811.20 Defense(M)Peru/601: Telegram

The Ambassador in Peru (Norweb) to the Secretary of State

379. To Rosenthal,48 Board of Economic Warfare from Thompson:49 Attention Bateman:50 Overall agreement with Peruvian Government has been held up on account of Peru’s unwillingness to agree to freeze present export taxes during the life of the agreement. Numerous conversations between Ambassador Norweb and Finance Minister East have been directed towards persuading Peruvian Government to include clause 3 in a form acceptable to us. The Peruvian Government insists on leaving the door open to put increased taxes on these minerals on the assumption that we need the minerals so badly that we may be induced or compelled to absorb such increases. Our position has been that since we are guaranteeing the Peruvian producers a floor price and a definite amount for a fixed period of time we should not have to contend with possible fluctuations in production or in prices due to such uncertain tax situation.

As the Peruvian contention appears to be shaping up if we sign this agreement we will be putting a floor under prices paid by us for Peruvian metals, but will leave the door wide open for eventual raises forced upon us by increased taxation. We take the stand that this is entirely out of line with our position as the sole buyer and the only market for such Peruvian metals and minerals.

As a result of the delay the mineral buyers here have ceased their purchases claiming that they can make no contract without knowing the ultimate cost of the metal which they will eventually sell to us. This situation has begun to back up towards the producers and they are now beginning to feel the effects of what amounts to a buyers strike; they have become alarmed and have come to us several times for suggestions and advice. They have offered to take the matter up with Peruvian Congressmen or direct with President Prado, or both. We have invariably told them that these were matters entirely between [Page 737] the Peruvian Government and the Peruvian people and that we were interested only in getting these essential materials in the same manner as we had been obtaining them from other Latin American countries.

Mr. Fernandini, head of the Mining Association, called on me yesterday with the suggestion that perhaps article 3 of the proposed contract was too strong for the Peruvian Government to accept and would I, or could I, suggest the essence of this article in more acceptable terms. In view of the fact we are interested only in the taxes which affect exports I proposed to him the following new terms on article 3: “The Government of Peru agrees not to cause any increases in present export taxes on said metals and minerals and producers thereof during the life of this agreement.” I realize this is a very diluted version of article 3, but in view of the above do you wish us to sign the agreement without the tax clause if the Peruvian Government should continue to insist upon its present stand or shall we hold off on the expectation that pressure from the mining groups here will force the Peruvian Government to agree to some form of tax clause acceptable to us? [Thompson.]

  1. Morris Rosenthal, Assistant Director, Office of Imports Board of Economic Warfare.
  2. John Thompson, special representative of B.E.W.
  3. Alan M. Bateman, official of the Office of Imports, B.B.W.