531. Telegram From the Ambassador in Peru (Achilles) to the Department of State1

93. During calls on Odria2 and General Mendoza3 Secretary took occasion to congratulate them on economic policy followed by Odria administration. Otherwise his only substantive conversation here was with Prado July 27. Following is summary. Full memo by despatch.4

Prado obviously greatly pleased that Secretary had been chosen represent President Eisenhower at Peruvian inauguration. He recalled his cooperation with US during last regime and declared intention follow similar policy in future. Prado showed particular pride in having been leader of allied cause in Latin America during last World War. Recalled when he was in US as guest President Roosevelt 1942 he had warned that USSR would cause trouble to allies but that President had insisted fears unfounded. Prado said President had urged him establish diplomatic relations USSR but latter refused.

Secretary emphasized US satisfaction over Peruvian economic policies and noted advantages free enterprise amply demonstrated in [Page 1064] Peru. Prado asserted he had followed similar policies in first administration and would make every effort continue along this path. Prado said one of obstacles to attracting greater foreign investment was double taxation and expressed hope negotiate treaty with US eliminating double taxation of profits earned by US investors in Peru.

Holland recalled that at Rio Economic Conference Secretary Humphrey had stated US glad negotiate tax treaties OAR and had offered include provisions establishing that taxes remitted by foreign governments as incentive to new industries might be taken as credit against US income tax as if paid abroad.

Secretary raised question territorial waters and stressed broad security requirements important to whole free world. Pointed out if we admitted right of states unilaterally to extend territorial waters indefinitely we might be faced with similar claim by USSR which would make close observation around periphery USSR and China impossible. If US aircraft unable get nearer than 20 miles coast iron curtain countries it would be unable discharge functions vital to free world. Prado supported views Secretary re security and said Peru’s interest was preservation resources sea from exhaustion. Secretary replied he felt we could satisfy this interest through international convention avoiding any assertion international sovereignty. Prado said some way would still have to be found prevent other (European) nations from fishing indiscriminately in convention area. Holland suggested problem could be solved through open-ended conservation treaty to which nations desiring fish convention area could adhere. Prado and Secretary preferred if possible obtain adherence at outset any countries now fishing potential convention area.

Secretary expressed US concern over international communism. Said US had established special organization reporting directly to President and Secretary of State on subject and asked whether Prado would consider establishment similar organization. Latter wholly sympathetic and promised study matter carefully. Secretary expressed willingness arrange exchange information re communism between US and Peruvian organizations and also offered US assistance technical training this field.

Secretary then raised cotton and sugar questions. Re former said President Eisenhower had objected strenuously to quota provision in Agriculture Act and had said he would administer in way which would do least damage economics friendly countries. Stressed great influence US cotton and sugar producers in US Congress. Re sugar Secretary assured Prado US would do whatever it could to give Peru larger share US market within limitation international sugar agreement and US domestic legislation. Believed administration might be able assign Peru unused portions quotas of other countries during [Page 1065] October or November. Prado noted that though Peruvian sugar exports insignificant compared total consumption of US nevertheless highly important to Peru’s economy.

President Prado brought up Ecuador–Peru boundary question and expressed virtually same view as taken in recent communications talks Peruvian Foreign Ministry. Said question had been settled by Rio Protocol 1942 during his first administration and by subsequent Braz de Aguiar award.4 Secretary referred to guarantor recommendation re aerial survey of disputed area. Assured Prado we had no intention opening up review whole boundary question and that added survey only applied to disputed portion. To Prado’s observation that disputed area had already been photographed, Holland replied our own experts advised us maps not usable because of atmospheric conditions and because techniques not sufficiently advanced in 1947 to obtain accurate results. Holland said progress Ecuador-Peru negotiations blocked by geographic fact which obstacle guarantors believed could be overcome by survey. This would permit parties to move ahead in settlement of real problem. Prado gave no indication acceptance guarantor proposal but instead reiterated statement that maps existed and next step should be establishment final boundary markers.

Finally Prado expressed full support standardization armament in Latin America along US lines and said proposed follow such program for Peru. Hope US could supply equipment at prices comparable European offers. Secretary agreed completely and said President Eisenhower had in recent conversation with him advocated this as sound hemisphere policy. To Secretary’s observation that Peru had recently acquired British aircraft, Prado replied “not I”.

Above conversation lasted one hour and ten minutes. On Secretary’s departure Prado handed him four memos. One was on Ecuador boundary and followed line Peruvian note to guarantor foreign ministers last January. Main point was Braz de Aguiar award was agreed upon by parties and should be complied with whatever the topographical details of pertinent area. Only new statement was that mixed Ecuador-Peru boundary commission might require assistance another Brazilian technician in lieu Braz de Aguiar for fulfillment latter’s 1945 decision.

Second memo reiterated above Prado statements re standardization military arms and added such cooperation by US would permit Peru apply resulting savings to improve Peruvian living standards.

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Third memo deals with trade relations. States Peruvian imports from US considerably exceed Peruvian exports to US and therefore necessary remove US limitations on latter to reduce unfavorable balance. Asserted US should not prejudice Peruvian exports other markets as at present. Example sale of American cotton for local currencies to such countries as Chile and Colombia which are traditional Peruvian markets now displaced. Also criticized “enormous dumping program” which has caused fall of eight cents per pound in price cotton, this meaning decrease of $12 million in Peru’s annual foreign currency income. Prado said US could do much to facilitate economic development Peru and mentioned specifically reduction on taxes of profits US corporations in Peru. Referred to US lending agencies and International Bank as indispensable to finance large foreign currency expenses in public works. Also desirable enlarge Peruvian market for American products.

Fourth memo devoted specifically to cotton and sugar. Said only practical and equitable solution world overproduction and surplus cotton problem could be for US gradually remove any support of domestic prices. This would lead to decrease world prices. All countries would be in similar situation and production in each would be reduced in marginal areas without resort to unfair dumping measures. Re sugar memo recommended Secretary Agriculture not apply punitive clause of sugar act to Peru thus allowing this country small increases of quotas granted under sugar law. Emphasized Secretary not compelled apply this clause. Also recommended that US support Peru in meeting International Sugar Council Geneva next October to help Peru obtain “fair and vital” quota 457,000 metric tons annually for export to free world. Said this is Peru’s only condition for entering world sugar agreement.5

  1. Source: Department of State, Central Files, 723.11/7–2956. Secret.
  2. A memorandum of Dulles’ conversation with Odria was forwarded to the Department in despatch 70 from Lima, August 2. (Ibid., 110.11–DU/8–256)
  3. General Juan Mendoza, Peruvian Premier and Minister of Education.
  4. Despatch 63 from Lima, August 1, transmitted a memorandum of this conversation, together with copies of the four memoranda given to the Secretary of State by President Prado. The memoranda were entitled: (1) The Peruvian-Ecuadorian Boundary, (2) Continental Defense, (3) Trade Relations between Peru and the U.S.A., and (4) Cotton and Sugar. (Department of State, Central Files, 723.11/8–156)
  5. On February 16, 1945, Peru and Ecuador accepted a boundary line proposed by Captain Braz Díaz de Aguiar of Brazil, a neutral arbitrator. The settlement was subsequently known as the Braz de Aguiar award.
  6. Dulles left Peru on July 28, curtailing his planned tour of several South American countries, in order to return to Washington and consider developments relating to Egyptian President Gamal Abdel Nasser’s nationalization of the Suez Canal Company.