Foreign Relations of the United States, 1948, The Western Hemisphere, Volume IX

611.2331/10–548

Memorandum by Mr. George H. Owen of the Division of North and West Coast Affairs to the Director of the Office of American Republic Affairs (Darnels)

confidential

[Washington,] October 5, 1948.

Ambassador Ferreyros has said that he wishes to discuss trade problems with Mr. Daniels. Peru has presented certain grievances with respect to her trade relations and trade agreement with the United States, on the following points:^*

1. Peru claims that the present trade agreement¹ works at a disadvantage to Peru. Since Peru’s duties are mostly specific the present tariff provides insufficient revenue for increased costs of government resulting from inflation. The Peruvian Ambassador has emphasized there is no question of protection involved. Peru requests revision of the trade agreement to permit her to raise some duties.

2. Peru is anxious to secure some reduction in certain United States tariff duties. The duty on certain types of alpaca, silverware, and tuna fish have been mentioned.

3. Peru also desires a larger share of the United States sugar and cotton market.

a) Peru maintains that we have violated the trade agreement by the Sugar Act of 1948 which in effect reduces Peru’s share of the United States sugar market by depriving “full duty countries” of the total of the “Philippine deficit” leaving them with only 5% of it. The Department has informed the Peruvians that since Peru’s basic (as distinguished from Philippine deficit) sugar quota remains unchanged since before the Trade Agreement, there has been no violation. Moreover, the Peruvian Ambassador has been told that negotiations under the Trade Agreements Act could not envisage modification of statutory sugar quotas.

b) Peru would like to sell more long staple cotton to the U.S., by means of an increase in, or an assured share of, U.S. cotton import quotas.

The U.S., on the other hand, has the following complaints regarding the trade agreement.

1. The Peruvian Government charges internal taxes on tobacco products imported from the U.S. which we consider to be an increase in total charges and discriminatory against U.S. products, in violation of the trade agreement.

2. The Peruvian Government has imposed excise taxes on petroleum products and lubricants which apparently discriminate against the imported products in favor of domestic production.

3. The Department is now giving study to the question of whether or not the recently enacted Foreign Exchange Taxes on certain classes of imports are in violation of the trade agreement.

4. In line with current policy, we do not favor renegotiation of trade agreements other than within framework of GATT. In this connection, the U.S. is prepared to negotiate with Peru at Geneva starting next April 9 when the GATT Contracting Parties stage a second round of multilateral negotiations² similar to the original negotiations in Geneva in 1947. If Peru wishes us to consider concessions in our tariffs it should advise us specifically what it wishes us to consider by October 31st. It will be useful if the Peruvian Government transmits an informal list of the concessions they are interested in to our Embassy in Lima before that date. This is necessary so that we can make a public announcement of the concessions we shall consider granting in the negotiations and hold public hearings as required under the Trade Agreements legislation.

For your information, it is expected that Peru will shortly receive some more bad news from the Export-Import Bank. The Eximbank is about to defer further consideration of the application for a $5,000,000 credit for coal development in the Chimbote area on the ground that insufficient information has been presented by the Peruvians, both as to the coal resources and technical problems and as to the legal arrangements which will be made among the groups interested in securing the loan, and also the doubtful extent of a foreign market for Peruvian coal.

Furthermore, the Export-Import Bank has recently requested the views of the Department on the question of Peru’s ability to subscribe a suitable government guarantee of Eximbank loans. The Bank raises this question in view of the impossibility of having any such guarantee authorized by law, since the Peruvian Congress is not in session. Under Peru’s constitution, an Act of Congress is required to contract a debt. The problem is similar to the one raised by the oil companies who refuse to enter into any agreements under the authority of the Executive Petroleum Decree without sanction of the Congress. It is understood that the International Bank has already informed Peru that the lack of legal authority to provide adequate guarantees would prevent the extension of any credit by that Bank to Peru. We are now looking into the merits of the Eximbank’s reasoning. Meanwhile Eximbank will withhold discussing this point with Peruvians.

1. Memo of Conversation, NWC: ELMcGinnis, September 17, 1948, “Peruvian proposal to renegotiate 1942 Trade Agreement”. [Not printed. Footnote in the source text.]
1. For documentation on the reciprocal trade agreement between the United States and Peru, May 7, 1942 (Department of State Executive Agreement Series 256), see Foreign Relations, 1942, vol. vi, p. 674.
2. The third session of the contracting parties to the General Agreement on Tariffs and Trade and Tariff Negotiations, was to meet at Annecy, April 8–August 26, 1949.