611.2331/1–3147
The Secretary of State to the Embassy in Peru
No. 903
The Secretary of State refers to the Embassy’s despatch no. 1098, dated January 31, 1947, relating to the status of negotiations over contraventions by Peru of its trade agreement with the United States. For the Embassy’s information and in accordance with its request, page four, paragraph three, of the despatch under reference, the Department’s further views as regards the memorandum enclosed with letter no. 2166 of December 26, 194641 received by the Embassy from the Director General of Finance, and supplementary oral remarks made by the Peruvian officials on this same point, are summarized below.
The fact that non-taxed brands of domestic cigarettes may be of poor quality and low in price is, in the Department’s opinion, irrelevant to the question whether taxation of the United States tobacco products under Law 10090 of December 22, 1944 constitutes a contravention of the trade agreement between this country and Peru. The continued assessment of a ten-centavo tax per package of imported tobacco [including cigars, cigarettes, pipe, or other]42 while domestic cigarettes of certain brands are subject to a lower tax of five centavos, or exempt from such tax entirely, clearly imposes an additional and [Page 1023] discriminatory burden upon the imported product, in violation of Article II of the trade agreement.
The Department does not consider that this point of view is purely formal and cannot agree with Peruvian officials that insistence upon it distorts the real purposes and objectives of the trade agreement. These objectives are exactly the reduction or elimination of restrictions, discriminations and barriers to trade such as the tax in question. The Peruvian argument that this tax is not discriminatory in practice if the ad valorem equivalents of the present specific taxes collected are taken into account is unacceptable from the Department’s point of view, even were these equivalents found to be roughly identical, since this accidental correspondence is a factor of the current price of the products compared; the provisions per se of Law 10090 are none the less unequal and discriminatory in fact. The discriminatory nature of the legislation is not altered by coincidence nor diminished by demonstration of its present effect in application, calculated upon the basis of formulae not provided by the language of the law itself.
It might also be noted that even in terms of its own premises the memorandum submitted by the Director General of Finance with his letter no. 2166 of December 26, 1946 could not be considered satisfactory. Not only, as the Embassy has pointed out, does the table enclosed exclude consideration of the many brands of national manufacture not subjected to the tax, but figures for foreign brands of cigarettes other than of United States origin imported into Peru are not included. The ad valorem equivalents in the case of many of these brands, as reported on page 4 of the Embassy’s despatch no. 286 of September 17, 1945,43 range considerably lower than for United States cigarettes.
The Embassy is authorized to make use of these views as it may consider appropriate in any further discussions with Peruvian officials in connection with the Embassy’s note no. 360 of February 6, 1947 or the Ministry of Finance and Commerce memorandum submitted by the Director General of Finance under cover of his letter no. 2166 of December 26, 1946. If the attitude of the Peruvian authorities with regard to the violation of the trade agreement arising from taxes and charges authorized by laws antedating the agreement itself continues unchanged and adamant, it may be that final settlement of these questions will not be reached until such time as new trade-agreement negotiations with Peru are undertaken. It is not the Department’s intent, however, that efforts to secure remedial action in the matters concerned should be relaxed, pending any such new negotiations.
In this connection, and with reference to the remarks of the Director [Page 1024] General of the Commercial Office of the Ministry of Foreign Affairs, Sr. Cerro, the Embassy was correct in its statement that there exist no specific current plans on the Department’s part to undertake such new negotiations. The major attention of the interdepartmental trade-agreements organization of this Government must at present be focused upon the multilateral trade-agreement negotiations45 scheduled to begin at Geneva on April 10, 1947.
Following the conclusion of the Geneva meeting, however, it is contemplated that negotiations with other countries not members of the Preparatory Committee of the International Conference on Trade and Employment, including Peru, may be initiated. This Government’s program for trade-agreement negotiations subsequent to the Geneva meetings will of course be integrated within the framework provided by the Charter of the proposed International Trade Organization. For the Embassy’s information, there is enclosed a copy of a memorandum entitled Procedures for the April 1947 Trade-Agreement Negotiations,46 which outlines, pp. 12–14, both the relation which will obtain between any general agreement on tariffs emergent from the Geneva negotiations and the proposed International Trade Organization, and alternative procedures by which additional tariff negotiations with countries not parties to such general agreement, including Peru, will be undertaken.