclamation” would be an adequate description.
The Mexicans were handed draft language to be added to Article XI of the agreement setting forth in a general way the procedure which would be followed in Mexico in withdrawing or modifying concessions in Schedule I of the agreement under the circumstances specified in the Article. They said they saw no objection to this language but would study it further.
No objection was raised by the Mexicans to the following drafting changes, made necessary to meet proposals previously advanced by them: 1) the addition of the words “as soon as practicable” to the fifth paragraph of Article VI; 2) the deletion of the termination provisions of Article XII; and 3) the deletion from Article XVI of reference to Article XII, made necessary by the removal from the latter of the termination provisions referred to above.
In connection with the statements made by the Mexican negotiators in the meeting on July 27 that no discriminatory internal taxes were imposed in Mexico, either by the State or Federal Governments, the Mexicans were handed copies of Mexican federal decrees setting forth the terms of such discriminatory taxes in respect of tobacco products, pharmaceutical products, packaged foods and beverages. They appeared to be unfamiliar with these taxes but readily admitted that the differential taxes on tobacco products appeared to be discriminatory. They advanced the theory that the higher taxes on imported cigarettes might be an advantage to legitimate traders by discouraging the illegal manufacture of American brand cigarettes in Mexico. They sought to question the discriminatory nature of the taxes on the other products mentioned on the grounds that such charges were in reality fees proportionate to the cost of registering and certifying national and foreign products. Señor Bueno mentioned, for instance, the fact that government inspectors supervised the production of domestic pharmaceutical and food products whereas it was necessary in the case of foreign products to have special laboratory analyses, thus involving higher costs. Señor Bueno also took the inconsistent position that the higher charges on imported tobacco, pharmaceutical and food products were “in connection with importation” implying that they were in the same class as customs duties. Señor Saenz [Page 512] recorded the numbers and dates of the decrees mentioned and it was agreed that the Mexicans would get in touch with their government with a view to seeing what could be done. He pointed out that since the trade agreement would have the status of a treaty in Mexico it would override any inconsistent laws; however, he thought it would be preferable to take care of any such inconsistencies in advance.
Occasion was taken at this meeting to explain to the Mexicans the internal tax situation regarding beer, on which a concession is proposed in Schedule II. It was explained that under existing laws the internal tax of $6.00 per barrel applies only to domestic beer, that this tax, which would be increased to $7.00 per barrel or 230 per gallon if pending legislation were enacted, has not yet been extended to the imported product and that the provisions of the agreement relating to compensating taxes would permit such extension. They were made aware of the enhanced importance of the proposed concession on beer as an offset to the possible extension of the increased tax, which would result in a total charge of 73¢ per gallon on imports from Mexico if no duty concession were granted as against 480 per gallon if the duty were reduced by the maximum amount. At their request it was agreed that a memorandum explaining the tax situation in respect of beer would be prepared and handed to them at an early date.