Foreign Relations of the United States Diplomatic Papers, 1938, The American Republics, Volume V

611.2331/110a

The Secretary of State to the Chargé in Peru (Dreyfus)

No. 164

Washington, September 7, 1938.

Sir: Reference is made to the question of a possible trade agreement with Peru, concerning which informal conversations have taken place in Lima over the past several months.

The Department has been informed by Ambassador Steinhardt of the statement by the Peruvian Foreign Minister that his Government had agreed to the negotiation of a trade agreement with the United States upon the basis of the unconditional most-favored-nation principle, but that his Government might wish to make certain exceptions to that principle in connection with trade with contiguous countries.

In this connection, the Department believes it highly desirable that you secure from the Foreign Minister at an early date, confirmation in writing of the understanding conveyed verbally to the Ambassador by Dr. Concha. To that end, there is enclosed a draft note which you are authorized to hand to the Foreign Minister.

You should transmit the Foreign Minister’s reply to the Department promptly, and if, despite the Department’s request in the attached note for precise information concerning the Peruvian Government’s position in respect of trade with contiguous countries, reference in general or vague terms should be made in that reply to such exceptions as the Peruvian Government might wish to make, you should request the Foreign Minister for a further and more precise statement. The Department will instruct you further after it has had an opportunity to study the Foreign Minister’s reply to your note.

There are also enclosed two copies of the “standard” general provisions, dated February 21, 1938,¹⁸ developed for use in trade agreements, one copy of which should accompany your note to the Foreign Minister. The other copy is for the Embassy’s files, and should replace the copy of the “standard” general provisions, dated April 20, 1937, which accompanied the Department’s instruction no. 48 of December 31, 1937. Additional copies of the new text will be sent to you by steamer pouch.

Ambassador Steinhardt has reported to the Department that President Benavides has expressed a strong personal interest in securing benefits for his country’s silver producers through purchases by the United States Treasury of Peruvian silver in the same manner that purchases have been made of Mexican silver. While this is a subject with which the Department is not directly concerned, the Department believes that it would be desirable, when a convenient opportunity arises, and preferably before the enclosed note is handed to the Foreign Minister, if you were to mention casually to President Benavides that the question of purchases of Peruvian silver, which he mentioned to Ambassador Steinhardt, has received some consideration in Washington and that the Treasury Department has indicated that if the Peruvian Government were to approach the United States Treasury Department through some qualified official of the Peruvian Government, that Department would be prepared to discuss the subject in detail and in the expectation of reaching a decision in the near future.

While the Department is aware that the questions of the proposed trade agreement and silver purchases may be closely linked in the mind of President Benavides, you should, if he should bring up the subject, make it perfectly clear to him that your Government considers the two questions entirely unrelated, and that under no circumstances could the duration of the proposed trade agreement be made conditional upon the extent or continuance of purchases of Peruvian silver by the United States Treasury Department, if such action were decided upon.

Very truly yours,

For the Secretary of State:

A. A. Berle, Jr.

[Enclosure]

Draft of Note To Be Presented to the Permian Minister for Foreign Affairs

Excellency: I have the honor to refer to conversations which have taken place during the course of the past several months between Your Excellency and Ambassador Steinhardt regarding the possibility of a reciprocal trade agreement between the United States and Peru, and to express the gratification of my Government upon learning through Ambassador Steinhardt of the willingness of Your Excellency’s Government to negotiate such an agreement on the basis of the unconditional most-favored-nation principle.

It is the belief of my Government that it would be highly desirable at the present time to arrive at substantial agreement with Your Excellency’s Government on all essential matters in connection with the general provisions of a trade agreement between the United States and Peru, in order to insure in so far as possible that, once public announcement has been made of intention to negotiate such an agreement, (in accordance with established procedure in the United States), no major difficulties may arise to prevent the successful conclusion of the negotiations. My Government has instructed me, therefore, to present to Your Excellency the following comments on those general provisions which my Government believes it would be essential to include in an agreement, and to request Your Excellency’s views thereon as soon as it may be convenient. In presenting these comments, my Government wishes to stress their confidential nature and to emphasize that even though agreement may be reached by our Governments at an early date on all important questions connected with the general provisions, it probably would not be possible for my Government to make any announcement of intention to negotiate a trade agreement with Your Excellency’s Government, earlier than the beginning of November of this year.

With respect to the fundamental question of unconditional most-favored-nation treatment, my Government believes it essential that there be included in an agreement provisions whereby any advantage, favor, privilege or immunity granted by either Government to any article originating in or destined for any third country, would, with respect to customs duties or charges of any kind imposed on or in connection with importation or exportation, and with respect to the method of levying such duties or charges, and with respect to all rules and formalities in connection with importation or exportation, and with respect to all laws or regulations affecting the sale, taxation or use of imported goods within the country, be accorded immediately and unconditionally to the like article originating in or destined for the other country. In this connection, my Government recalls the statement which Your Excellency made to Ambassador Steinhardt immediately prior to his departure for the United States, to the effect that while Your Excellency’s Government had agreed to the negotiation of a trade agreement with the United States on the basis of the unconditional most-favored-nation principle, the Government of Peru might wish to make certain exceptions to that principle in the case of trade with contiguous countries. My Government believes the possibility of later misunderstanding would be avoided were Your Excellency to indicate as precisely as possible the nature and extent of such exceptions as the Peruvian Government might wish to make. As Your Excellency is aware, however, my Government would only with extreme reluctance, in view of its established policy, consider agreeing to the inclusion in a trade agreement of exceptions to unconditional most-favored-nation treatment which were not of a generally recognized nature and of long standing. My Government, therefore, believes it essential that full agreement be reached on this matter at an early date.

With respect to the question of quantitative controls of any kind which might be applied by either the Government of the United States or the Government of Peru, my Government would expect in a trade agreement the inclusion of provisions embodying the principle of non-discrimination outlined above in respect of customs duties and related matters. More specifically, if imports of any product into either country were to be restricted as to quantity, and if allocations by countries of export were to be made, my Government would expect that a share of the total permitted importations of the product would be granted to the other country on the basis of the proportion of the total importations of the product supplied by that country in a previous representative period.

Regarding exchange control measures which might be adopted by either Government, my Government would expect in the agreement provisions for the widest possible application of the most-favored-nation principle with respect to exchange allocations, exchange rates, and any restrictions, conditions, delays, taxes or surcharges which might be imposed upon the transfer of funds between the two countries.

The same non-discriminatory principle would be applied to foreign purchases by government monopolies and governmental purchases.

In regard to treatment to be accorded by each Government on the importation of those products on which concessions may be granted, my Government would expect to have included in an agreement provisions whereby such products would be exempt from ordinary customs duties in excess of those which might be specified in the agreement, and in addition that such articles would be exempt from all other duties, taxes, fees, charges or exactions which might be imposed on or in connection with importation, other or higher than those in force on the day of signature of an agreement, or imposed thereafter under laws in force on that day.

Further with respect to articles upon which concessions might be granted by either Government, my Government would expect the inclusion of provisions whereby such articles would generally be exempt from any quantitative restrictions upon their importation into the other country. The purpose of such provisions is, of course, to insure that concessions in respect of customs duties will not be impaired or nullified by quotas.

With regard to internal taxes, my Government would expect the inclusion of provisions whereby all articles imported from either country would, after importation into the other, be exempt from other or higher charges than those imposed on like articles of national or other foreign origin.

With respect to the textual form of the foregoing, I am enclosing for Your Excellency’s consideration and comment a copy of draft general provisions which my Government has developed for use in trade agreements. In addition to the matters referred to above, Your Excellency will note that the enclosed draft provisions also cover a number of other matters, including those of a formal or technical nature, customarily included in trade agreements. I shall be most happy, of course, to convey to my Government any comments which Your Excellency may care to make with respect either to the bases outlined above or to the enclosed text.

While a study of the products entering into the trade between the United States and Peru is now in progress, no decision has been reached as yet as to concessions which might be granted to Peru in a trade agreement on products exported from Peru to the United States, or as to concessions which might be requested of Peru on products exported from the United States. In accordance with legal requirements and procedure followed in the United States no final decision can be reached in regard to concessions to be granted or concessions to be requested until public hearings have been held and the views of interested persons received. As Your Excellency is aware, the Government of the United States in negotiating trade agreements in general follows the rule of considering granting concessions on products of which the other country is the principal or an important supplier to the United States market, and, correspondingly, requests concessions on products of particular interest to the United States in its export trade with the other country. The Government of the United States would welcome and give careful consideration to any requests which the Government of Peru might desire to make concerning concessions on products exported from Peru to the United States and assumes that the Government of Peru would give similar consideration to any concessions requested by the Government of the United States.

Accept [etc.]

18. The standard general provisions of February 21, 1938, are the same as those in the reciprocal trade agreement between the United States and Ecuador, signed on August 6, 1938, and printed in Executive Agreement Series No. 133 and 53 Stat. 1951, except for the following omissions and changes:

    • Article VII. In the Ecuador agreement there is added to the end of the first sentence of the second paragraph: “or imposed in order to maintain the exchange value of the currency of the country.”
    • Article VIII. This article was considerably changed in the Ecuador agreement and reads as follows in the provisions of February 21, 1938:

      1. Neither the Government of the United States of America nor the Government of . . . . . . . shall regulate by import licenses or permits the importation into its territory of any article in which the other country has an interest, or by any method maintain limitation or control of the amount of importation of any such article, unless similar action is taken with respect to the importation of such article from all other countries.

      2. If imports of such an article from the other country are, directly or indirectly, restricted by such regulation, limitation, or control, the Government taking such action shall establish in advance, and give public notice of, the total amount permitted to be imported from all countries during any specified period, which shall not be shorter than three months, and of any increase in such amount during the period, and shall either—

      (a) Impose no limitation on the part of such total amount which may be imported from the other country; or

      (b) Establish in advance, and give public notice concerning, the quota of such article which shall be permitted to be imported from the other country during the specified period. Such quota shall be, as nearly as may be determined, equivalent to the proportion of the total importation in such period which the other country would supply in the absence of such regulation, limitation, or control.

      In calculating such quota, account shall be taken of the proportion of the total importation of such article which the other country supplied during previous periods, of the trend of the trade in such article, and, in the case of a quota period shorter than a year, of seasonal variations, if any, in the trade. Where a quota for importation from the other country is established, no obstacle, administrative or otherwise, shall be placed in the way of importation sufficient to fill the quota allotted to the other country. If the total amount permitted entry from all countries is increased during any quota period, the quota established for the other country shall be increased proportionately.

      3. If the Government of either country establishes or maintains such regulation, limitation, or control of the importation of an article in which the other country has an interest, it shall—

      (a) Make public the regulations regarding the issuance of licenses or permits, or regarding any other method of limitation or control, before such regulations are put into force;

      (b) Administer any system of licenses or permits or any other method of limitation or control so as not to discriminate against importation from the other country, and in no manner, directly or indirectly, influence importers regarding the country from which they shall seek permission to import any such article;

      (c) Ensure that there shall be no undue delay in the issuance of licenses or permits;

      (d) Ensure that any importer seeking to establish new, or to reestablish old, trade connections with the other country, or to maintain such trade connections, shall be given reasonable opportunity to import any such article; and upon request inform any such importer whose application is rejected of the reasons for such rejection;

      (e) Give public notice of the amounts permitted to be imported from the several exporting countries, and at all times upon request advise the Government of the other country of the amount of any such article, the growth, produce or manufacture of each exporting country which has been imported, or for which licenses or permits for importation have been granted.

      4. The provisions of this Article shall also be applicable with respect to any regulation, limitation, or control imposed by either Government upon the sale of any article in which the other country has an interest, or upon the importation of such article at a particular rate of duty or charge.

      5. In the event that the Government of either country shall make representations concerning the application by the Government of the other country of the provisions of this Article, the Government of such other country shall give sympathetic consideration to such representations and if, within thirty days after the receipt of such representations, a satisfactory adjustment has not been made or an agreement has not been reached with respect thereto, the Government making them may, within fifteen days after the expiration of the aforesaid period of thirty days, terminate this Agreement in its entirety on thirty days’ written notice.

    • Article IX. Paragraph 2 omitted from the Ecuador agreement reads as follows: “It is agreed that each Government, in the awarding of contracts for public works and generally in the purchase of supplies, shall not discriminate against the other country in favor of any third country.”
    • Article XVI. There was omitted from the end of this article the following: “and it is agreed, further, that nothing in this Agreement shall be construed to prevent the adoption of enforcement of measures relating to neutrality.”