Memorandum by Mr. H. Gerald Smith of the Division of Commercial Policy and Agreements

Exchanges of Notes Accompanying Proposed Trade Agreement With Peru

The trade agreement with Peru which is about to be signed is accompanied by two exchanges of notes:

An exchange of notes regarding exclusive preferences extended by Peru to contiguous countries. In this case the draft of notes follows closely the formula which was used in the trade agreement with Argentina in October 1941. The substance of this note had been agreed upon some months ago with the Peruvian negotiators as part of the basis for going ahead with the trade agreement negotiations and does not seem to require any further comment.
The second note expresses the understanding worked out by officers of the Department with the Peruvian negotiators regarding what could be done in the matter of the present import quota on Peruvian long-staple cotton. The Peruvian officials were informed that the proposal which was embodied in the notes is the maximum which can be offered at this time and they expressed a willingness to accept it, in as much as it had been found impossible, owing to opposition by the Department of Agriculture, to secure the complete removal of import quotas at present. The understanding developed therefore that the Department, following conclusion of the agreement, which would contain a reduction in the duty on long-staple cotton, would request the Tariff Commission to institute an investigation under Section 22 of the Agricultural Adjustment Act of 1933, as amended, with a view to consolidating the present individual country quotas into a global quota equal to the sum of the existing individual quotas. In view of present and probable shipping difficulties, it was possible that under such an arrangement Peru would have an opportunity of supplying that portion of the individual quota at present allocated to Egypt, which could not be supplied by the latter country. Then, at the beginning of the next quota year, Peru would be enabled to compete equally with Egypt for the full amount of the global quota of about 45 million pounds. It was further agreed that if the Tariff Commission made a finding of fact in a recommendation to the President regarding the consolidation of the present quotas, the President would then issue a proclamation giving effect to such recommendation, and thereafter the President of Peru would issue his proclamation of the trade agreement. On the latter point the Peruvians stated that they must be assured that the matter of the quota arrangement [Page 694] would be settled satisfactorily before proclaiming the agreement on their side, otherwise they would be placed in what they considered the indefensible position in Peru of having signed and put into effect an agreement including a reduction in duty on long-staple cotton which was of absolutely no value to them because of the existence of quotas which, under present conditions, would prevent the importation into the United States of a single pound of cotton for commercial purposes until the opening of the next quota year in September.