The Secretary of State to the Chargé in Honduras (Faust)

No. 1294

Sir: The Department has received your despatch no. 67, May 21, 1943, with reference to the 8% consular charge which the Honduran Government is seeking to collect on equipment and supplies imported for use on the Inter-American Highway.

The Department notes that in your despatch no. 2624 of February 12, 1943, and also in your budget report of December 28, 194220 it was stated that the Honduran Government had in October 1942 requested permission of the British Foreign Bondholders Council to [Page 369] suspend service on the Honduran sterling debt. No categorical statement has, however, been found in your reports that the debt service has in fact been suspended. The Department is of course unaware whether, in the event that the debt service has been suspended, any provision was made with regard to the collection of the 3% portion of the consular charge which was earmarked to service the debt.

Moreover, the Department is not fully informed regarding the difficulties which the road contractors anticipate in paying the full 8% consular charge. The Embassy’s reports do not explain why the contractors assert that they may be forced to stop construction work unless the consular charge is waived, or their contracts modified.

It has already been made clear by Mr. E. W. James’ letter of April 921 that there is no legal objection to the payment of the 3% or indeed the full 8% consular charge for material imported by the contractors for the Inter-American Highway project. With regard to the pioneer highway contractor, it should be pointed out that the only agreement reached with the Honduran Government in regard to the project was that concluded in pursuance of the Department’s telegram no. 137 of June 20, 1942,21 which merely secured permission for the contractors with their personnel and equipment freely to enter Honduras. It is not the Department’s view that such a general commitment could require the Honduran Government to waive the collection of fees which the Honduran Government has no legal right to waive, to the prejudice of third parties.

You are requested to take this matter up with the contractors and with the appropriate Honduran authorities, bearing the above considerations in mind. You should make it very clear that this Government will not request the Honduran Government to waive any charges which it is legally unable to waive, and that such charges will have to be paid by the respective contractors. You should, on the other hand, be satisfied that the Honduran Government has fulfilled its undertaking to waive such fees as it can waive. In this connection you should remember that the Public Roads Administration is prepared to approve the payment of the full 8% consular charges in the manner described in Mr. James’ letter. Within the limitations described above, any specific agreement which you may be able to reach in Honduras satisfactory to the respective parties to the dispute will receive the Department’s favorable consideration. The Department believes, on the basis of the information available to it, that this should mean in practice the waiving by the Honduran Government of 5% of the 8% consular charge both for the Inter-American Highway [Page 370] project and for the pioneer highway project;23 but within such legal limitations as may exist with respect to the Honduran Government and the contractors, it would prefer to see the whole charge paid rather than urge upon the Honduran authorities an exemption which the country’s finances could ill afford.

The Department is unwilling to discuss this matter with the representatives of the English bondholders as recommended in the Embassy’s despatch no. 2624 of February 12, 1943, the more so as the Export-Import Bank has a second lien on the portion of the consular charges which are pledged to the service of the sterling debt.

Very truly yours,

For the Secretary of State:
Sumner Welles
  1. Economic Trade Report No. 128, not printed.
  2. Not printed.
  3. Not printed.
  4. For correspondence concerning the Pioneer Highway project, see vol. v, pp. 76 ff.