The Minister in Honduras (Erwin) to the Secretary of State

No. 2624

Sir: I have the honor to report that the contractors on the Inter-American Highway1 have informed me that they may be forced to stop construction work unless: (1) the Honduran consular charge of eight percent ad valorem on imports is waived, or, (2) their contracts with the United States Government and the Honduran Government are modified to make allowance for the payment of such charge.2

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

Decree No. 66, of March 9, 1926, was published in the official Honduran publication, La Gaceta, a complete set of which, it is believed, are on file in Washington, on April 30, 1926, issue No. 7002. This decree concerns the refunding of the British-French loans of 1867–70; the refunding agreement was fulfilled until October 1942, when the Honduran Government requested permission to suspend payments because of reduced consular receipts arising out of the shipping difficulties of the war. Article 8 provides in part that in guaranty of the payment of the semi-annual bonds of 20,000 pounds sterling each, and the expenses for servicing the debt, the Honduran Government will set aside the product of the consular fee of 3% on all consular invoices for merchandise destined to Honduras. This fee of 3% will be collected obligatorially and exclusively by means of special stamps which will be deposited in the hands of the National City Bank of New York [Page 364] or other bank of recognized credit, accepted by the parties, to be sold to exporters (to Honduras) for the payment of said fee as it becomes necessary. The text of Article 8 is contained in Enclosures Nos. 4 and 54 to this despatch.

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

On March 17, 1930, the Honduran Government issued Decree No. 139, published in La Gaceta of April 10, 1930, No. 8169, which raised the 3% ad valorem consular fee to 5%, and which provided that the 2% increase should be used for the redemption of the Ferrocarril Nacional and the dock at Puerto Cortes. Enclosures Nos. 6 and 74 to this despatch contain the text of Decree No. 139.

On March 5, 1942, the Honduran Government issued Decree No. 69, published in La Gaceta of March 10, 1942, No. 10,652, which raises the consular fee from 5% ad valorem to 8%, and which provides that the 3% increase is to be destined for the payment of the diplomatic and consular services. It also provides that “when the said income is freed from the obligations contracted by decree No. 66, of March 9, 1926, which levied a tax of 3%, there is to be destined the 5% from the product of the same consular levy, as guaranty for the fulfilment of the obligations which may be contracted by virtue of Decree No. 52, of February 11, 1942.”5

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

In view of the fact that the Export-Import Bank was apparently aware of the existence of the 3% fee of 1926, the 2% of 1930, and the 3% of 1942, the Legation hesitates to take the position that these charges should be waived because the Export-Import Bank clearly is an interested party,6 as well as the Corporación de Tenedores de Bonos de Londres, in the payment of the 3% fee of 1926, and may be under the impression that the 2% of 1930 and even possibly the 3% of 1942 are also part of its guarantee. At the same time, it seems rather incongruous that the U.S. Government and the Honduran Government should, in order to construct the Inter-American Highway, be forced to pay the Corporación de Tenedores de Bonos de Londres, and perhaps later, the Export-Import Bank itself. In any case, a good deal of needless accounting and bookkeeping might possibly be avoided by appropriate negotiations at this time.

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It seems pertinent at this point to refer to the Department’s instruction No. 835, of July 24, 1942,7 pointing out that the increase in consular fee from 5% to 8%, as reported in the Legation’s despatch No. 1912, of March 18, 1942,7 is apparently in conflict with Article I of the trade agreement of December 18, 1935, between Honduras and the United States.8 This has been brought to the attention of the Honduran Foreign Office in two informal memoranda. No reply has been received, but the Legation will inform the Department promptly regarding any future developments.

In order to prevent the stoppage of work on the Inter-American Highway, the Legation respectfully suggests that the Department immediately arrange a working agreement with the representatives of Swinnerton, McClure, Vinnell and the Frederick Snare Corporation in Washington, the British representatives of the Corporación de Tenedores de Bonos de Londres, the Export-Import Bank, the U.S. Public Roads Administration, and the Honduran Minister in Washington,9 regarding the 8% Honduran consular fee.

The Legation would appreciate the receipt of information by telegraph as soon as an agreement may have been reached.

Respectfully yours,

John D. Erwin
  1. Frederick Snare Corporation and Swinnerton, McClure, Vinnell Associates.
  2. The Honduran Ministry of Finance, through the Honduran Foreign Office, informed the American Legation prior to the date of this despatch that although it would gladly dispense with all other duties, taxes, and charges on importations for the Inter-American Highway, it was prevented from waiving the consular fees by the wording of article 8 of the contract approved by the Government of Honduras, for the first part, and the Corporación de Tenedores de Bonos Extranjeros de Londres (London Bondholders Council), and the Comité de Tenedores de Bonos de Honduras, for the other part. This contract, approved by Decree No. 66 of March 9, 1926, not found in Department files.
  3. Neither printed.
  4. Neither printed.
  5. Decree No. 52, copy of which was forwarded to the Department by the Minister in Honduras in his despatch No. 1847 of February 20, 1942, authorized the President of Honduras to contract a foreign loan with the Export-Import Bank in Washington of a sum not to exceed $15,000,000 (815.51/990).
  6. Under the terms of article 6 of the loan agreement of September 9, 1942, between the Republic of Honduras, the Banco de Honduras, and the Export-Import Bank of Washington, the Bank’s loan was secured, in the last contingency, by income from consular fees. For text of agreement, see Department of State Executive Agreement Series No. 296, or 56 Stat. (pt. 2) 1848.
  7. Not printed.
  8. Not printed.
  9. Executive Agreement Series No. 86; 49 Stat. (pt. 2) 3851.
  10. Julián R. Cáceres.