853.24/127: Telegram

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

227. Your 96, January 19; 99, January 20; 177, January 29; and 193, February 2.12

Part I.

As stated in Department’s no. 1199 of September 5, 1942,13 the primary reason which motivated our decision to impose price increases on exports to Portugal was to assure our securing sufficient escudos to execute in full our projected supply and preemptive purchases in face of the tremendously high price of certain Portuguese goods and the heavy taxation. The reason and the objective remain unchanged.
It is realized that the Portuguese have given no indication that they will refuse us the necessary exchange facilities to carry on our program. Consequently, it might be urged that we should not seek to impose price increases at this time. However, there are five arguments which prompt us to persist in the course undertaken. First, the larger the dollar and sterling balances which the Portuguese accumulate, the less willing they may become to continue giving us the necessary exchange. The fact, therefore, that we have experienced no difficulty to date is no guarantee that we will not in the future. Second, we have sought to maintain substantially equal treatment for [Page 503] the Spaniards and the Portuguese. It is considered necessary to apply price increases in Spain because of financial problems confronting us there, and unless some special concession can be obtained from Portugal to induce us not to apply price increases there, it will be extremely difficult to meet objections which may well be raised by the Spaniards. Third, since we have advised the Portuguese that we intend to increase certain prices, it would appear to be a sign of weakness if we retreated from that position simply because of Dr. Salazar’s displeasure. Fourth. The ordinary prices prevailing for certain products we are scheduled to provide Portugal are comparatively low because of price control exercised by the United States Government, and in some cases below cost of production, being aided by US subsidy. The same is doubtless true of certain of the products to be supplied by the UK. Fifth. There is no reason why the Portuguese should benefit from the controlled prices existing in the US and UK while we have to pay exhorbitant prices and high export taxes on the Portuguese materials we purchase. Our action is economically just and reasonable.
Our primary objective would be attained and the first three of the above five arguments substantially met if the Portuguese should formally agree to grant us all the financial facilities we need to carry on our present and projected purchase programs, regardless of their increasing dollar and sterling balances. Although such a formal agreement would not meet the fourth and fifth arguments and although we should like to recoup some of the high prices we are paying, we might be satisfied to accept such a formal agreement and to forego price increases (a) if Portugal will reduce the heavy export taxes imposed on United Nations purchases and (b) if insistence upon price increases would otherwise imperil our primary objective. However, the British are fearful of the results such formal agreement might have on their position. The British Embassy here indicates that if it is suggested to the Portuguese that all we require are facilities for making our purchases, the British may be placed in a position which would jeopardize their obtaining necessary funds for certain of their extraordinary expenses.
In the light of the existing circumstances, the Department and the Board of Economic Warfare believe that the approach which we and the British make to the matter can and must be the same. The tactics which we suggest be employed are set forth in the following Part II.

Part II.

The Department has seen a copy of MEW’s14 telegram no. 246 of February 6 to Lisbon which sets forth suggested lines of reply to [Page 504] Dr. Salazar’s notes of January 16 to you15 and the British Ambassador. The Department agrees generally with these suggestions, but in view of the tenor of Salazar’s note, we consider it important that the substance of our reply be in writing and not passed off simply by an oral statement of our position. The charges of bad faith must be definitely refuted in writing. Accordingly, you are requested to prepare an aide-mémoire in collaboration with your British colleague, such document to be based in general upon the various points set forth in MEW’s telegram no. 246 of February 6. However, it is considered desirable that the following additions to or changes in the reply suggested by the MEW telegram be incorporated in the aide-mémoire:
It should be stated that it is the present intention (repeat present intention) of the British and ourselves to apply price increases only to four or five materials, namely copper sulphate, ammonium sulphate, petroleum products and seed potatoes and, depending on the sardine contracts, possibly tinplate. We do not consider it advisable to specify in the aide-mémoire the prices which it is proposed will be charged. It should be pointed out, however, that the prices charged or to be charged for copper sulphate and ammonium sulphate are not considered unreasonable for these materials in the European market at the present time. (In this connection, we understand that prices for ammonium sulphate and cyanamide of Swiss origin are approximately the same as the 90 dollar a ton figure at which the USOC16 proposes to sell ammonium sulphate. Either you or Madrid may have definite information on this point.) With respect to petroleum products, it should be stated that rather than attempting to increase the prices of all of the many other products to be supplied Portugal under the Supply-Purchase Agreement to the level which would doubtless prevail were it not for measures of internal control existing in the US and the UK, we have sought to simplify matters and have selected a material whose price increase will have a comparatively slight effect upon the ultimate consumer. (In this connection, we understand that the f.o.b.17 prices in this hemisphere for petroleum products constitute only a small fraction of the eventual retail prices in Portugal.) It should be emphasized that the administrative simplicity from our point of view in selecting a very few products for purposes of price raising also provided what we had assumed would be attractions in the eyes of the Portuguese. As to tinplate, it should be stated that the price will be determined in the sardine contracts, those being definitely related matters. As to seed potatoes, your British colleague will supply the appropriate comment for these will be provided by the United Kingdom.
The aide-mémoire should also refer to the fact that the Portuguese authorities have apparently been unable to enforce the price for sisal in the manner provided for in the Supply-Purchase Agreement. (You will, of course, be familiar with the details of this situation.)
We do not consider it advisable to make any suggestions in the aide-mémoire as to a possible solution of the problem. We consider it preferable for the aide-mémoire to end on the note that we should welcome any proposal which Dr. Salazar might put forward looking to a possible adjustment of the matter.
In your conversation with Dr. Salazar, however, you may wish to touch upon the possibility of reducing the export prices to the United Nations of such items as wolfram and tin, and also upon the matter of effectively insuring the continued production of sisal at reasonable prices. Dr. Salazar will doubtless inquire as to the extent of our price increases. If so, you may state that it is proposed to charge approximately $90 a metric ton f.a.s. port of shipment for ammonium sulphate and to double the Western Hemisphere f.a.s. price for petroleum products. We understand that the copper sulphate figure which has already been quoted is slightly more than double the prevailing price in the UK. The seed potato prices will be supplied by your British colleague.
Depending upon Dr. Salazar’s reaction to the foregoing, you may or may not wish to raise the subject of wolfram along the lines of the Department’s immediately following telegram no. 228.18 If the wolf rain question is not raised at the time of your interview with Salazar, please endeavor to discuss it with him at an early date.
Please telegraph when you expect to see Dr. Salazar. Also please telegraph text of the proposed aide-mémoire after it has been presented, together with your comments as to the course which the interview takes.
  1. Telegrams Nos. 177 and 193 not printed.
  2. Not printed.
  3. Ministry of Economic Warfare.
  4. See telegram No. 96, January 19, 6 p.m., from the Minister in Portugal, p. 497.
  5. United States Commercial Company.
  6. Free on board.
  7. Infra.