Memorandum by Mr. Bainbridge C. Davis of the Office of South American Affairs to the Assistant Secretary of State for Inter-American Affairs (Miller)


Subject: Status of Venezuelan Problems

1. Trade Agreement Negotiations. Formal notice of intention to renegotiate the trade agreement was issued August 29. Briefs on Schedules I and II items are to be submitted to Committee for Reciprocity Information (CRI) by September 28 and (on Schedule II “Peril Point” items) to Tariff Commission by September 26. The Tariff Commission’s oral hearings open October 2 and the CRI hearings on October 9. The Country Committee is studying the items Venezuela wishes to withdraw or modify in Schedule I and compensatory concessions we might request. Fairly strong opposition to Venezuelan withdrawal of several of these items is expected and the negotiations may be very difficult and protracted. There is a possibility that some labor unions will oppose U.S. concessions on petroleum items, and American organized labor as a whole may oppose the entire negotiations because of labor’s dislike of the present Venezuelan Government.

2. Aviation. As a result of our firm stand on the necessity for restoring reciprocity between Venezuelan and United States air carriers the Foreign Minister put before the Junta on August 30 a formula for achieving reciprocity as a basis for negotiation of a United States-Venezuelan air transport agreement. A Foreign Office official reported that the Junta agreed in principle with the Foreign Minister’s proposal [Page 1655] but withheld approval until technical details could be worked out. Ambassador Armour and Mr. Sparks told me on September 11 that there had been further delay due to the absence of the Foreign Minister and others. They felt that your discussion of these matters with the Foreign Minister next week would carry great weight and they urged that the CAB withhold any drastic action pending the result of these discussions. CAB has agreed to this. It would seem wise for you to emphasize CAB’s pressure for a rapid solution so that the Venezuelan authorities understand the importance of the time element. (There is attached a memorandum by Mr. Russell1 setting forth the aviation problem in greater detail.)

3. Shipping—Freight Rates. The Foreign Minister promised to expedite the Venezuelan Government’s study of the freight rate situation as a basis for deciding whether the Venezuelan Navigation Company may be permitted to join the Conference Lines in raising freight rates at this time, (At the request of Andrés Boulton, Venezuelan Grace Line representative, Junta President Suárez2 asked Dr. González Gorrondona3 to prepare this study.) Dr. Otañez4 undoubtedly informed his Government of your remarks to him on this subject.5 You may wish to consider whether it would be productive to make the additional suggestion that CAVN be permitted to meet with the Conference Lines to exchange views on the freight rate problem while awaiting completion of the freight rate study.6 (I understand you are taking with you the detailed information prepared by Mr. Russell.)

4. Oil Concessions. The Venezuelan Government is thinking of granting new oil concessions possibly by the end of this year. However, it is believed that it is planned to do nothing until the Iranian crisis is settled and our trade agreement negotiations are well advanced. The present Venezuelan plans are aimed at discovering additional oil reserves and permitting increased operation by several companies now operating unprofitably in small concession areas, in order to encourage these smaller operators to stay in Venezuela and so diversify oil production among a larger number of companies. (It [Page 1656] is not expected that the granting of these new concessions to the smaller operating companies will result in substantially increased oil production within the next few years.) However, in a speech at the opening of the Petroleum Convention7 Dr. Vera8 reportedly said that Venezuela plans to increase oil production and to dedicate it to the cause of the West. We have no indication that the total oil production will be materially increased or that any of the new concessions will go to the larger companies which presumably could contribute more rapidly to increased oil production. You may have an opportunity to stress the importance to the free world of such action as Venezuela can take which will result in an actual substantial increase in its oil production.

5. U.S. Steel Negotiations. On June 11 the Foreign Minister told Mr. Sparks that the contract between the Venezuelan Government and the Orinoco Mining Company (U.S. Steel’s subsidiary) was substantially settled and that there remained only the matter of phraseology. (U.S. Steel had been rapidly approaching a point where it would insist upon some decision and if that were unfavorable it would be prepared to suspend operations in Venezuela.) On August 17 the Government handed a draft contract to Mr. Lake who took it to New York to discuss with U.S. Steel. We have had no word from U.S. Steel or Caracas regarding signature of the contract. The Venezuelan Government has possibly been delaying U.S. Steel not only to obtain the best terms regarding iron ore and future assistance in establishing a steel industry, but also for bargaining purposes in connection with the other problems pending with the U.S. as they are doubtless aware of the importance we attach to expediting shipment of their iron ore.

On September 11 the Under Secretary of the Air Force9 mentioned to Under Secretary Webb10 that he understood that steel negotiations in Venezuela had bogged down and he pointed out that high grade iron ore is very important to us just now since it enables us to use blast furnaces which cannot handle lower grade ore. Mr. Webb phoned me for background. I explained the status of these negotiations to Mr. Webb and offered to cable Caracas for possible later information but [Page 1657] he said this would not be necessary. I reported this inquiry to Ambassador Armour by letter. The inquiry may have been related in some way to a rumor that the Wall Street Journal picked up regarding a hitch in these negotiations.11

6. Delivery of Arms. The Foreign Minister has recently indicated to Ambassador Armour that members of the Junta as well as the Chief of Staff have felt strongly that the U.S. was not delivering the military equipment requested by Venezuela and necessary for the performance of its role in hemispheric defense and cooperation with UN military efforts. He also indicated that, in addition to great delay even after contracts had been signed, the equipment delivered had been relatively unimportant items whereas those which were most needed were not forthcoming. Ambassador Armour took advantage of a visit to Washington by the heads of our Air and Naval Missions to Venezuela to send a letter to Mr. Lovett presenting this problem in relation to recent Panama talks, to the Iranian situation and to the importance of our relations with Venezuela. These Chiefs of Mission have taken back to Mr. Armour a report of their conversations and an explanation of the status of deliveries of military equipment. Venezuela has so far requested nearly $10 million of equipment of which not quite $500,000 has been obtained. (Of this latter amount, chiefly aircraft parts, about two-fifths has been shipped and the rest is being procured.) With regard to the remaining $9 million of requests, the Venezuelan Government has been informed of price and availability of all of these items or of substitutes where the requested items are not available in the near future. The major substitution is armored cars in place of light tanks, since the latter would not be available for two years and were considered less suitable for Venezuela’s needs.

Mr. Lovett’s reply to Ambassador Armour which is being sent today enclosed a detailed statement of the requests received from Venezuela for military equipment and the action taken on them. I am attaching our copy of that letter12 and a memorandum (both top secret) by Mr. Mackay reporting his conversations in the Pentagon yesterday which indicate the present status of thinking regarding the availability of equipment for Venezuela. You may have an opportunity to make sure that there is not an important difference in the interpretation by the [Page 1658] Venezuelan and U.S. military authorities of the points covered in paragraph “b” of Mr. Mackay’s memorandum.

7. Steel for Sugar Refineries. Venezuela is now seeking priority assistance for the construction of two sugar refineries (Cumanacoa and Motatán). These are two of the four which Eximbank refused to finance last Spring and which are now being constructed on short term credits obtained elsewhere. The present stumbling block is 970 tons of structural steel now in extremely short supply. We hope to be successful in supporting their request for priority rating, but final action has not yet been taken by the NPA.

8. Eximbank Application. Eugenio Mendoza, leading Venezuelan industrialist, has an application pending before the Eximbank for a $4 million credit for enlarging one of his cement mills. The Eximbank staff has prepared a favorable recommendation and the Board appears to be favorable to the credit which has been referred to NAC for approval.

9. Invitation to Lt. Col. Pérez-Jiménez. Defense is anxious to bring Lieutenant Colonel Perez-Jiménez to the United States as a guest of the Army in his capacity as Minister of Defense rather than member of the Junta. Since American organized labor is highly critical of the present military government of Venezuela and opposes our negotiating the trade agreement with them, we suggested to Defense that they should defer the Pérez-Jiménez visit until after the October trade agreement hearings, and preferably for several months more until the negotiations were concluded. However, as Defense feels that there is some urgency, we have agreed to their tentative proposal to invite him for early November.

10. Ambassador Armour’s Plans. The Department sent to the White House yesterday its request for approval of Ambassador Armour’s resignation. We shall, of course, cable you as soon as a reply is received. You will recall that the Ambassador indicated during a phone conversation with me on September 11 that he thought it might be desirable to make his plans known shortly before his departure from Caracas but he wanted to discuss this with you during your visit. I understand that the President makes all announcements of this type and I assume that Mr. Armour had in mind that you and he would agree upon the best timing of such a White House announcement.13

[Page 1659]
[Annex 1]

Memorandum by Mr. Gerald W. Russell of the Office of Regional American Affairs to the Assistant Secretary of State for Inter-American Affairs (Miller)

Subject: Aviation Problems in Venezuela.

To refresh your memory and for ready reference, the aviation difficulties between the U.S. and Venezuela are a result of the Venezuelan Government’s refusal to permit Chicago and Southern to carry fifth freedom traffic14 (traffic from Habana to Maiquetia) on all of its flights. It is restricted by the Venezuelan Government to carrying this traffic on only three of its seven flights. The Venezuelan Government’ also, on November 1, 1950, refused to permit Pan American World Airways to operate nonstop flights from New York to Caracas but are requiring Pan American to make a stop at Kingston on all of its flights to Caracas. The Venezuelan Government sent a delegation to Washington in June of this year to discuss these problems but we were unable to resolve any of them and the Venezuelan Government was informed that it might be necessary for the U.S. Government to take action under Section 402G of the Civil Aeronautics Act of 193815 to amend the LAV certificate to restore reciprocity in the U.S.-Venezuelan operations. After this information was formally presented to the Foreign Minister he indicated orally to Ambassador Armour that the Venezuelan Government would be willing to negotiate a new bilateral air transport agreement. They also indicated that they would remove the restrictions on the U.S. airlines while these negotiations were in progress. This proposal was based on the condition that (1) upon the coming into force of the bilateral, Pan American would agree to cancel its contracts with the Venezuelan Government and (2) that Pan American would drop some of the points it is serving on its east-west route from Panama to Trinidad.

After we received this informal indication from the Foreign Minister, we requested the CAB to withhold issuance of the show cause order pending clarification of the Venezuelan proposal which supposedly was being submitted to the Junta for approval. We have requested the Embassy in Caracas to determine from appropriate Venezuelan authorities answers to the following questions:

Which contract or contracts does the Venezuelan Government wish to cancel?
What are the “certain” stops it wishes Pan American to drop?
Would the Venezuelan Government want to cancel the contracts outright or to reach an agreement in principle to cancel these contracts upon coming into force of a bilateral?

It has been nearly a month and we have so far been unsuccessful in getting any clarification of the Venezuelan proposal or any more definite information from the Venezuelan Government. However, the Embassy has pointed out that the cabinet ministers have been absent from Caracas for the past two weeks.

The CAB wanted to issue the show cause order on September 14, 1951. However, the Department would not agree to this as it was our position that we must fully explore the Venezuelan proposal before taking any further action in this matter. However, it will be necessary for us to obtain, on an urgent basis, a definite proposal from Venezuela in order to continue to be successful in getting the CAB to defer its action.

It is suggested when discussing this matter with the Foreign Minister that you point out to him the urgency of getting the Venezuelan position.16

[Annex 2]

Memorandum by Mr. Duncan A. D. Mackay of the Office of Regional American Affairs to the Assistant Secretary of State for Inter-American Affairs (Miller)17

top secret

Subject: Meeting in Defense to Discuss Venezuelan Requests for Military Equipment

  • Present: Col. Buford R. Nyquist, Office of Foreign Military Aid, OSD
  • Mr. Donald Horton, Office of Foreign Military Aid, OSD
  • Mr. Layton Cain, Office of Foreign Military Aid, OSD
  • Lt. Col. Craig C. Davis, Western Hemisphere Branch, Office of Foreign Military Affairs, OSD

Late yesterday afternoon, I met in the Pentagon with the above to discuss the reply which Defense proposes to send to Ambassador [Page 1661] Armour’s letter of August 31, 1951 to Mr. Lovett on the subject of the Venezuelan requests for military equipment and to inquire what additional background information Mr. Miller should have for his trip today to Caracas on (1) the resumption of the bilateral military talks with Venezuela on the security of the oil fields and (2) our proposal to Defense regarding the possible increase in the priority allocation for Venezuela of military equipment, in view of the Iranian situation.

Following are the results of my discussions, as well as some observations which were made on (1) and (2) above:

[Here follow comments pertaining to Mr. Lovett’s letter of September 13, 1951, page 1652.]

b. Col. Davis informed me that a letter has been sent in the last day or two by Defense to the Army directing CINCARIB to be authorized to resume the military discussions with the Venezuelans as soon as practicable, on the basis of the “agreement document”.18 The next step which apparently is envisaged is a “joint survey” in Venezuela to determine what use can be made of equipment which is on hand to do the job, and what (and in what relative order) are the items which will be needed in the way of additional equipment. The equipment listed in the “agreement document” as such has no status as a pending request from the Venezuelan Government, unless the items have been already made the subject of a request to the U.S. Government and this apparently was made clear to the Venezuelans in the Panama talks. The interpretation which Defense appears to place on the “agreement” is that the U.S. military representatives agree to accept the Venezuelan list as a basis for discussion and future determination, on the ground, of whether, in fact, this equipment is what is needed for the purpose, rather than agreement by the U.S. and Venezuelan military representatives that this is the equipment required to accomplish this specific task. From what little we know about this whole thing, I’m quite certain the Venezuelans not only accept the latter interpretation, but assume that the list of equipment in the “agreement” is regarded by the U.S. as an official Venezuelan request for equipment. This, it would seem to me, is an important point which should be clarified as soon as possible, if it is not already clear.

c. Col. Nyquist stated that the JCS have now under consideration the proposal for a higher priority for Venezuela in allocation of military equipment; and that, in this connection, each service has been [Page 1662] asked for a recommendation on the feasibility of this in view of global U.S. commitments. The availability data which has been supplied the Venezuelans to date has been based on the priority enjoyed by all the Latin American governments. This, as you know, is the lowest after Korea, units assisting in Korea, NATO and domestic requirements.

  1. Gerald W. Russell, Office of Regional American Affairs.
  2. German Suárez Flamerich.
  3. J. J. González Gorrondona, Vice President of the Central Bank of Venezuela.
  4. Aureliano Otañez, Minister-Counselor, Venezuelan Embassy.
  5. In a memorandum of conversation by Mr. Davis, dated September 5, 1951, Mr. Miller is reported to have made it clear to Minister-Counselor Otañez that the United States Government “was not expressing an opinion with respect to the proper level of freight rates but that we were concerned lest the inability of the Conference lines to discuss this matter with CAVN might lead either to a rate war or to withdrawal of certain shipping services by American members of the Conference.” (931.53/9–551)
  6. On November 7, 1951, the Venezuelan Government agreed to permit representatives of the CAVN to enter into discussions with representatives of American shipping lines (Grace, Alcoa, Lykes Brothers) concerning revisions in the freight rate structure. These discussions continued intermittently until January 18, 1952, when an agreement was reached. Pertinent documents are in Department of State files 911.53 and 911.5331.
  7. The Venezuelan National Petroleum Convention was held at Caracas, September 8–18, 1951. The United States sent an observer delegation, headed by Oscar L. Chapman, Secretary of the Interior and Petroleum Administrator for Defense. Mr. Miller, also a member of the delegation, attended the closing sessions of the convention. For a Department of State notice concerning the convention, see Department of State Bulletin, September 24, 1951, p. 516.

    During Mr. Miller’s brief stay in Caracas, he discussed with Foreign Minister Gómez Ruiz current problems in United States-Venezuelan relations; a memorandum of their conversation, by Ambassador Armour, dated September 18, 1951, is enclosed with despatch 461, from Caracas, September 25, 1951, not printed (110.15–Mi/9–2551).

  8. Santiago Vera Izquierdo, Venezuelan Minister of Mines and Hydrocarbons.
  9. John A. McCone.
  10. James E. Webb, Under Secretary of State.
  11. In despatch 837, from Caracas, November 27, 1951, the Second Secretary of the Embassy (Connett) reported as follows: “The [Venezuelan] Government officially announced the signing of a contract between the Orinoco Mining Co. (U.S. Steel subsidiary) and the Ministry of Mines and Hydrocarbons for the dredging of the Orinoco river and the Macareo, following approximately ten months of negotiations. Although the major operating contract, covering such matters as taxes, exoneration of import duties, etc., has not yet been signed, it is generally believed that with the signing of the dredging contract the area of disagreement has been so narrowed that a satisfactory solution will be found to this major problem within a short time.” (731.00–W/11–2751)
  12. Not printed as an attachment to the source text, but see supra.
  13. President Truman accepted Ambassador Armour’s resignation on September 14, 1951 (123 Armour, Norman), but the announcement was delayed until September 22. The Ambassador’s letter of resignation, dated September 13, and the President’s letter of acceptance, released to the press on September 22, are printed in Department of State Bulletin, October 8, 1951, pp. 597–598. Ambassador Armour was succeeded by Ambassador Fletcher Warren, who was appointed on October 3, arrived in Caracas on November 14, and presented his credentials on November 21.
  14. For information on this subject, see the editorial note in Foreign Relations, 1946, vol. i, p. 1450.
  15. For text of the Civil Aeronautics Act (Public Law 706), approved June 23, 1938, see 52 Stat. 973.
  16. During the latter part of October at Caracas, and again in late November at Washington, representatives of the United States and Venezuela held informal discussions on aviation matters in order to explore the points of difference between the two countries. As a result of these discussions, it was decided to enter into formal negotiations, and the United States agreed not to take final action to implement the “show cause” order as long as the negotiations proceeded satisfactorily. Although it was hoped that the negotiations could begin on December 10, they did not actually get under way until January 1952. Pertinent documents are in Department of State file 611.3194.
  17. Addressed also to Ambassador Warren and Mr. Bernbaum.
  18. The Secretary of Defense on September 19, advised the Joint Chiefs of Staff that he concurred in their view that the “agreement document” was acceptable as a basis for further joint planning with the Venezuelans subject to the following modifications: (1) subparagraph 2c (1) was to read as suggested by the Secretary of State in his letter of August 14 (printed on p. 1647), and (2) the new sentence proposed by the Joint Chiefs of Staff was to be added to subparagraph 2g (paragraph b. on p. 1626). Acting as executive agent for the Joint Chiefs of Staff, the Chief of Staff, U.S. Army, furnished this guidance to the Commander in Chief, Caribbean.