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

No. 1098

Sir: I have the honor to refer to the Department’s Instruction No. 797 of December 26, 1946, concerning the Embassy’s despatch No. 416 of September 26, 1946,30 and to previous correspondence on the subject of Peruvian contraventions of the Trade Agreement between the United States and Peru.31

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[Page 1016]

Application of Most-Favored-Nation Duty Rates to Products of United States Origin

The Department will recall that, as last reported, Peruvian officials promised to instruct the Superintendent of Customhouses henceforth to apply automatically and unconditionally and without invocation by the importer or his agents all most-favored-nation duty rates to imported products of United States origin. Although this explicit undertaking was given in September of last year, it was not until after a further interview on this subject was had with the Director General of Hacienda33 on November 14 that the Embassy received, per copy enclosed, letter No. 1962, dated November 15, 1946,34 instructing the Superintendent of Customs to extend automatically and without invocation by the importer to goods of United States origin the duty rates specified in Schedule 1 of the Trade Treaty with the United States. This action, however, remedied the situation only in part, and on December 2 there was forwarded to the Director General of Finance and Commerce a communication from the Embassy calling his attention to this fact and requesting that amended instructions be issued to the end that United States products upon importation into Peru likewise be given the benefit of all preferential duty rates to which such products are entitled under the provisions of the most-favored-nation article (Article I) of the trade agreement. Accordingly, there was subsequently received under cover of letter dated December 26, 1946, a copy of letter No. 2160 from the Director General of Finance to the Superintendent of Customhouses amplifying previous instructions to include also the duty rates specified in Schedule I of the commercial treaty between Peru and the United Kingdom, dated October 6, 1936. A copy of this communication is likewise enclosed.34

In so far as the Embassy has been able to ascertain, the aforementioned trade treaty between Peru and Great Britain is the only extant treaty under which products of United States origin upon importation into Peru are entitled to preferential import duty rates other than those specified in the Trade Agreement between Peru and the United States. Preferential customs duties specified in existing commercial treaties between Peru and countries other than Great Britain are not applicable to similar products of United States origin by virtue of paragraph one of Article XIII of the Trade Agreement with the United States excepting from the application to United States products the advantages accorded to adjacent countries or by virtue of [Page 1017] customs union agreements. Therefore unless and until Peru promulgates additional trade treaties involving preferential duty rates to products from nonadjacent countries or other than in connection with customs union agreements, this important point in our bill of complaints appears to have been successfully negotiated.

Violations Arising From Taxes and Charges Authorized by Laws Antedating the Trade Agreement

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In view of the definite negative position previously assumed by the Peruvians as reported in the Embassy’s despatch under reference,35 no further discussions have taken place with reference to this group of taxes and charges as a whole pending receipt from the Department of appropriate legal references or other evidence as to the retroactive effect of the general provisions of the Trade Agreement. However, in several recent interviews with the Director General of Finance the question has been repeatedly but informally raised by an officer of the Embassy as to the propriety under Peruvian law of Supreme Decree of August 24, 1936, which administratively applies taxes on tobacco products of as much as 18 percent based upon Law 8433 which authorizes a tax of only two percent on those products. An officer of the Embassy was orally informed by the Director General on February 1, 1947 that the entire schedule of tobacco taxes is now under study with a view to a suitable revision thereof.

Following receipt of the Department’s instruction under acknowledgement providing additional information concerning the retroactive aspects of the general provisions of the Trade Agreement, the Embassy’s Note No. 360 dated February 6 on this subject has been forwarded to the Minister for Foreign Affairs,36 per copy enclosed.37 The Department will be opportunely informed with regard to developments in this connection.

In the meantime it may be mentioned that just prior to forwarding the Embassy’s aforementioned note of February 6 an unofficial translation thereof was shown to the Director General of the Commercial office of the Ministry of Foreign Affairs, Sr. Vicente Cerro Cebrian, with a view to obtaining his unofficial observations on the subject in the light of the contents of that note. According to Sr. Cerro, his office and the Ministry of Finance and Commerce remain in complete agreement as to the nonretroactive effect of the general provisions of our trade agreement with Peru. Sr. Cerro undertook to explain his attitude by [Page 1018] saying that any interpretations that might be given to substantially similar provisions in trade agreements between the United States and other countries in no way affected the meaning of the provisions of the particular agreement between the United States and Peru in so far as the latter country is concerned. Had retroactive application been intended, Sr. Cerro stated, explicit language to that effect would have been required.

Moreover, it has been Peru’s understanding, Sr. Cerro continued, that a revised trade agreement between Peru and the United States is to be negotiated in the not distant future at which time all outstanding differences in views, such as that at hand, might be settled. Sr. Cerro was then informed that the Embassy is unaware of any current plans on the part of the Department to renegotiate our trade agreement with Peru. Sr. Cerro concluded with the opinion, which he carefully labelled as his own, that our Government would be completely unsuccessful in obtaining acceptance by Peru of the views expressed in the note under reference. Otherwise, he stated, there would be required a downward revision in Peru’s revenue budget which would be most inconvenient at this time. The latter statement is believed significant in that it probably explains in large part the determined resistance by the Peruvians to any arguments that can be adduced in support of our Government’s views on the point in question.

Violations Arising From Taxes and Charges Authorized by Laws Dated Subsequent to Treaty (Except Port Taxes and Charges)

Other than the instances of port taxes and charges (mentioned below) apparently only two laws are involved in discriminations arising from taxation undertaken subsequent to the signing of the Trade Agreement; namely, Law 10090 of December 22, 1944, and Law 10576 of May 16, 1946. The former provides a tax of ten centavos per package of imported tobacco (cigars, cigarettes, pipe or other) and five centavos per package of domestic cigarettes of certain brands only. It will be recalled that, as previously reported, the Peruvians claim that a change from the present specific tax to an ad valorem tax would involve serious administrative difficulties on the part of the Peruvian Government without improving the competitive position of United States tobacco products. Moreover, it is argued, this tax is not discriminatory in practice if there be taken into account the ad valorem equivalent of the present specific taxes collected. It was promised that the Embassy would be furnished with a written communication in substantiation of that contention.

After repeated conversations and reminders the Embassy finally [Page 1019] received, under date of December 26, letter number 2166 from the Director General of Finance enclosing a memorandum on this subject, copies of both of which are enclosed.38 It will be noted that in claiming non-discrimination on an ad valorem equivalent of the specific taxes applied the Peruvians do not refer to the fact that only a few brands of national manufacture are taxed at all under Law 10090. Their point of view on this, as orally expressed, is that the non-taxed brands of domestic cigarettes are a poor quality low-priced article and therefore, practically speaking, can not be considered as competitive with the United States product. Thus to insist upon rigid and exact compliance under those circumstances, the Peruvians insist, is to distort the real purposes and objectives of the Trade Agreement. The Embassy awaits the Department’s further views and observations on this point.

With reference to Law 10576, there is enclosed a copy of letter number 2164 of December 26, 1946, from the Director General of Finance to the Manager of the Caja de Depositos y Consignaciones, the Government’s tax-collecting agency, instructing that cigars of United States origin are to be considered exempt from the tax authorized by that law.

Port Taxes and Charges

In accordance with the Department’s instructions under reference the Embassy will defer until later further discussions with the Peruvian authorities with regard to the port-tax matters. In the meantime the Embassy is investigating with a view to reporting to the Department whether these taxes are levied on domestic products of a nature similar to imported products and in a similar manner.

Respectfully yours,

For the Ambassador:
Thomas S. Campen

Acting Commercial Attaché
  1. Neither printed.
  2. Of May 7, 1942, Department of State Executive Agreement Series No. 256.
  3. Ernesto Alayza G.
  4. Not printed.
  5. Not printed.
  6. Despatch 344, September 11, 1946, not printed.
  7. Enrique García Sayán.
  8. Infra.
  9. Not printed.