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

UR–6. Letter from the Ambassador in Uruguay (Woodward) to the Deputy Under Secretary of State for Economic Affairs (Dillon)¹

Montevideo, July 22, 1958

Dear Mr. Dillon:

The Matter discussed in the attached despatch² is of such importance in United States relations with Uruguay that I am taking the liberty of calling it to your attention.

Such I know how busy you are, I suggest that you read the first paragraph of the despatch which summarizes the reasons for which I believe prompt action should be taken.

With the hope that you will agree that action³ should be taken promptly in this matter, and with best wishes,

Sincerely yours,

Robert F. Woodward

[Enclosure]

Despatch from the Ambassador in Uruguay (Woodward) to the Department of State⁴

No. 49.

Montevideo, July 21, 1958

SUBJECT

• Recommendation that Countervailing Duty on Uruguayan Tool Tops be removed⁵

It is respectfully recommended that steps be taken immediately to remove the existing 6% countervailing duty on Uruguayan wool tops without writing any longer for an official written request from the Uruguayan Government that this be done. This recommendation is made for the reasons which are summarized briefly in the following list and are then explained in subsequent paragraphs:

(1) The Uruguayan “subsidy” on wool tops no longer exists.

(2) The United States is suffering a serious and unnecessary disadvantage in its relations with Uruguay because of the countervailing duty and the United States can now gain disproportionate good-will by removal of the duty because the Uruguayan public has received an exaggerated impression of its importance.

(3) The removal of the duty will serve temporarily as a public relations substitute for more substantial economic assistance, and make it less costly in terms of United States public relations to await reciprocally-constructive economic actions by the Uruguayan Government which would warrant more substantial economic assistance from the United States.

(4) The removal of the countervailing duty will probably not significantly affect the United States wool-combing industry because Uruguayan prices will still be non-competitively high even with countervailing duty removed.

(5) There has evidently been reduction in the number and importance of the United States combing plants that could be affected if Uruguayan wool tops were eventually able to compete again in the United States market.

The original application of the countervailing duty appears, in any event, to have been not entirely consistent with the spirit of United States fundamental laws.

(7) The United States can now gain an additional good-will benefit by taking the initiative and not awaiting a formal Uruguayan request for the countervailing duty to be removed.

(1) Careful calculation reveals that the average weighted exchange rate for all Uruguayan imports and exports is at present and for some time has been substantially above the officially established exchange rate for exports of Uruguayan wool tops. Therefore it is clear that the basis no longer exists, under the provisions of United States law, for considering that the officially established export rate for Uruguayan wool tops constituted a “subsidy” against which a countervailing duty is applicable. It appears that no basis has existed for the countervailing duty at least since November 11, 1957 whom the overall exchange rate structure was sharply depreciated; and, although no calculations have been made to prove it, any basis for the duty may have been eliminated even earlier. In other words, the U.S. Government appears at present to be in a dubious situation in applying this countervailing duty. Not only should our Government properly take initiative in complying with United States law but further delay in corrective action may create additional problems.

There is enclosed, as Enclosure 1, a calculation by this Embassy of the average weighed Uruguayan exchange rate for all Uruguayan exports and imports together with an indication of the comparison between this average rate and the existing officially established exchange rate for exports of Uruguayan wool tops. The calculation above that the current official tops rate is roughly below the weighted average rate for all Uruguayan exports and imports.

(2) It has become increasingly apparent that the U.S. Government has been permitting itself to suffer unnecessarily a serious disadvantage in its relations with Uruguay by awaiting an official request from the Uruguayan Government for removal of this countervailing duty. The Uruguayan Government has, for several years, apparently encouraged the widespread impression throughout Uruguay and in other countries that Uruguayan export trade and the Uruguayan economy have been suffering a more serious disadvantage than has really been the case, from the countervailing duty on wool tops applied by the U.S. Government. This impression has now gained such widespread currency within Uruguay that the removal of the countervailing duty would result commensurately in much more favorable publicity for the United States then the practical effect on Uruguayan trade would justify. The removal of the countervailing duty would, in fact, probably not work any appreciable benefit at this time to Uruguayan exports or the Uruguayan country. The Uruguayan Government and wool merchants know this but the Uruguayan public have an unclear understanding of the situation. Therefore, it now appears that the Uruguayan authorities may recently have been deliberately dilatory in making a formal request, and in preparing statistical justification for the removal of the countervailing duty, realizing that removal of the duty would be of little immediate benefit to the Uruguayan economic situation and hoping that the criticism emerged by continuation of this propaganda factor may increase the possibility of Uruguay’s obtaining other economic concessions from the United States, such as liberal credits, which would be of much greater practical use and greater political use to the Uruguayan Government at this time. While the Uruguayan Government would benefit from the favorable publicity resulting from removal of the countervailing duty, the Government appears astutely to wish at present to make even greater use of the deep concern in the United States about United States– Uruguayan relations in order to obtain concessions that will provide both favorable publicity and important economic assistance. I suspect that the Government now fears that the public reaction to removal of the countervailing duty would be so favorable (because of the Government’s own past exaggeration) that the feeling in Washington that other economic assistance is needed would be substantially dissipated. This in turn, would make it more necessary for the Uruguayan Government to take constructive measures to put its economic house in order—sacrificing some of the current subsidy devices which are of short-term political value—in order to convince the United States Government that more liberal economic assistance would be put to good use. Officers of the Department may think that this ascribes exaggeratedly subtle motives to Uruguayan officials, but it should be remembered that we are dealing with an extremely able politician in the person of Councilor Luis BATLLE Berres who is “master-minding” the Uruguayan strategy.

(3) The United States Government may now find it very difficult to extend to Uruguay in the foreseeable future the kind of economic concessions which the Uruguayan Government more ardently desires, such as liberal credits, since it will be extremely difficult for the United States Government to make this kind of concession until the Uruguayan Government either releases or purchases the Swift packing [illegible in the original] which was “intervened temporarily” by a decree fo April 25, 1958. There may be a substantial delay in the solution of this packing house problem, but in the meanwhile, it is becoming increasingly important that the United States Government give at least a substantial public impression of having extended friendly economic cooperation to Uruguay. This would accomplish the double purpose of giving a significant good-will gesture to the country and the Government of Uruguay, which, while no real concession on our part, would largely quiet Government-encouraged criticism of United States economic policies during a very vocal election-campaign period. In other words, while we await the time when the Uruguayan Government may finally take constructive economic measures that are increasingly needed, including solution of the packing house problem, we can reduce the extent to which our relations suffer by taking advantage of the very fact that the Uruguayan Government has, for several years, been encouraging the public impression that the countervailing duty on wool tops has had a more deleterious effect than has been the case. The U.S. Government now has an opportunity to gain disproportionately from public opinion from removal of the countervailing duty.

(4) There appears to be very little possibility that any significant quantity of Uruguayan wool tops would be exported to the United States in the predictable future if the countervailing duty were now removed. In the absence of the duty, according to competent experts, the price of Uruguayan wool tops would still be above the world price. Furthermore, viewed in terms of relative importance, even in the peak year of 1958, when imports of Uruguayan tops into the United States amounted to home 14 million pounds (valued at slightly over 16 million dollars) quantitatively these imports amounted for only about 3 percent of total U.S. wool consumption. Since 1958, Uruguayan tops exports to the United States have dwindled to only a few hundred thousand pounds annually, and it is very unlikely that the relatively high 1952 volume could ever be repeated.

(5) The number of U.S. companies which are dependent to an important extent upon the combing of raw wool into wool tops as a large part of their manufacturing operations has evidently diminished since the countervailing duty went into effect in 1953. The number of U.S. plants in which this is now a large part of total operations is probably less than ten. The possibility of complaints or criticism from there plants is further reduced by the fact that there would probably be no increased imports of Uruguayan wool tops into the U.S. in the predictable future if the countervailing duty were removed. Moreover, the convincing indication that the officially established exchange rate for Uruguayan exports of wool tops can no longer be continued as a “subsidy” as compared with the average exchange rate for all other Uruguayan exports and imports, oil [illegible in the original] the basis for complaint from those factories that imports of Uruguayan wool tops should legally be subjected to a countervailing duty.

The large number of complaints received by the U.S. Government prior to the application of the countervailing duty against wool tops in 1958 suggests that a preponderant majority of those complaints came from wool manufacturers and wool producers in the United States who may not have been directly affected by the importation of Uruguayan wool tops, but whose organized associations were acting in sympathy with the small group of manufacturers who were dependent upon wool combing operations.

(4) The countervailing duty against Uruguayan wool tops, ever since its application in 1953, appears “in spirit” to have been discriminatory against Uruguay and against Uruguayan and United States companies and persons interested in the [illegible in the original] in Uruguayan wool tops. This discrimination “in spirit” arises from the fact that the U.S. is not applying a countervailing duty on any other product from any other country because of a subsidy resulting from the fixing of an exchange rate [illegible in the original] encourage and assist the exportation of a product. There are many governments and countries that maintain systems of multiple exchange rates which have the effect of encouraging or assisting in the exportation of certain products as commerce with other. In fact, it can be fairly stated that there are dozens or even hundreds of products being imported into the United States today which are [illegible in the original] in this way by officially established exchange rates of foreign countries. The singling out of Uruguayan wool tops for application of a countervailing duty [illegible in the original], in this sense, [illegible in the original] contrary to the spirit of the recognized principle in United States law that no person shall be denied “equal protection of the laws” as stated in the Fourteenth Amendment of the Constitution. This principle has been interpreted by the Supreme Court of the United States (Case of [illegible in the original] vs. Hoskins, see Enclosure [illegible in the original])⁶ to include “protection against unequal application of the [illegible in the original] practically to make unjust and illegal, discrimination between persons in similar circumstances.”

This is a superfluous consideration if the countervailing duty should be removed for the reason that the “subsidy” which prompted it no longer exists; but this is a factor of significance in considering the understandable if legally illogical mental hazard that has deterred action to remove the countervailing duty. This hazard has [illegible in the original] apprehension we have felt that the Uruguayans may make further unpredictable changes in exchange rates that would again create a situation in which the exchange rate for exports of wool tops could be construed to be a “subsidy”.

There is an ever-present possibility that the Uruguayans may make such changes in officially established exchange rates, and the Embassy frequently hears rumors that such changes will be made just as it heard rumors of many other possible economic measures. However, it is equally possible that—in the event of changes in officially established exchange rates—the relative situation of the exchange rate for exports of wool tops will not be sufficiently different from the average of other new rates to make the wool top rates a “subsidy” rate.

(7) The United States Government has heretofore given the distinct impression to the Uruguayan Government that the United States Government would require a formal request from the Uruguayan Government for removal of the countervailing duty, supported by a thorough Uruguayan official calculation of the average weighted exchange rates for Uruguayan exports and imports over a representative period, to enable the United States Government to give official consideration to the possibility of actually removing the countervailing duty. The fact that this [illegible in the original] has been given now provides the United States Government with the opportunity to gain additional good-will by taking the initiative without awaiting a formal request from the Uruguayan Government. Moreover, it would seem entirely logical and proper for the United States Government to take action under a United States law if the United States Government perceives on its own initiative, or received a convincing indication from any reliable sources, that such action should be taken in order to bring about [illegible in the original] with the law or eliminate positive action that the United States Government has not into effect and which is no longer required by the law. Also, since it is conceivable that the Uruguayan Government would actually present a formal request for the removal of the countervailing duty in the future, I believe we should now seize the opportunity to take action before it is requested.

In this respect, there is opportunity, in publicity or comments to the press concerning action removing the countervailing duty, to relate this action to the special determination of the United States Government at this time to demonstrate its intention to do everything possible to cooperate with the Latin American Government including the Government of Uruguay in the promotion of mutually advantageous international trade and economic development, with particular reference to the reappraisal of inter-American relations which has followed upon the visit to South America of Vice President Nixon.

For all the reasons set forth in this despatch, I earnestly hope that action will be taken as soon as possible to remove the countervailing duty on Uruguayan wool tops.

Robert F. Woodward

1. Source: Department of State, Central Files, 411.334/7–4458. Limited Official Use; Official-Informal. Robert F. Woodward presented his credentials on April 21, 1958.
2. Copies of the referenced despatch (see Document UR–6, Enclosure) were also sent to Vice President Nixon; Robert B. Anderson, Secretary of the Treasury; Assistant Secretary Rubottom; and Thomas C. Mann, Assistant Secretary of State for Economic Affairs.
3. A handwritten note from Dillon to William P. Snow, Deputy Assistant Secretary of State for Inter-American Affairs, attached to the source text, reads as follows: “Unless you have strong objection of which I am not aware, would agree with Woodward. I am prepared to help with Treasury if needed. Please keep me advised.”
4. Limited Official Use.
5. On May 6, 1953, [illegible in the original] Treasury Department [illegible in the original] on [illegible in the original] tops imported from [illegible in the original] of [illegible in the original] 361, the [illegible in the original] Act of 1930. [illegible in the original]authorized the Secretary of the Treasury to impose additional [illegible in the original] to the [illegible in the original] of any [illegible in the original] or [illegible in the original] paid upon [illegible in the original] promotion, or export of the article [illegible in the original] under the provisions of the Act. For text of the Act, [illegible in the original] 45 State 590.
6. The enclosed memorandum, which described the case, is not printed.