Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

UR–10. Memorandum from the Assistant Secretary of State for Inter-American Affairs (Rubottom) to the Under Secretary of State for Economic Affairs (Dillon)¹

Washington, February 3, 1959

SUBJECT

• Removal of Countervailing Duty on Uruguayan Wool Tops

According to the latest Treasury calculation, recently imposed surcharges on certain categories of Uruguayan imports have raised the weighted average Uruguayan exchange rate to 4.25 pesos per dollar, as compared with a wool tops rate of 4.11 pesos per dollar. Applying the formula used in imposing the countervailing duty on Uruguayan wool tops in 1953, Treasury concluded that no subsidy of Uruguayan wool tops now exists and that the countervailing duty should be removed. Last week it informed interested members of Congress and key persons in the U.S. wool trade that an order to this effect would be issued in ten days, that is, on February 5.²

It is my understanding that the head of the National Wool Manufacturers Association of this country has protested Treasury’s proposed action, informing the Treasury that the protest would also be lodged with members of Congress and with the White House. It is the contention of those protesting that Treasury should use a different formula, comparing the wool tops rate, not with the general average rate, but with the greasy wool rate, now 3.46. Use of this formula, they maintain, would show wool tops still to enjoy a subsidy of 19 per cent.

At the time of imposition of the countervailing duty in 1953, the formula proposed now by the National Wool Manufacturers Association was considered by the Treasury. It was, however, not adopted for two main reasons: (1) That it was not believed economically justifiable. In the absence of an income tax, the exchange rate system in Uruguay (as in various other countries) had become an instrument of taxation. Consequently it could be logically argued that only the difference between the general weighted average exchange rate and the tops rate constituted a subsidy to the latter. The difference between the average rate and the lower greasy wool rate could be looked upon as an export tax. (The validity of this argument is supported by the fact the countervailing duty under Treasury’s formula has been sufficient to halt shipments of Uruguayan tops to the U.S.). (2) That it was not administratively practical, since it would open up the possibility of countervailing duties for a vast array of products, for example, on exports from Brazil of finished timber which receives a substantially higher exchange rate than crude timber.

The formula selected by Treasury for imposition of the countervailing duty in 1953 was sanctioned by use again in 1954 when the duty was lowered from 18 percent to 6 percent, and it is the basis on which the possible removal of the duty has been discussed by the two governments in subsequent years.

You are well aware, I know, of the harmful effect which the countervailing duty has had in our relations with Uruguay in recent years. That its removal is a matter of great interest to the newly elected government of that country has already been indicated to us by one of the leading figures in the new group. Serious repercussions would inevitably ensue from our failure to proceed with removal of the countervailing duty on the basis of the Treasury formula.

I therefore believe it is of paramount importance that we do everything we can to encourage Treasury to issue the order removing the countervailing duty on the scheduled date.³

1. Source: Department of State, Central Files, 411.334/2–359. Confidential. Drafted by Jackson W. Wilson, Officer in Charge of Uruguayan Affairs in the Bureau of inter-American Affairs.
2. A handwritten covering note from Rubottom to Dillon reads: “This is for your use in case Treasury gets faint-hearted. So far, they are standing firm.”
   A second handwritten covering note from John M. Leddy, Special Assistant to the Under Secretary of State for Economic Affairs, to Charles S. Whitehouse, Special Assistant to the Under Secretary of State for Economic Affairs, dated February 4, 1959, reads: “Treasury tells me they have no intention of backing down on this and will go ahead tomorrow with the action rescinding the duty. I am informing ARA.”
3. The countervailing duty was actually removed effective February 27 in order to allow the Senate Finance Committee time for further deliberation on the proposed measures. Documentation related to this subject is in decimal file 411.344/2–559. For text of a White House press release dated Feburary 27 and Presidential Proclamation 3273 concerning the removal, see Department of State Bulletin, March 16, 1959, pp. 379–380.