Memorandum of Conversation, by Mr. Charles H. Sullivan of the Commercial Policy Staff


Subject: Proposed Adjustment of FCN Treaty1 with Colombia to, Special Tax Situation of Flota Gran Colombiana.2


Shipping Lines: Department: Commerce ( OIT ):
Mr. E. Russell Lutz, Grace Line OSA—Mr. Krieg3 Mr. Koushnareff7
Mr. R. Harlow, United Fruit Co. —Mr. Gerberich
Mr. Matthew Ahearn, United Fruit Co. ARA—Mr. Nolan4 Federal Maritime Board:
Mr. Thomas Bartie, Lykes Bros. Steamship Co. SD—Mr. Falck5 Mr. Spencer8
CP—Mr. Setser6
—Mr. Sullivan

This meeting was held in order to explain to representatives of shipping enterprises interested in Colombian traffic the problem occasioned [Page 1294] in connection with the treaty negotiations by Colombian Law 10 of 1946 which exempts the Flota Mercante Gran Colombiana from income taxation, and to apprize them of the course of action which the Department and the other interested agencies plan to adopt in this connection.

It was explained that Colombia insisted on maintaining the Flota exemption, which was deemed to be inconsistent with Article XI of the proposed treaty. Article XI provides, inter alia, for national treatment in matters of taxation. It was further explained that the Department had tried to solve this problem by incorporating in the treaty a provision for reciprocal exemption of the income of shipping enterprises from double taxation9 but that Colombia had refused to accept a provision to this effect within the context of the FCN treaty, claiming: (1) that the treaty did not afford Colombia advantages which would compensate it for its loss of revenue under such a provision; and (2) that the Flota exemption was in effect a subsidy to national shipping within the meaning of Article 35 of the Economic Agreement of Bogota.10 In view of the circumstances of the negotiation and of the availability of other media for obtaining relief from double income taxation for U.S. shipping enterprises operating to Colombia, it was proposed to provide specifically through a Protocol provision or an exchange of notes accompanying the treaty, that the establishment of rules to govern the income taxation of shipping enterprises shall not be dealt with in the treaty but shall be left to an appropriate agreement on double taxation. It was pointed out in the latter connection that the matter could be dealt with either within the framework of a convention for the avoidance of double taxation or through an executive agreement relating exclusively to the income taxation of transportation enterprises.

Mr. Lutz stated that the representatives of the shipping companies would explain the problem of the Flota exemption to their principals, who would probably communicate to the Department whatever reaction they might have to the proposed removal of the matter from the treaty to an agreement on double taxation.

It was emphasized during the discussion that Colombia had accepted the standard navigation provisions without modification, and the limited scope of the Protocol provision referring to governmental [Page 1295] shipping assistance (with indirect mention of Article 1 (b) of IMCO 11 and Article 35 of the Bogota Agreement) also was explained.

Mr. Lutz observed that at the present time the principal difficulties the shipping companies encounter in their Colombian operations result from:

Discriminatory exchange control practices which divert cargo to Flota ships. (In this connection, paragraph 4 of the new exchange control article recently given to the Colombians was read to Mr. Lutz who appeared of the opinion that it would afford a substantial degree of protection in matters of this kind.)
Practices of Colombian Government entities who are routing their foreign purchases almost entirely in Flota ships.
Practices of port authorities, particularly where ports are Government-operated, who give preferential treatment to national ships in berthing and like matters. (After some discussion, however, the general understanding was that these practices were not of particular importance with respect to Colombia and that in any event the standard navigation article would assure nondiscriminatory treatment.)

Mr. Lutz indicated that there were no other problems likely to have a measurably detrimental effect on their Colombian operations.

  1. The draft of a proposed Treaty of Friendship, Commerce, and Navigation was presented to the Colombian Government in October 1948. A copy of the draft was enclosed with the Department of State’s instruction 177, to Bogota, dated October 16, 1948 (711.212/9–248). For documentation on the subsequent negotiations between the United States and Colombia, see Foreign Relations, 1949, vol. ii, pp. 611 ff.; and ibid., 1950, vol. ii, pp. 802 ff.
  2. Flota Mercante Gran Colombiana, a shipping line jointly owned by Colombia, Venezuela, and Ecuador.
  3. William L. Krieg, Officer in Charge, North and West Coast Affairs, Office of South American Affairs.
  4. Serge G. Koushnareff.
  5. Charles P. Nolan, Officer in Charge, Transportation and Communications, Office of Regional American Affairs.
  6. L. James Falck, Assistant Chief, Shipping Policy Staff, Office of Transport and Communications Policy.
  7. William A. Spencer.
  8. Vernon G. Setser, Assistant Chief, Commercial Policy Staff, Office of International Trade Policy.
  9. For documentation concerning United States policy with respect to double taxation treaties, see vol. i, pp. 1233 ff.
  10. This agreement, approved by the Ninth International Conference of American States, had not gone into effect. For documentation on the conference, see Foreign Relations, 1948, vol. ix, pp. 1 ff. For text of the agreement, see Department of State Publication No. 3263, Ninth International Conference of American States, Bogota, Columbia, March 30–May 2, 1948: Report of the Delegation of the United States of America with Related Documents (Washington, 1948), pp. 201 ff., or Annals of the Organization of American States: 1949 (Washington, 1949), vol. 1, pp. 99 ff.
  11. The convention establishing the International Maritime Consultative Organization (IMCO) was signed at Geneva, March 6, 1948, but it did not enter into force for the United States until March 17, 1958. For text, see United States Treaties and Other International Agreements (UST), vol. 9, p. 621, or Department of State Treaties and Other International Acts Series (TIAS) No. 4044.