Foreign Relations of the United States, 1950, The United Nations; The Western Hemisphere, Volume II

394.31/8–250

The Ambassador in Peru (Tittmann) to the Department of State

confidential

Lima, August 2, 1950.

No.128

Ref: Instruction No. 14, July 20, 1950.

Subject: Peruvian Attitude Toward GATT Negotiations

1. The Department has indicated that it is perturbed over opposition developing in Peru toward accession to GATT and has sent the instruction referred to above and airgrams No. 15, July 18 and No. 22, July 26, 1950,¹ containing its views on a number of aspects of the problem, with authorization to convey to the appropriate Peruvian authorities as much of these views as the Embassy deems appropriate.

2. There is enclosed herewith a copy of a letter from the Commercial Attaché to Dr. Jorge Guerinoni, Director-General of Commerce, in which all the Department’s views are set forth in informal, nontechnical language, except for the Department’s statement at the beginning of A–15 of July 18, 1950 that if Peru withdraws from Torquay² it might seriously prejudice Peru’s chances of ever being accepted as a GATT member. Such a statement, even in a friendly, personal letter would be deemed to be a threat and would have been counter-productive. Comment on discontinuance of bonus payments to customs employees based on customs receipts has also been eliminated, but for other reasons.

3. The Embassy predicts that Peru will send a delegation to Torquay, particularly in view of the recent appointment of Finance Minister Ingeniero Andrés Dasso, who is a broad-minded, well-educated and friendly individual. The Peruvian delegation will have to be carefully handled, although it is believed that it will not become a leader in any opposition that may develop at Torquay. The Department will be informed of the composition of the Peruvian delegation, when such information becomes available, and of its itinerary.

4. The Embassy’s views on the need for a Peruvian Customs Court, requested in instruction No. 14 of July 20, 1950, appear in Section II, paragraph 5 of the enclosed letter to Dr. Guerinoni.

For the Ambassador:

Harry R. Turkel

Commercial Attaché

[Enclosure]

The Commercial Attaché (Turkel) to the Peruvian Director General of Commerce, Ministry of Finance and Commerce (Guerinoni)

Lima, August 2, 1950.

Dear George: Inasmuch as I shall be leaving Peru on August 15 for a temporary assignment with the United States Delegation to the United Nations General Assembly, which will probably last for the balance of the year, I think it appropriate to review the present status of our commercial policy problems, set forth my views on the GATT negotiations at Torquay next month, and indicate the direction that I hope our commercial relations will take after Torquay.

I

immediate problems

1. While we have made very considerable progress in recent months in the solution of both major and minor commercial policy problems between our two countries, I feel that the liquidation of commercial arrears within a period less than the four-year maximum provided for in Decree-Law 11448 of July 14, 1950 is essential. I feel that it is entirely reasonable to request the payment of the dollar arrears of approximately $5,783,000 in ten monthly payments. It would take about 47,000,000 soles to clean up these arrears in all currencies, and it is my personal belief that it should be done out of the profits of the revaluation of the reserves. If the payment is not made out of these profits it will require budgetary authorization, and the budget for next year will be drawn up very soon. Accordingly, the problem requires immediate attention.³

2. In connection with the discriminatory features of present Peruvian import prohibitions, I know that you are working hard to enlarge the permitted list of imports and thereby remove as many of the discriminations against American commerce as practicable.⁴ I hope you will not take it amiss that I suggest that you take up with the Minister of Finance the following two additional arguments:

(1) The low quotation of the sol in relation to the dollar has very adversely affcted customs revenues, and

(2) In the light of the disturbed international situation, supplies of certain items, particularly replacement parts, should be permitted entry quickly.

In short, in Peru’s own interest there should be gradual but prompt relaxation of import prohibitions. Insofar as these changes may affect the exchange rate, I am very sure that we prefer immediate payment of commercial arrears to relaxation of prohibitions.⁵

[Here follows mention of several commercial claims cases.]

4. Since the Klein Mission⁶ Customs Report has recently been published and has certain commercial policy recommendations, I should like to make some observations on that report. In general, it is an excellent report and should contribute toward more efficient and equitable operation of your Customs Service. I believe that the unification of the several extra-duty import charges (adicionales) under Decree-Law No. 11424 of July 10, 1950 and regulations pursuant thereto are wise and completely fair to American interests. We are now finishing a report to the Department on this subject. Obviously, we are pleased with the recommendation to terminate discriminatory import prohibitions as rapidly as possible. The long-term objective of removal of export taxes is also highly commendable.

5. There is one feature of the Klein Mission report of which I feel sure that we would not approve: the recommendations for upward revision of Peruvian tariff rates. You know that our whole commercial policy is dedicated to the lowering of barriers to international trade, our own barriers included. Specifically it would be contrary to the rules for GATT negotiations—GATT/CP/36 of September 30, 1949 which provides that as a general rule the basis of negotiations shall be the rates in effect November 15, 1949. You can find the full text in Section III, 3. However, we are not doctrinaire about the matter. I told you in our exploratory discussions for the revision of the Trade Agreement⁷ that we would accept increased rates of duty to compensate for the depreciation in the exchange value of the sol since 1942. My Government has agreed in principle to the revision of the rates specified in Schedule I of the Trade Agreement, and I am absolutely certain that it will maintain that position, but I am also sure that in its view the adjusted rates to be mutually agreed upon would not necessarily be as high as, and in no case would exceed, the rates for the same items published in the 1949 Peruvian Customs Tariff. I know how many domestic pressures there are upon you, particularly from the textile people, to exceed the rates in the 1949 Tariff, and this brings me to the second major subject.

II

peruvian participation in gatt ⁸

1. You have, on several occasions, raised the very basic question: How much does Peru stand to gain by going to GATT? I shall not mention the good will and other intangible benefits accruing from participation from a very successful and growing program for the reduction in barriers to world trade. Let me refer to changes in United States import duties resulting from termination of the Mexican Trade Agreement to take effect December 31, 1950. Did you know that as a result of this action the United States duty on Peruvian lead ore will go up from ¾ cents per pound to 1½ cents per pound, and the duty on lead bullion from 11/16 to 21/8 cents per pound. Last year the United States imported nearly 70 million pounds of lead bullion from Peru on which I estimate $740,000 of duty was paid. The increase on this one item as a result of the Mexican agreement termination would total an equal amount. I do not mean to imply that by going to Torquay, you will necessarily obtain for Peru a guarantee of 11/16 cents per pound on lead bullion, but I do believe that if you are not there, your country’s interest will not be protected.

2. In previous discussions, Alejandro Bussalleu once said he thought we promised Mexico a brief most-favored-nation exchange of notes following the termination of the present Trade Agreement. I have checked with the Department and have found that this is simply not so. We have taken the same position with Colombia and I assume that if the United States-Peruvian Trade Agreement were terminated, we would take the same position here.

You, of course, know the provisions of the Trade Agreement Act⁹ ever since 1934 which require the United States to generalize tariff concessions. You also know that it is our policy to accord most-favored-nationtreatment to all countries as a basic feature of United States commercial policy. But I think Peru would be taking a long chance in basing her plans on our indefinite continuation of that policy. One of the straws in the wind is the fact that recently the drafts of treaties of friendship, commerce, and navigation presented to other countries contain a provision that the most-favored-nation provisions of the treaty do not apply to special advantages accorded by virtue of GATT. I do not claim to be able to interpret future policy, but I don’t see how my Government can long continue to accord freely the benefits of GATT to non-members when the members have to make certain sacrifices to join that organization.¹⁰

3. Alejandro mentioned the possibility that your Preparatory Commission is thinking about refraining from adopting a most-favored-nation policy so far as consistent with GATT. In response to his request, I inquired of the Department whether Article IV of the Habana Protocol¹¹ modifying GATT is in force. I learned officially that it is in force, but was designed to cover certain basic political and legal difficulties such as the Indian policy of not concluding agreements with South Africa and the legal prohibition in the United States against concluding a Trade Agreement with the Philippines. Personally, I doubt very much whether other countries will agree to wholesale invocation of this Article by Peru, and I don’t think you should try to, because you will need a two-thirds vote of the Contracting Parties at Torquay to approve the accession by Peru.

4. I know that you have a serious problem in connection with the number of countries at Torquay with whom you will have to negotiate, and the scope of those negotiations, particularly in view of your limited experienced personnel for negotiations. However, I should emphasize that both at Geneva¹² and Annecy¹³ the principle was widely recognized that participants should enter into negotiations with as many countries as there is a reasonable trade basis for negotiations. This principle makes sense: the participating countries count heavily on indirect benefits they get and naturally they want all other participants to negotiate as widely as possible.

5. I want to advise you in advance that I am going to ask my Government to put great stress on obtaining a commitment from Peru at Torquay to establish a customs court for the review and correction of administrative decisions in customs matters. I do not believe your Cuerpo Consultivo is such a body. Right now the relations between your office and mine are excellent. We have cleared up a very substantial number of prior problems and have adequate authority to handle some classes of future problems. However, with changes of personnel in years to come I don’t know what the situation will be, and therefore will feel much safer with a regularly established Peruvian customs court which will solve problems before they become matters between our two Governments.

[Here follows mention of possible American delegates to the Torquay tariff negotiations.]

III

post-gatt program

1. Assuming that you are going¹⁴ and that Peru will accede to GATT, I think I should like to sketch out the broad outlines of a program of work after third GATT. We should embark on negotiations looking toward the conclusion of a treaty of friendship, commerce and navigation and a convention for the avoidance of double income taxation and exchange of information in income tax matters. It fits in beautifully with President Odría’s economic policy; it will considerably improve the investment climate in Peru and, I believe, it will be a potent factor in stimulating a current of investment capital to Peru. With the ratification of the new Mining Code,¹⁵ the issuance of the Petroleum Law and the treaty and convention above mentioned, I am sure that we will not only see large investments in Peru for production from new sources of wealth, but we can produce a shining example of what can be done by international cooperation and private initiative.

With cordial greetings, best wishes for Torquay, and a big “abrazo”, I am

Faithfully yours,

Harry R. Turkel

Commercial Attaché

1. None printed.
2. Documentation regarding the Third Round of Tariff Negotiations under GATT and the Fifth Session of the Contracting Parties to GATT is scheduled for publication in volume i. Both convened at Torquay, England: the Tariff Negotiations on September 28, 1950, and the Contracting Parties on November 2, 1950.
3. In despatch 175 from Lima, August 14, 1950, the Embassy reported in part that on August 12 Mr. Turkel had told Minister Dasso that the arrears should be liquidated within 10 months at most. (411.2331/8–1450) The Peruvian Government, however, did not modify during 1950 the payments schedule envisioned in Decree-Law 11448.
4. One of the regulations then in effect that the U.S. Government considered discriminatory was a requirement prohibiting import of certain goods from hard currency areas.
5. A Peruvian Government Supreme Resolution of November 22 began and another of January 30, 1951, completed the removal of prohibitions against imports from hard currency countries.
6. Information on the Klein Mission may be found in the editorial note under date of November 27, 1950, p. 996.
7. For text of the Peru–United States Trade Agreement signed at Washington May 7, 1942, see Department of State Executive Agreement Series (EAS) No. 256, or 56 Stat. (pt. 2) 1509.
8. In a memorandum of July 24, 1950, to Mr. William P. Hughes, Executive Director of the Bureau of Inter-American Affairs, Mr. Carl D. Corse, Chief of the Commercial Policy Staff, said in part that the importance of the successful conclusion of negotiations with Peru at Torquay was emphasized by developments indicative of retrogression in U.S. trade and commercial policy relationships with Colombia, Mexico, and Cuba. (394.31/7–2450)
9. Approved June 12, 1934; 48 Stat. 943.
10. In despatch 159 from Lima, August 10, 1950, Charles Bridgett, Acting Commercial Attaché, stated in part that a possible modification of the U.S. policy of extending GATT concessions to nonmembers was among the most important factors in Peru’s “… present intention …” to join GATT. 394.31/8–1050)
11. A protocol modifying certain provisions of the GATT (dated at Habana March 24, 1948) entered into force for the United States on April 15, 1948. For text, see TIAS No. 1763 or 62 Stat. (pt. 2) 1992. For documentation on the 1948 Habana Meeting of GATT (the Second Session of the Contracting Parties) see Foreign Relations, 1948, vol. i, Part 2, pp. 802 ff.
12. The Fourth Session of the Contracting Parties to GATT was held at Geneva, from February 23 to April 4, 1950. Documentation is scheduled for publication in volume i.
13. For documentation regarding the Second Round of Tariff Negotiations under GATT and the Third Session of the Contracting Parties to GATT (both held at Annecy, France, from April 8 to August 26, 1949), see Foreign Relations, 1949, vol. i, pp. 651 ff.
14. A Peruvian Delegation attended the tariff negotiations at Torquay.
15. A complete revision of Peru’s mining code had been proclaimed in Law No. 11357 of May 12, 1950. According to despatch 115 from Lima, July 27, 1951 (not printed), many of the new law’s provisions had been recommended by the Klein Mission. (823.00/7–2751)