611.2231/219
The Department of State to the Ecuadoran Embassy
Memorandum
The Government of the United States has deeply regretted the fact that there have been unforeseen delays in the negotiations for a trade agreement with the Government of Ecuador. This Government has looked forward to the active participation of the Government of Ecuador, through the medium of a trade agreement, in its program for the liberalization of world trade, and has continued to hope that a mutually satisfactory solution would be found at an early date of the problems that have arisen during the course of those negotiations.
The Government of the United States is firmly convinced of the advantages to be gained by all trading nations from the progressive removal of restrictive barriers to the free flow of international trade in its natural channels. The diverse and often complementary nature of the products of the various trading countries indicates the necessity for generally expanding markets rather than limited markets. The latter are the inescapable result of restrictive measures and the artificial diversion of trade through bilateral balancing between pairs of countries.
In the current negotiations for a trade agreement between Ecuador and the United States, the Government of Ecuador has made the observation [Page 519] that it would be very difficult for it to make any reductions in its import duties which might have the effect of weakening its financial position at a time when existing revenues were already declared to be insufficient for the country’s needs.
With reference to this observation, it may be pointed out that the Government of the United States expects in a trade agreement with Ecuador only such concessions and assurances as the Government of Ecuador believes can be given without prejudice to the national economy. At the same time, this Government believes that while reductions in import duties in a trade agreement may temporarily lower government revenues from this source, increased imports made possible by such reductions may well result in customs revenues as large as, or larger than, those collected prior to the duty reductions.
It is stated, however, that it is impossible for Ecuador to increase its purchases because in order to buy more it must sell more, and the proposed trade agreement with the United States does not seem, in the opinion of the Government of Ecuador, to promise the attainment of the last-named objective. The Government of the United States calls attention to the fact that possible concessions and assurances to Ecuador, on the basis of 1935 Ecuadoran statistics embrace 94.4 percent of Ecuador’s exports to the United States, deducting mineral earth and precious metals from the totals. This extremely high trade coverage deserves careful consideration in appraising the value of a trade agreement such as the United States has proposed. It would of course not be just for the United States to be penalized for having permitted the largest part of its imports from Ecuador to enter this country free of import duties in past years. This would imply that only by having granted less favorable customs treatment to Ecuadoran products in the past, could this Government now extend more favorable treatment.
Another consideration merits mention at this point. In addition to the direct benefits accruing to Ecuador from association and cooperation with the United States in liberal trade policies as worked out in a trade agreement are the indirect benefits arising from trade agreements made by the United States with countries constituting important markets for Ecuadoran products. Benefits for Ecuador cannot help but result when the purchasing power of its customers is improved. This Government has only recently announced intention to negotiate an agreement with the United Kingdom60 and a new agreement with Canada.61 Negotiations with other countries may be anticipated. Important agreements have already been concluded with countries which purchase substantial amounts of Ecuadoran [Page 520] products, such as France,62 Belgium,63 The Netherlands64 and Sweden.65 Broadening of trade relations between these countries and the United States on an unconditional most-favored-nation basis should stimulate the demand for Ecuadoran products in those countries.
In connection with the desire expressed by the Government of Ecuador that the proposed trade agreement contain a proviso limiting the extension of unconditional most-favored-nation treatment to the United States to such periods as the trade balance between the two counries is “favorable” to Ecuador, this Government does not question the need of Ecuador to maintain an active merchandise trade balance in the total of its international accounts with all foreign nations in order to meet “invisible” obligations. However, this Government has consistently maintained the view that it is a practical impossibility for this condition to be worked out successfully by pairs of countries, that is, by the bilateral balancing of the trade one country has with each other country with which it carries on business. In fact, attempts so to apply this principle inevitably tend to nullify many of the gains that result from international trade, by artificial diversion of trade from its natural channels. Various studies made in recent years have shown incontrovertibly that when trade is forced into artificial channels, its volume tends to decline and supply and cost factors have to be disregarded to some extent.
The Government of the United States is most gratified to note the increasing number of important trading nations which are joining with it in the furtherance of its trade-agreement program. It is hoped that in the near future the negotiations already begun with the Government of Ecuador, may culminate in the conclusion of a mutually advantageous trade agreement.
- See Department of State, Press Releases, November 20, 1937, p. 383.↩
- See ibid., p. 388.↩
- Signed May 6, 1936, Executive Agreement Series No. 146, or 53 Stat. 2236; see also Foreign Relations, 1936, vol. ii, pp. 85 ff.↩
- Signed February 27, 1935, Executive Agreement Series No. 75, or 49 Stat. 3680; see also Foreign Relations, 1935, vol. ii, pp. 102 ff.↩
- Signed December 20, 1935, Executive Agreement Series No. 100, or 50 Stat. 1504; see also Foreign Relations, 1935, vol. ii, pp. 579 ff.↩
- Signed May 25, 1935, Executive Agreement Series No. 79, or 49 Stat. 3755; see also Foreign Relations, 1935, vol. ii, pp. 739 ff.↩