740.00112 European War 1939/7897: Telegram

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

381. My 308, February 21.

1.
On February 24 there took place a meeting of the Mixed Commission set up primarily to deal with problems arising out of the Anglo-Portuguese War Trade Agreement. This meeting was attended by Ives24 and Kennan on invitation and it was decided that the Mixed Commission supplemented by American representatives would henceforth treat current questions arising out of the Supply-Purchase Agreement as well.
2.
The first question considered at this meeting was price raising. Colonel Fernandes, Salazar’s spokesman for economic matters, opened the discussion by denying that the Portuguese Government had ever held suspicions that we had been guilty of bad faith in connection with price raising. This was followed by a reiteration in substance of Salazar’s statements to the British Ambassador and myself of February 20. The session then developed into a long and repetitious debate between the British and Portuguese delegates over the question of what was agreed between the delegations last fall and convergent upon this justification for the Portuguese and United Nations controlled prices. The most that can be said by way of summary is that the question of arbitrary price raising remains for the Portuguese one of principal phases of material value that they insist that we should “discuss” i.e. modify in agreement with them, the price raises we have established and that if we are unwilling to do this they are determined to retaliate by the various means at their disposal which will possibly include the raising of export taxes and of freight rates. While they could not be explicit on this point at that stage of the conversations, I believe that they mean that their pride would be satisfied if we were to revise our price increases downwards to between 40 and 50% without any compensatory decreases on their side. If we refuse to [Page 513] make such concessions and insist that our price increases should stand the result will probably be not only retaliation but a general poisoning of the atmosphere in all our economic relations with Portugal, an event which cannot help but be reflected on our general [apparent omission] here.
3.
I fail to see on what objective basis we could “discuss” with the Portuguese the price increase on petroleum product. This increase is in reality an arbitrary one; we would be at a loss to explain to the Portuguese why on the basis of any understandings reached in last fall’s negotiations we chose the particular figure of 100% and not any other figure; similarly we would not know how to explain price except as a flat concession to Portuguese wishes.
4.
As for ammonium sulphate we could perhaps argue that the commodity could not be obtained anywhere in Europe much cheaper than $90 per ton f.a.s. Our position has not been eased however by the fact that according to the Portuguese delegates one of the Assistant Secretaries of Agriculture expressed amazement to Bianchi25 that the Portuguese should have been asked to pay as much as $36 per ton which he considered very stiff.
5.
In appraising this situation it should be taken into account that our reduced purchases of cork (Department’s 290, February 2326) will tend to reduce the financial gap under the agreement and if dilatory purchases are suspended altogether after existing commitments are fulfilled an approximate balance will be struck in the value of exchanges between the United States and Portugual.
6.
Looked at solely from the standpoint of American interests in Portugal, I now see no reason why we should not reduce our prices in deference to Portuguese feelings. I believe that taking a long range view we would stand to gain much more than we would lose by such a course.
If, however, the principle of price raising really must be clung to in Portugal in order that the British and ourselves may ease our peseta position in Spain as indicated in the Department’s 227, February 12, part I, paragraph 3, then I think that the best thing we can now do is to tell the Portuguese flatly that we are not inclined to discuss these prices and thus invite any consequences that may ensue.
7.
The Portuguese are [not?] willing to discuss wolfram until the price question is settled. I doubt that they will discontinue the issuance of export licenses on a 25–75 basis after February 28.

Repeated to Madrid.

Fish
  1. J. Windsor Ives, Commercial Attaché in Portugal.
  2. Antonio de Bianchi, Portuguese Minister in the United States.
  3. Not printed.