Memorandum of Conversation, by Mr. Gardner E. Palmer of the Division of Financial Affairs

Participants: Ambassador Restrepo-Jaramillo, Counselor of Embassy Camacho
ITP—Mr. Winthrop Brown1
NWC—Mr. Albert Gerberich
NWC—Mr. Sheldon Mills
CP—Mr. Woodbury Willoughby2
FN—Mr. Gardner Palmer

The Colombian Ambassador said that he had requested an audience to explain in person the domestic situation that prompted the adoption of the taxes on foreign exchange which we have protested as contravening the Trade Agreement with Colombia.3 He stated that the rioting last April4 had forced Colombia to seek revenues for increased budgetary expenditures; that at the same time the Government sought some solution to the increasingly adverse balance of payments; that the Government after study adopted taxes on sales of foreign exchange for imports to help solve both problems without unduly increasing the cost of living; that these measures were of a temporary nature pending the desired readjustment of customs duties.

Mr. Brown pointed out that we were familiar with the problems facing Colombia, sympathetic toward their solution, but hoped that this could be accomplished by some method more clearly within the framework of measures to expand world trade as contemplated in the ITO charter5; that this Government had conveyed to Colombia its ideas by suggesting the substitution of quantitative import limitations to control the balance of payments and nondiscriminatory excise taxes for additional revenue; that even these measures would require a modification of the existing Trade Agreement. He also suggested that we were extremely interested in the better treatment of the U.S. petroleum companies which had some bearing on the subject under discussion inasmuch as the Colombians were asking that we make concessions to them of a nature affecting our trade with that country.

[Page 454]

The Ambassador said that he had recently discussed the petroleum problem with Department officials and had reported the conversations to his Government. He did, however, stress how difficult this problem was to correct, pointing out the spreading of communistic doctrines and the world-wide activity of trade unions as evidenced by our labor relations problems in coal mining and stevedoring. He expressed great hope for Colombia through the development of its petroleum reserves and was authorized to say that his Government will try to resolve the problem we had raised

With respect to the substitution of excise taxes for exchange taxes the Ambassador said that experience in Colombia had proven that in some cases the cost of collection of the former was equal or in excess of the receipts, and that they would require an extension of Government bureaucracy. He stated that their system was far different than ours in that where we could govern by signs, Colombia needed a policeman with a stick. As to increasing other taxes the Government believed that still higher income taxes would stifle production without further education to gain acceptance of the taxpayers; that gas taxes were already high, transportation was expensive and one of their principal problems. An increase in tobacco taxes was impractical as these revenues went to the individual states by constitutional authority.

He cited the effective free market devaluation of the Colombian peso from 1.75 to 3.00 pesos per dollar as evidence that increased tax revenues from imports, now a low percentage of total, were justified. He requested that we consider an increase in the existing 4% stamp tax on foreign exchange transactions to 12% as an alternative to the graduated foreign exchange taxes to which we had taken an exception. He asked if we felt that something could be worked out as an interim measure pending ultimate tariff readjustments, stating that he did not expect an immediate answer.

Mr. Brown replied that he thought something might be worked out and that the subject was now being discussed in Bogotá; that these discussions could continue there or here as the Colombian Government saw fit.6

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The Ambassador said he had no desire to “overlap” negotiations taking place in Bogotá, but felt that a frank discussion here might help bring understanding in view of the fact that Ambassador Beaulac has perforce been negotiating through notes to the Foreign Office; that he was authorized by the Foreign Minister to hold this exploratory discussion with the Department and that the Foreign Office will answer Ambassador Beaulac’s last note only after he reports.

Mr. Brown agreed to study the situation and inform the Ambassador within the next few days.

The subject of GATT was discussed to the extent that Mr. Brown informed the Ambassador that new time schedules received from Geneva had been communicated to his Government in Bogotá that might allow Colombia to join during 1949 rather than one or two years hence. The Ambassador said that he had received word that Gutierrez and Araújo of Colombia’s economic mission presently here would be empowered to discuss this situation.

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

  1. Winthrop G. Brown, Director, Office of International Trade Policy.
  2. Woodbury Willoughby, Chief, Division of Commercial Policy.
  3. In Embassy note No. 144, June 27, 1948, not printed, Ambassador Beaulac informed the Colombian Foreign Minister (Zuleta Angel) that the United States Government would consider that the application of the new exchange taxes imposed in Article 1 of Decree No. 1952 of July 10, 1948 to products imported from the United States and listed in Schedule I of the Reciprocal Trade Agreement, signed September 13, 1935, effective May 20, 1936 (Department of State Executive Agreement Series No. 89, or 49 Stat. (pt. 2) 3875) between the United States and Colombia would constitute a violation of that Agreement.
  4. See memorandum by Mr. Herman, November 19, p. 470.
  5. For documentation on the Charter of the International Trade Organization, see volume i .
  6. Secretary Marshall had informed the Embassy in Colombia in telegram 476, September 14, not printed, as follows: “Dept considers all increases stamp taxes including so-called coffee tax always to have been violation TA and previously has not protested primarily because moderate degree increases and uniform application all products. However, for your info only, if proposal para 1 above [modification Gen Provs TA so as to permit internal taxes and quantitative import restrictions on Schedule I products] rejected, Dept. prepared take up with Trade Agreements Committee as means providing Col Govt needed relief present emergency, temporary waiver present TA permitting moderate increase stamp tax provided (a) new exchange taxes removed; (b) stamp tax applied uniformly all merchandise transactions and not selectively particular types commodities; (c) that action is taken raise substantial portion needed revenue thru excise or other taxes not discriminating vs. imports; and (d) Col Govt agrees undertake negotiations accede GATT at earliest possible date in any event not later 1950. This waiver should be terminable short notice.” (611.2131/9–948)