740.00112 European War 1939/7664: Telegram

The Minister in Portugal (Fish) to the Secretary of State

96. I have just received from Salazar2 a note dated January 16 of which I am submitting below the complete text in translation. I understand that an identic communication was received by the British Ambassador here.3

The text was as follows.

[“] Mr. Minister:

In the various Anglo-American memoranda presented during the negotiation the Supply-Purchase Agreement,4 reference was repeatedly made to the prices on the one hand of Portuguese merchandise and on the other of the British and American merchandise, it being said, regarding the latter, that the increases they had undergone since the beginning of the war were small and that ‘the British and American Governments would not be able to maintain for some few products to be furnished to Portugal the controlled prices which had been imposed for purely internal purposes.’ Such a phrase could not be left unexplained, owing to the implicit threat contained and the possible scope of its application, and therefore the Portuguese delegation was entrusted with obtaining from the British and American delegates an explanation as to its real sense and the intentions of the Governments of the ‘bloc’ in this respect.

Therefore the Portuguese delegate at the meeting of October 14, 1942, asked what was to be understood by the statement that the controlled prices for internal purposes could not be maintained. The reply was: (1) that the case was not one of a general export tax but rather of increasing the price of some few products as it would not be natural that in exporting those products the prices be maintained which had been fixed for internal consumption and which implied sacrifices for the producer or manufacturer; (2) that there was all [Page 498] the more reason for such an increase because the controlled price of certain products in Britain and in the United States was below the current price of identical products in other countries and the example was cited of ammonium sulphate the price of which in Switzerland and Germany was higher than that in the United States; (3) the question of the increase had not yet been studied in detail by the British and American Governments but it seemed convenient to inform the Portuguese in advance of the intentions of the governments of the ‘bloc’.
The Portuguese delegate suggested the advantage for both parties of stabilizing the prices at the level where they stood on the date of conclusion of the negotiations stating at the same time that on our side we were determined not to permit any increases of prices. This suggestion did not meet with the approval of the British-American delegates who persisted in their stand endeavoring to strengthen their arguments with the example of how absurd it would be for a government to maintain for exports, prices which could remain invariable only with the assistance of state subsidies.
Although the attempt had thus failed to fix or stabilize on either side the prices of the products to be imported and exported, which would have obviated speculation and provided a sound basis for adjusted exchanges, the negotiations were proceeded with for two reasons: Firstly, because it was the general policy of the interested countries to maintain stable prices so far as possible within pre-war limits; and secondly, because the particular phrase in question incorporated in the memoranda referred to ‘few products’ and was moreover restricted in fact in its practical application for the reason presented by the delegates of the ‘bloc’ that possible increases in prices were derived from the wish not to maintain domestic prices for exports at a sacrifice for the exporting country and to the benefit of the importing country. The explanation given thus provided an objective working basis which would avoid the possibility of misunderstandings or abuses and although not stated in the text of the agreement the Portuguese Government considered the said phrase constituted a reservation on the part of the governments of the ‘bloc’ and in view of the explanation thereof given a guarantee for itself.
It happens that the first product affected by the threat referred to is copper sulphate which under the agreement is to be supplied to Portugal by the United Kingdom. After having received tenders from British firms which offered to sell it at pounds 30 and pounds 38 per ton c.i.f.5 the British Embassy came forward with a statement that this product could only be supplied us at pounds 80 per ton i.e. more than twice the quoted prices. A meeting of the representatives of the ‘bloc’ prices convoked by Lieutenant Colonel Fernandes, the negotiator of the agreement, to discuss the matter, the former defined the situation as follows:
The phrase in the memorandum would apply to three, four or at the most five products,
Their Governments had not yet determined which products other than copper sulphate would be subject to price increases,
As there existed between the total purchases and sales of the ‘bloc’ to Portugal a balance which they estimated at 10 million pounds in our favor it was the intention of the Governments of the ‘bloc’ to decrease that margin somewhat by increasing prices of the products to be exported to Portugal, the view being taken, however, that it was preferable to apply such increases only to four or five products rather than to increase the prices of all or of a large number of the products. Owing to the insistence of and the arguments presented by the Portuguese representative who recalled the spirit of the agreement and the statements to which I have referred above made during the negotiations and stressed the enormous and unjustified burden which would fall on the national economy if we were to concur in the conditions advanced by the ‘bloc’ in this case, the delegates agreed to submit the question to their Governments.
Leaving aside the item of copper sulphate for the present in order to examine the question of principle raised by the policy which according to the statements of their delegates the Governments of the ‘bloc’ propose to follow, i.e., to endeavor to reduce their unfavorable trade balance with Portugal by increasing the prices of certain products which they undertook to supply to us I must state to Your Excellency that I consider such a policy contrary to the spirit of the supply purchase agreement and in absolute disaccord with the statements made during the negotiations. Those statements accepted in good faith sufficed to convince the Portuguese Government that abuses in the application of the principle regarding prices were not to be feared. We see, however, with amazement and disappointment that on the contrary the intent is to double or triple the cost of certain products by applying actual export taxes thus establishing regardless of commercial prices or costs of production ‘controlled prices’ to employ the expression used by the official of the Ministry of Economic Warfare to the Portuguese delegate charged with negotiating supplies of copper sulphate in London. Those prices are to be imposed not for the purpose of compensating any loss which might possibly ensue from the exportation of products at prices below costs of production but as a penalty for the reason that owing to the war the countries of the ‘bloc’ have to purchase from us goods to a greater value than they are able to supply to us.
It has been the policy of the Portuguese Government not to allow prices to rise to speculative levels, eloquent proof of which is provided by the much debated case of the price of sisal and the fixing of the price of canned sardines at the level proposed by the British Government, but rather to seek to keep them at pre-war levels so far as possible or at most to increase them only to the extent necessary to obtain that larger production required by foreign markets. Such was the spirit in which upon the conclusion of the negotiations we proposed to work since we considered it to be the most consistent with the general interests of both parties. In the face of the contrasting attitude taken by the Governments of the ‘bloc’ the Portuguese Government is of the opinion that the situation must be completely clarified with the greatest urgency, if necessary by means of new negotiations [Page 500] to define precisely those products the prices of which come within the scope of the reservation referred to and the extent of the contemplated increases compatible with the statements referred to above. Otherwise the Governments of the ‘bloc’ will understand that it would be impossible for the Portuguese Government to carry out the agreement on its side within the spirit of the negotiations.

I avail myself of the opportunity of renewing to Your Excellency the assurances of my high consideration, (signed) Salazar.”

  1. Antonio de Oliveira Salazar, President of the Portuguese Council of Ministers and Minister for Foreign Affairs.
  2. Sir Ronald H. Campbell.
  3. See Foreign Relations, 1942, vol. iii, p. 231, footnote 18.
  4. Cost, insurance, and freight.