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

UR–8. Letter from the Director of the Office of South American Affairs (Bernbaum) to the Ambassador in Uruguay (Woodward)¹

Washington, November 21, 1958

Dear Bob,

You will by the time this letter is received have heard from us by telephone and telegram regarding the latest developments on the Uruguayan front. I’ll describe them now just to make certain that you have the flavor of what has been going on.

The Export-Import Bank’s response to Lacarte’s letter of September 25 regarding a balance of payments loan was delivered to Lacarte only a few days ago.² It had been held up by differences of opinion in the Bank as to how to respond to the unorthodox Uruguayan initiative and by our insistence that a positive attitude be reflected in the letter. We did get that positive attitude included in the sense of keeping the negotiations open but we did not succeed in getting the bank to define exactly what commitments it wanted from the Uruguayans. A copy of the letter is enclosed.³

Dick and I have spoken with Lacarte a few times during the last few days about this letter. He was of course gratified over confirmation of the Bank’s continued interest in the negotiations. Lacarte was, however, unhappy over the failure of the Bank to define in just what respects his own letter was deficient. As you know, he had wanted the Bank to state exactly what it wanted so that he could then pressure his own government into committing itself to the necessary measures. As he sees it now the big problem is to get the Uruguayan Government to make the necessary commitments without confirmation that such commitments would do the job. We explained to Lacarte that the Bank was reluctant to define its requirements in the manner desired for two reasons, (1) it did not want to become involved in an essentially Uruguayan-IMF problems; (2) many of the Directors were fearful of the effect on the overall policy of close collaboration with the IMF of a deviation from that policy in the case of Uruguay. Given the general desire to do something for Uruguay, the consensus in the Bank was that they could not go beyond receiving commitments voluntarily entered into by the Uruguayans without in any way participating in the formulation of such commitments. For this reason they didn’t even want to let Lacarte know informally what they would expect to find in a letter of commitment from the Uruguayan Government. While unhappy over this turn of events, Lacarte appeared to understand the Bank’s position.

Our various efforts to obtain formal cancellation of the countervailing duty this much appear to have failed. After speaking with Secretary Anderson early this week, Dick wrote him a letter explaining why it would be important for the Department of the Treasury to waive some of its requirements and cancel the countervailing duty promptly. A copy of the letter is enclosed.⁴ This letter produced a meeting in the Treasury Department which I attended and at which time we made all of the points we could in favor of prompt action.⁵ We found the Treasury people sympathetic but not ready to take action without the complete elimination of the differential. The reasons given were legal and political. They felt that the law very specifically prohibited the Treasury Department from eliminating the countervailing duty as long as there was a differential between wool tops and the general average as defined in the Treasury Department’s formula. They could not see their way clear to get around this provision of the law. They also felt that violation of the law, even if feasible, would entail unacceptable political risks. They felt that cancellation would inevitably be followed by the prompt demand of the wool industry for an explanation of the basis on which cancellation was made. Since the formula and the facts involved were already known to the wool industry it would be easy for them to verify the violation. The net result could easily be renewed pressure from protectionist groups to put teeth into the countervailing duty legislation and enforce it all across the board. As it is today, the Treasury Department has adopted a passive attitude toward reported violations and takes action only when forced to do so by the industries concerned. Until now the only action has been the one against Uruguay. They shudder to think of anything forcing them to take further action of this nature. We then went through the exercise of recalculating the formula on the basis of giving the Uruguayans the benefit of the doubt in all cases. This resulted in reducing the differential from 5% to about 3-1/2% An attempt to reduce it further by including the various import taxes in the calculation failed on the ground that the Treasury Department had already made its formula known and that this formula did not include any provisions for taxes as an element in exchange rates. Inclusion of this factor would have brought the differential down to 1%.

After having discussed with Lacarte the bad news of the Export-Import Bank’s letter, I let him know about our unsuccessful attempts to get action this month on the countervailing duty. I inquired whether it would be possible for the Uruguayan Government to change the rates on a sufficient number of import items to eliminate the differential. Lacarte stated that it would not be possible since the government could not see its way clear to raise import rates until after the elections. He confirmed, in response to my inquiry, that his government would prefer to wait for the complete elimination of the countervailing duty than to go along with a reduction at this time to 3 or 1%. The net result of the conversation was to leave his feeling that we really wanted to do something but could not because of our laws and their inability to act. That was all to the good as I assume he will report this to his government.

We have been working overtime to get action this month on the three meat items. We have succeeded thus far to the extent that the Trade Agreements Committee voted last Friday to promulgate the concessions on the three items. Only Agriculture voted against such action. The atmosphere at the TAG meeting which I attended to present the political problem involved was most sympathetic. The matter is being considered today by the Trade Policy Committee. Our representative will be Tom Mann who is sympathetic to our position and who can be counted on to make a good fight to hold the line against Agriculture’s opposition. Although formal promulgation may not be feasible because of red tape prior to the end of this month, we expect to get the information informally to the Uruguayans for the psychological effect.

We had hoped for completion of the PL-480 negotiations by this time. Unfortunately the dispute over the exchange rates has prevented that. We have discussed this matter with all of the other agencies concerned as well as with E and find that the issue is too fundamental in our over-all PL-480 program for us to yield. A yielding on this point would, according to our E advisers, result in the necessity to make similar concessions to other countries and perhaps even to renegotiate agreements already made. In this day of depreciating currencies that would just be too costly. I am hoping that the phone call which Clare Boonstra will make to you today will clarify this point sufficiently for a meeting of the minds with the Uruguayans.

I can only repeat that the general atmosphere in Washington toward Uruguay, thanks to Dick Rubottom’s unremitting efforts, is most sympathetic. In these cases where it is not sympathetic there is now an effective realization of the political importance of stabilizing and improving our relations with Uruguay. Given this situation, our failure to get positive action this month before the elections should not be taken as indicating failure in the future.⁶ I hope and expect that most of our problems will be settled during the next few months.

With best Regards,

Sincerely,

Maurice H. Bernbaum

1. Source: Department of State, Rubottom Files, Lot 60 D 553, “Uruguay 1958.” Limited Official Use; Official-Informal. The source text is a carbon copy bearing Bernbaum’s typed signature.
2. Neither Ambassador Lacarta’s letter of September 25 nor the Export-Import Bank’s response of November 18, 1958, were found in Department of State files.
3. No enclosure was found with the source text.
4. Not printed.
5. No record of the meeting has been found.
6. Reference is to the Uruguayan general election, November 30, 1953, in which the Nationalist Party defeated its traditional opponents, the Colorado Party.