740.00112A European War, 1939/25496a

The Secretary of State to the Chargé in Guatemala (Drew)

No. 1550

The Secretary of State advises that it is the desire of the Department to formulate as soon as possible a definite program for dealing with the 1942–43 crop of Proclaimed List Guatemalan coffee, and, if possible, to secure in this connection the adoption by the Guatemalan Government of legislation implementing more completely Resolution VII of the Washington Conference9 which contemplates the complete elimination of the ownership of business properties and enterprises by persons on the Proclaimed List.

The Department feels that more effective results toward such end will be achieved if the initiative for the formulation of a definitive program were left, as far as possible, to the Guatemalan Government itself.

Any program formulated, either with respect to a broad implementation of Resolution VII or to a specific program for dealing with the 1942–43 Proclaimed List coffee crop, should take into account the following considerations:

This Government has consistently maintained the position that the sanctions of the Proclaimed List must be upheld to the fullest extent compatible with the exigencies of the local situation. This Government is nevertheless again prepared to permit the importation of Proclaimed List coffee to fill the 1943 quota, but coffee produced on non-Proclaimed List fincas must be given preference. In this connection, the Department is informed that the non-Proclaimed List coffee production will nearly fill the 1943 quota. For the Legation’s [Page 347] information, it is the Department’s position that the 20 percent agreement embodied in the 1941–42 program10 does not necessarily constitute a precedent for a 1942–43 program. Further, the United States War Department will not be permitted to purchase additional Proclaimed List non-quota coffee as long as non-Proclaimed List coffee can be obtained elsewhere and, considering present Army stocks, it appears that enough of the latter coffee can be obtained for foreseeable needs.
The only fully satisfactory and permanent solution of the problem of how to deal with the 1942–43 Proclaimed List coffee crop would seem to be through the effective elimination of all ownership interest of Proclaimed List nationals in business enterprises and properties. If the fincas now owned by undesirable persons were vested by the Guatemalan Government or transferred to desirable parties, this Government could then, consistently with its Proclaimed List policy permit the importation of coffee produced on fincas formerly owned by Proclaimed List nationals as quota coffee. Not only would the quota problem thus be solved but this Government might well be interested in arranging for purchases of non-quota coffee as heretofore.
A program for eliminating completely all ownership interests of Proclaimed List nationals in business enterprises would effectively implement Resolution VII and would thus further the joint policy of the respective governments of the Western Hemisphere of strengthening hemispheric defense. The retention of ownership by persons on the Proclaimed List involves the danger that such persons may still be able to assert some control over present operations of their businesses and leaves a present expectancy to such persons which may enable them to continue to assert an undesirable influence in local affairs. If a satisfactory plan were developed and effectively implemented for eliminating such ownership, this Government would be prepared to delete from the Proclaimed List the businesses of Proclaimed List nationals in Guatemala who were subjected to the plan. In addition, this Government would review the Proclaimed List for Guatemala with a view to deleting therefrom, as soon as such a plan was under way, persons and firms who have been guilty of only minor undesirable acts, such as trading with, and isolated cloaking transactions on behalf of, Proclaimed List nationals.
It is realized that the adoption of such a program by the Guatemalan Government might result in the loss of the present $4 coffee tax, but since the entire revenues from the fincas would, if they were [Page 348] vested by the Government, accrue to it, there would be, as a practical matter, no loss of revenue. Even upon a transfer of the fincas to desirable persons, the proceeds of the sale or a part thereof could be made available to the Government through investment of the proceeds in bonds or through taxation. Thus the injury to the local economy would be held at a minimum and there would be no loss in value of the fincas themselves.

The Legation will note that the considerations set forth above approach the problem of a more complete implementation of Resolution VII through the specific problem of how to deal with the 1942–43 coffee crop. The question could, of course, be raised in exactly the opposite manner, that is by discussing the broad problem of the desirability of implementing more completely Resolution VII without reference to this year’s coffee crop (although the specific problem would probably arise in the course of any discussions).

The Legation is authorized in its discretion to bring the foregoing matters and considerations to the attention of the appropriate Guatemalan authorities in such manner as it deems most appropriate to attain the results desired. It is realized that specific problems will arise in connection with the adoption of any far-reaching program, but if the Guatemalan Government proves willing to take action, these can be dealt with as they arise. As noted above, the Department desires the initiative for the formulation of a definitive program be left, as far as possible, to the Guatemalan Government itself. The Legation is requested to keep the Department fully informed of any discussions held and the results thereof.

. . . . . . . . . . . . . .

  1. For text of Resolution VII, see Pan American Union, Congress and Conference Series No. 39: Final Act of the Inter-American Conference on Systems of Economic and Financial Control (Washington, 1942), p. 19. For correspondence concerning the Conference, held at Washington June 30–July 10, 1942, see Foreign Relations, 1942, vol. v, pp. 58 ff.
  2. This understanding with the United States Government made it possible for Guatemala to fill its export quota under the Inter-American Coffee Agreement of November 28, 1940 (Department of State Bulletin, November 30, 1940, pp. 48&-488), by drawing upon limited quantities of coffee grown on Proclaimed List properties. See ibid., November 15, 1941, p. 388.