Memorandum by the Head of the United States Negotiating Team (Rubottom) to the Chairman of the Interdepartmental Committee on Trade Agreements (Corse)



  • Revision of Reciprocal Trade Agreement between the Governments of the United States and Venezuela—Recommendation.


To determine whether there exists, from the viewpoint of the United States, a satisfactory basis for agreement with Venezuela on the revision of the 1939 Reciprocal Trade Agreement.

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In order to analyze the status of the trade agreement negotiations which have been in progress in Caracas for the past nine weeks, it is necessary to examine the position of both Governments at the start of the negotiations. The United States, for valid and plausible reasons, decided to make an offer on oil of 10½¢ per barrel, along with certain other offers of secondary importance except possibly the offer to bind iron ore free and pig iron at the present low rate. The United States request list, based on that offer, consisted of a large list of items including a number which had already been described by the Venezuelans as “sensitive” and “critical”. In fact, the Venezuelans had already officially informed the United States that it did not wish to consider a considerable list of items in those cateogories.

Venezuela, in turn, submitted an offer list to the United States which, while it exceeded the United States requests in certain respects, especially in the field of consumer durables, notably lacked any of the “sensitive” items. This offer list was based on a Venezuelan request for an oil duty of 5¼¢ per barrel, without restriction.

At first glance, the disparity in the positions of the two Governments in the opening phase of the negotiations might seem to be a normal situation from which the two Teams would proceed to bargain to a compromise position. However, at this point the firm position taken by the Venezuelan Government prior to the start of the negotiations should be recalled. In the fall of 1950, Venezuela was on the verge of terminating the trade agreement, as is well known to the Committee; at that moment it might have been possible to reach agreement with Venezuela on the basis of a flat 10½¢ oil offer, but the passage of time apparently made this impossible. Certainly during the months before the negotiations began the Venezuelan position had been made clear that it had to have oil treatment “better than Mexico” if the agreement was to be revised, or even preserved. There was never the slightest deviation from that position, and three days before the negotiations began the Venezuelans informed the Ambassador that, unless we were prepared to make an oil offer of better than a flat 10½¢ per barrel, no basis for the negotiations would exist.

Notwithstanding this statement, the Venezuelans did not refuse to carry on the negotiations after being apprised of the opening oil offer of 10½¢ per barrel made by the United States, and it eventually agreed to a preliminary discussion of the United States request list. However, the Venezuelans stated unequivocally that they would proceed with the discussion of the request list provided they were not compromised in any way with respect to oil and again insisted that they would have to have treatment “better than Mexico” before any agreement could be reached. They undoubtedly were moved in part by [Page 1615] a cooperative attitude, which was evident throughout the negotiations, but the United States Team believes that the overriding factor in the Venezuelan tactics at this point was their knowledge that the United States eventually would be prepared to make a better oil offer.

While it would be a mistake to underestimate the importance of this “leak” and its effect on the early stages of the negotiations, it probably would be going too far to infer that the Venezuelans would have accepted the 10½¢ offer had they not known of the possible supplementary offer, in view of the background already outlined above. There was never any indication that the Venezuelans were persuaded by the United States arguments to consider seriously the 10½¢ offer. The economic arguments in support of the offer were rejected out of hand, in spite of the figures which supported them. The political arguments apparently registered on the Venezuelans and may have at least paved the way for their ultimate acceptance of the second oil offer which, they later alleged, did not even fully meet their aspirations.

The United States Team never accepted as valid the Venezuelan position either in formal meetings or in informal discussions. It presented working papers, and supported those with more detailed oral discussions, refuting the Venezuelan arguments, and defending as strongly as the circumstances permitted the merits of the first United States oil offer. But it is inescapable that the Venezuelans not only never intended to consider the first United States oil offer, but that, as well, they did not even place it in the category of an offer. If that is recognized, it would follow that the Venezuelans did not truly begin to bargain with the United States until they got the second oil offer. The history of the negotiations up to this point seems to bear this out.

With this background in mind, the present negotiating posture of the United States is not as unfavorable as it might first appear to be. In one respect, at least, the United States has been successful, i.e., in the defense of its second oil offer, the gravity formula. This formula, tailor-made to be attractive to Venezuela without giving her everything she wanted and, at the same time, designed to cause the United States the least difficulty at home, has been accepted unequivocally by Venezuela. The Foreign Minister’s statement to Ambassador Warren and Mr. Rubottom on June 17 confirmed earlier statements by the Head of the Venezuelan Negotiating Team, Dr. Reyna, that the Venezuelan tactics were not designed to obtain a better oil offer. The Committee thus may consider that one of the thorniest aspects of the trade agreement revision has been settled and turn its attention to Schedule I.

Looking at Schedule I from its most unfavorable view, it must be admitted that it has sizable gaps in agricultural items, textiles, and shoes. It is not as satisfactory as the United States had hoped to achieve in [Page 1616] the fields of paints, glass, and paper. In spite of every effort made by the United States Team to obtain Venezuelan cooperation in searching for items in those categories which would not compete significantly with local industries, the Venezuelans demurred. They stated at the beginning that they could not give concessions in the so-called “sensitive” items since they would bring on political problems at home and they have continued until now to stand on that position. It is apparent that the highest Government officials have determined that a revised agreement will be satisfactory only if it does not create extreme difficulties at home. Several informed sources have stated that the strongest support for the present Venezuelan Government is coming from the right, which, of course, includes the industrialists and others who are seeking protection. While the negotiations were in progress, it was apparent that the protectionist group was applying steady pressure on the Government. The newspapers regularly reported statements from representatives of the Chamber of Industries and other similar groups following their visits on the Foreign Minister and the Minister of Economic Development.

During the waiting period prior to the acceptance by the Venezuelans of the United States supplementary oil offer and the transmittal of their second offer list, the United States Team, through contact with Dr. Reyna and his colleagues, became aware of a shift in Venezuelan emphasis from oil to Schedule I, a move which seemed to come from the highest circles in the Government. This may have been due in part to the realization that Venezuela would find it difficult, if not impossible, to obtain the flat 5¼¢ oil duty to which it aspired; it may also be attributed to the realization that they had gone too far in their first offer list, especially after consulting with some of the interested industrial and manufacturing groups. It was at this point that the Team recognized and reported to the TAC that the Venezuelan negotiators apparently had lost some of their discretionary authority and were having to check with the Foreign Minister on almost every step taken.

At this point the Committee should consider Schedule I from its more favorable aspects. Starting with the agricultural items, while Venezuela is unwilling to include as many in the agreement as the United States requested, there were assurances during the negotiations that Venezuela did not intend to start raising duties promiscuously on these items. Venezuela, in many cases with the outright encouragement and technical assistance of the United States, aspires to self-sufficiency in food production some day. The Government recognizes that this day is far in the future, and it is quite probable that the United States Team could get agreement on a statement in the agreed minutes indicating Venezuela’s intentions with respect to continuing some agricultural imports from the United States at present low duties. The [Page 1617] Venezuelan Government is very much aware of the consumer’s problem and does not intend to provide protection on foodstuffs at a prohibitive cost to the consumer.

Here it is pertinent to explain that the Venezuelan duties are not mandatory in their application, instead are permissive. For example, the duty on eggs is one bolivar a dozen, and this rate is applied in Maracaibo, whereas eggs enter free at Caracas. The Venezuelans have pointed out that in cases where there is less domestic production on agricultural or other products than anticipated, duties may be lowered to permit imports to fill the gap.

In the field of consumer durables the Venezuelan concessions are valuable. Whereas it would be possible to build assembly plants for such items as refrigerators, radios, and television sets, which would in turn effectively freeze out such valuable United States export products, the Venezuelans have now offered us a reduced duty on refrigerators and have offered to bind the low effective duty on radios. They are still studying the tariff classification on television sets, and it may ultimately be possible to include that item in the agreement. Besides these items, there are also many other consumer durables on which we have been offered very low rates, see attached lists.1

Another result of the negotiations which would redound favorably to the United States in the long run is the large number of trade agreement bindings and new bindings. These are all the more valuable when one considers the progressiveness of the Venezuelans and the relatively virgin field which that country offers for capital investment.

Not to be overlooked also is the fact that quite a number of those industries seeking protection in Venezuela are owned by United States companies, e.g., National Biscuit Company, General Tire and Rubber Company, United States Rubber Company, Celanese Corporation. The Committee is fully informed of the position taken by the Celanese Corporation in recent correspondence that it would not have considered investing approximately five million dollars in Venezuela had it contemplated that the United States Government might request a tariff concession for imported textiles which would compete with the production of its new plant.

The United States Team understands the objectives of the trade agreement procedures which have been developed over the past eighteen years. It recognizes that the very nature of a reciprocal trade agreement, which, as far as the United States is concerned, is based on acts of Congress, calls for a treaty which should, as nearly as possible, stand on its own feet from an economic and commercial standpoint. From the beginning, the Team has sought such an agreement with [Page 1618] Venezuela and, despite some qualitative shortcomings, it now believes that the respective offers of the two countries are nearly in balance and that an agreement with more or less equal trade coverage on both sides is possible. The detailed tables are attached to this document, but the attention of the Committee is invited to the following summary:

Trade Coverage Value of Venezuelan Offers and Withdrawals

1. Duty Bindings 110,884
2. Free Bindings 13,574
3. Duty Reductions 48,234
4. Ceiling Bindings (credited for ½ value) 12,324
Total 185,016
5. Minus “Withdrawals” 8,501
Total Net Value of Venezuelan Offers 176,515
Total Net Value of United States Offers 178,000

It should be borne in mind that the United States exports to Venezuela in 1950, the year used for arriving at the above figures, were the lowest in the last five years, which tends to discount the normal coverage of the Venezuelan offers.

There are, of course, other broad considerations which have unusual importance in respect of any negotiation between the United States and Venezuela. They can be discussed in another paper if appropriate.

The negotiations have now reached a critical stage. It is known that the Venezuelans hoped to finish the negotiations by July 1, although they undoubtedly are prepared to work beyond that date in the interest of a successful revision of the agreement. The Foreign Minister, on June 17, told Ambassador Warren and Mr. Rubottom that their third offer list, transmitted that day, was the “best” offer that Venezuela could make. Dr. Reyna, in the memorandum2 which accompanied the list, expressed regret that his Government would not be able to offer more than what was included in the list.

The Team is inclined to accept the Venezuelan statement that they have made their “best” offers, although it does not rule out the possibility of obtaining a little bit more in Venezuelan concessions. Any further requests of the Venezuelans, however, should be very carefully examined and should be made realistically with the full understanding that they may be rejected.

If the Committee approves the basis for agreement herein outlined, the Team believes it possible to bring the negotiations to a prompt and successful conclusion. The Venezuelans probably will come to Washington to discuss the General Provisions and any remaining matters, although this is not definite.

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That the Committee authorize the Negotiating Team to indicate to the Venezuelan negotiators that a basis for agreement exists.
That the Team undertake to conclude the negotiations with the present United States oil offer rather than to seek greater concessions by an improved oil offer.
That any further concessions requested of the Venezuelans be limited to a very few items, possibly two or three, concerning which there is reasonable hope that they will accede.
That the Team be authorized at the same time that the Venezuelans are informed that a basis for agreement exists, to invite the Venezuelans to come to Washington for that phase of the negotiations which will take up the General Provisions, etc.
That the Venezuelans be informed that it is satisfactory to the United States for the actual signing of the agreement to take place in Caracas.3
  1. None printed.
  2. Not identified.
  3. No record of the action taken on these recommendations was found in Department of State files. Apparently, however, they were approved. The negotiations were transferred to Washington on July 16, and concluded on Aug. 8. Thereupon the two delegations submitted recommendations to their respective governments; see Acting Secretary of State Bruce’s memorandum of Aug. 25, 1952, p. 1628.