853.24/137: Telegram

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

304. Aide-mémoire.

1. The Minister referred to Dr. Salazar’s note of January 16, 194320 on the subject of the proposed price increases on certain products to be supplied to Portugal under the Anglo-American-Portuguese Supply-Purchase Agreement concluded November 24, 1942, and expressed regret that Dr. Salazar should have chosen to send a communication of this tenor, amounting in effect to a reproach of bad faith, for the purpose of giving expression to the view that the increase in the price of copper sulphate did not accord with his understanding of what had been agreed upon in the negotiations. It would have been appreciated if the Foreign Minister had first made inquiry informally, either directly or through the negotiations, as to whether there had not been some misunderstanding.

2. The Minister could not find in the records of the negotiations anything, either written or implied, which would indicate that there had been any breach of good faith on the Anglo-American side. Dr. Salazar would recall that the memorandum presented to the Portuguese Government on September 2, 1942, by the Anglo-American negotiations [negotiators] contained (page 4 clause 3) the following passage:

“The Governments of the United States, United Kingdom believe that the proposed program represents a fair exchange in terms of goods, and that this, rather than the prevailing prices of the goods to be exchanged, is the true criterion for assessing the balance. Indeed, the disparity between Portuguese prices and world prices is now so [Page 508] great, and the increase since the outbreak of war in the prices charged for United States and United Kingdom goods so small, that the United States Government and His Majesty’s Government will not be able to maintain for all the goods in list A the controlled prices they have imposed for purely internal purposes.”

At no time during the conversations which followed had the Anglo-American negotiators made any suggestion that price adjustments would be limited to the amounts necessary to avoid sales of goods to Portugal at prices inferior to controlled domestic production costs, or at prices which would involve a sacrifice to the producer. If any such impression was gained, this must have been the result of a misunderstanding.

3. In accordance with the passage cited above, it was the present intention of the members of the “bloc” the Minister stated, to make price adjustments only with respect to five materials: namely copper, sulphate, ammonium sulphate, petroleum products, pitch and seed potatoes.

4. Discussing the items individually, the Minister remarked that he had received the impression that the new prices charged or to be charged for ammonium sulphate would not be out of proportion to those prevailing on the European market.

In connection with the increase in the price of petroleum products the Minister pointed out that rather than increase prices on all the 30-odd products to be supplied under the Supply-Purchase Agreement to the level which would have doubtless prevailed in the absence of the measures internal control now operating in the United States and the United Kingdom we had sought to simplify matters and had selected material with respect to which the price increase would have a comparatively slight effect upon the ultimate consumer. In this respect the Minister observed that the price increase on gasoline from what he had been able to learn would amount to only about 6 percent of the retail price in Portugal. Obviously had there been in the place of these few adjustments a general increase on all the prices as mentioned above the total cost to Portugal would have been certainly no less while a great deal more inconvenience would have been caused. It had been assumed that the administrative simplicity which has been achieved from the United States standpoint by the restriction of price increases to a very few products would also be welcomed to the Portuguese Government.

The Minister added that according to calculations the total price increases on supplies from the United States and the United Kingdom amounted to under 100,000,000 escudos and actually represents the bargaining 15 percent of the total value of all goods to be supplied from these sources under the Government.

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5. The Minister pointing out that prices for Portuguese products being acquired by the members of the bloc under the terms of that Supply Purchase Agreement were in some cases fixed by the Portuguese authorities at levels considerably in excess of prevailing world prices and many times the pre-war levels. For wolfram for example the price was now fixed at a level some 782 percent higher than before the war. In the case of tin the figure was 775 percent. Other similar percentage figures were 318 percent for resin, 257 percent for turpentine and 219 percent for sardines.

In this connection the Minister also mentioned the price of sisal and pointed out that although the Portuguese Government had not found it possible to maintain for that commodity the price stipulated in the Supply Purchase Agreement our negotiators had tried to show due understanding of the Portuguese position and had certainly not been inclined to attribute this divergence to any lack of good faith on the part of those who had conducted the negotiations on the Portuguese side.

6. In addition to fixing high prices for certain commodities the Portuguese Government had imposed export taxes and price differentials in the case of wolfram on a scale which had been producing revenues from the sale of this single commodity greater than the entire additional amount to be yielded by the price increases now proposed by the “bloc”. Since July 1 alone the Portuguese Government had received revenues from these sources totaling in the Legation’s estimate some 111,000,000 escudos.

By way of contrast it has been calculated that aggregate price increases of the “bloc” corresponding to an identical period of the agreement would have been approximately 57,000,000 escudos or roughly half of the amount derived by the Portuguese Government from wolfram alone.

Altogether therefore the price increases now envisaged by the members of the “bloc” would, in the light of the charges of the Portuguese Government against its various exports, have been fully justified even if other considerations had not prevailed.

7. The Minister in conclusion expressed the hope that the above explanations, which had been intended to summarize the views of his Government with respect to contemplated price increases, would serve to dispel the doubts entertained by the Portuguese Government in this regard. If this should not be the case he would welcome any comment and any proposal for adjustment of the question which Dr. Salazar might care to make.

End of aide-mémoire.

  1. See telegram No. 96, January 19, 6 p.m., from the Minister in Portugal, p. 497.