853.24/143: Telegram

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

361. Department’s 227, February 12; Legation’s 304, February 20; Legation’s 308, February 21; Legation’s 381, February 27; Legation’s 383, February 27.

The Department and Board of Economic Warfare have carefully reviewed the matter of price raising in the light of the information contained in your telegrams under reference, with particular regard to the considerations you emphasize in your 383.
As stated in the Department’s 227, the primary reason for the imposition of price increases on exports to Portugal is to assure our ability to execute our purchase program under the conditions in which we must operate in Portugal. In the absence of the imposition of such price increases, our program is chronically curbed for the simple reason that the extremely high prices we are forced to pay in Portugal have distorted the terms of trade and thereby thrown the commodity interchange out of balance. There can be no question as to the validity of our position that in Portugal the prices of goods purchased by the U.S. and British Governments particularly have either been uncontrolled to our detriment or controlled in the sense that export taxes have been arbitrarily imposed likewise to our detriment, or that Government monopoly technique has been employed. Contrariwise the U.K. and the U.S. have taken effective action to stabilize their own internal price structures, and Portugal is benefiting therefrom.
The Department and Board of Economic Warfare, after due consideration, have decided that this Government should not recede from the position it has taken in the matter. We are prepared, however, to reduce or conceivably even eliminate the surcharges already imposed or intended in the event that the Portuguese reduce in proportionate amount the prices and/or the export taxes on Portuguese products we are purchasing. This would be an unattractive solution on economic warfare grounds, since it would equally benefit the Germans by permitting their escudo resources to buy more.
In support of the above reason, there is the further factor of according approximately equal treatment to Portugal and Spain. In the latter country our financial position more clearly and immediately [Page 516] requires the imposition of price increases. This is not, however, our prime motive.
With specific reference to the price increase imposed on petroleum, the Department and the Board of Economic Warfare do not believe that it can be successfully argued that the selection of this commodity fails to meet the tests that Salazar, in numbered paragraph 2 of his note of January 16,29 states were established by our negotiators with the Portuguese on October 14. While the oil is not of domestic origin, the price ceilings on petroleum and petroleum products in this country effectively regulate prices quoted in the Caribbean. The administrative advantages to us of selecting petroleum for price raising are of course great. The alternative would be to raise prices on a variety of miscellaneous products which would introduce not merely administrative complexities both here and in Portugal, but in addition presumably would result in a more direct and serious impact on the Portuguese consumer.
The Department has noted in your 308 that Salazar reverted to the point touched on in his letter of January 16; i.e., that Portuguese prices were at least partially fixed in the supply purchase agreement. It would appear well to reiterate that under the agreement, the single commodity on which the price was specifically fixed was sisal, and that in this case the control has proved ineffectual if not non-existent to our obvious detriment. There was in the agreement no other stipulation with respect to price maintenance.
The Portuguese authorities presumably must be aware of the fact that the export taxes we pay on purchases made by agencies of this Government in Portugal constitute an expenditure of this Government’s funds for which this Government is accountable. To submit to the payment not only of inflated prices but high export levies as well without an effective move on the part of this Government to redress the terms of trade would be a difficult position to defend.
All the foregoing make it unreasonable to ask us to forego the moderate price increases in question unless the Portuguese on their part indicate a willingness to undertake to bring about reductions of export prices to us on such commodities as wolfram and tin. You may, however, transmit assurances that for the balance of the period of the current supply purchase agreement, no further price increases are contemplated other than those of which the Portuguese are aware or which are discussed in paragraph 6 of the Department’s 227. This decision has been carefully weighed in its political as well as its economic aspects.
The British Embassy here has been informed of the contents of this telegram but has as yet received no word from London as to the British Government’s present attitude in this matter. You are requested to consult with your British colleague. If your British colleague fails to receive parallel instructions enabling you to act in concert with him, or if there are other aspects of this problem which you wish to bring to the attention of the Department, please telegraph urgently.
  1. See telegram No. 96, January 19, 6 p.m., from the Minister in Portugal, p. 497.