611.3531/1496
The Ambassador in Argentina (Armour) to the Secretary of State
[Received February 9.]
Sir: In connection with the termination of the trade-agreement negotiations with the Argentine Government, I have the honor to submit certain observations of a somewhat general and background nature as to the causes which in my opinion contributed to the failure to reach an agreement.
[Page 295]Conditions Prevailing in the Two Countries at the Time the Official Negotiations Were Initiated
As the Embassy has reported in various despatches, the situation so far as Argentina was concerned seemed particularly favorable for the opening of negotiations when in August last the decision was reached to proceed. The Foreign Minister, Dr. Cantilo, having perhaps profited by the lesson of the Lima Conference and the unfavorable reaction in this country to his somewhat cavalier attitude and obstructionist tactics on that occasion, seemed anxious to show his conversion to the inter-American program. The Patagonian incident last April,44 bringing into relief Nazi tactics in Argentina, doubtless contributed toward this change in front on the part of the Foreign Minister, whose years as Ambassador at Borne had left him somewhat under the spell of the totalitarian doctrines. A trade agreement with the United States, aside from contributing to Dr. Cantilo’s personal prestige, would have been the best proof of his entry into the Pan American fold.
As to the President, Dr. Ortiz in his speech at the opening of the Argentine Congress last May, had gone on record as favoring multilateral as opposed to the bilateral principles in trade relations, insisting that only circumstances beyond his Government’s control had forced Argentina into acceptance of the latter system, but that when conditions permitted they would return to the freer method. Furthermore, there were clear indications from the internal political aspect that the President desired closer relations with the powerful Radical Party and that he was determined to accord increasing recognition to that party’s numerical strength in the country. Here again, a trade agreement with the United States would be a clear indication of his Government’s liberal tendencies and a move calculated to gain the support of the Radicals, whose sympathy for the United States had never been concealed.
Unfortunately, while the passage of time so far as Argentina was concerned seemed to be working in favor of the opening of the negotiations, in our own country the opposite was the case. The production in the United States of linseed, the principal product shipped by Argentina to the United States and on which Argentina relied in large measure to gain its dollar exchange, had in the past year or so increased greatly and measures for protection of the local industry now seemed necessary, where previously no such restrictions would, presumably, have been considered essential. Furthermore, the necessity of awaiting the closing of our Congress, which was delayed until July, 1939, before announcing the opening of negotiations, and the further necessity of reaching an agreement before the opening of the next session [Page 296] in January, left comparatively little time in which to negotiate, particularly when one took into account the somewhat protracted procedure called for under the Trade Agreements Act. As later events proved, this time element was one of the principal factors contributing to the failure of the negotiations.
The Role of the Central Bank
From the beginning it was evident that if the negotiations were to succeed, this would depend, so far as Argentina was concerned, largely upon how far higher officials here, notably the President and Foreign Minister, took matters into their own hands and out of the hands of certain functionaries, particularly of the Central Bank, headed by Dr. Raúl Prebisch, whose influence in the past had always been directed against any change in the existing procedure of exchange control and bilateralism.
In my first meeting with Dr. Ortiz, confirmed in later conversations, I was encouraged to believe that the President was determined to take charge of the negotiations himself, or in any case to see to it that a narrower, technical point of view of a prejudicial nature should not prevail. However, these hopes did not prove to be justified, and there is reason to believe that Dr. Prebisch’s strong influence, more particularly his apparent insistence upon the bilateral test of trade balancing being applied as the sine qua non, was a very important factor in bringing about the failure.
I have little doubt in my own mind that, from the beginning, Dr. Prebisch was skeptical as to the possibility, if not actually opposed to the idea, of a trade agreement with the United States. If he finally gave his consent to the attempt, it was doubtless with the understanding that the quid pro quo offered would have to be a high one and sufficient to balance the trade between the two countries following the increase in imports from the United States that would result from the removal of the existing discriminatory measures. In other words, Dr. Prebisch was envisaging the continuance of the old policy of bilateral balancing of trade. Again and again in the negotiations and even in the final communiqué announcing the failure, this point of view of Dr. Prebisch was ever to the front.
I have no desire to be unfair to Dr. Prebisch who, I am convinced, has what he considers to be the best interests of his country at heart and who has undoubtedly acted in accordance with his convictions. His background is almost entirely European. He very possibly feels (and it is a feeling that, frankly, I have seen reflected among officials of other countries, notably, in Canada during our trade-agreement negotiations there) that, even admitting the possibility of increasing exports to the American market, there is no assurance of permanence [Page 297] of that market, particularly with the Trade Agreements Act subject to renewal by Congress every three years. Dr. Prebisch’s reasoning very probably followed these lines—if the price offered for the agreement was high, the Argentine Government might do well to consider such an agreement, but before doing so it should make sure that Argentina would not lose markets which it already had and which, barring unforeseen incidents, should be left open to it on a permanent basis. While one may not admit his premise as correct or agree with the reasoning, one must concede Dr. Prebisch’s right to hold honest convictions.
Unfortunately, Dr. Prebisch is not only a man holding strong views himself, but also an able person who is in a position to impress those views upon others, as became more and more evident as the negotiations progressed. Dr. Alfredo Louro, head of the Exchange Control Office and generally considered a fair-minded and honest official, apparently well disposed toward the United States and thought to be sincerely desirous of seeing an agreement reached, nevertheless was evidently never free of the influence of Prebisch’s stronger character; not to mention the fact that he probably had also his own personal future to consider. Dr. Torriani, the Foreign Office representative on the Subcommittee, very obviously, as time went on, reflected more and more the views of the Central Bank and was able to impress these on the Foreign Minister. Dr. Cantilo, I am convinced for reasons stated earlier in this despatch, really desired to see an agreement reached. On the other hand, he had little grasp of the details of the negotiations and the issues at stake, which made it extremely difficult to discuss questions with him and I soon found out that Dr. Torriani’s views were being accepted, apparently without question, by Dr. Cantilo.
Finally, there was Dr. Irigoyen,45 and here the conversion to the Prebisch view-point was as complete as it was perhaps unexpected. Dr. Irigoyen when he arrived from Washington early in August seemed reasonably objective in his attitude. He appeared to see both sides; to understand our difficulties and to be anxious and willing to act as interpreter of them to the members of his own delegation. There was reason to believe, too, that he felt then that the conclusion of an agreement would be an important feather in his cap and would favorably serve his career. And yet, before the negotiations ended, it is doubtful whether Dr. Prebisch himself was more adamant in his demands or more insistent that acceptance of the Argentine view-point, particularly on quotas, was necessary for any agreement. In fact, as I reported to the Department (telegram no. 273, December 12, 6 p.m.46), [Page 298] Dr. Irigoyen in one of his last talks with me stated that, at the President’s request, he was preparing a statement on the course of the negotiations for Dr. Ortiz and intended to recommend that unless the quota on linseed were removed there should be no agreement. He made good his boast.
The British Factor: Blocked Sterling
The declaration of war in Europe shortly after the opening of the negotiations was certainly a factor which cannot be overlooked in discussing the causes leading to the failure, for it undoubtedly introduced a new and complicating element. First of all, it soon became apparent that, at least for the duration of the war, Argentina would have to look to the United States as a market for many of the products it had been accustomed to find in Europe, notably in the belligerent countries. This meant, of course, finding somewhere more dollar exchange for its increased purchases from the United States, which could be accomplished only in three ways: (1) through increased exports to the United States; (2) by using favorable balances resulting from its exports to European and other countries, notably Great Britain and France, and (3) through loans or credits either from the Export-Import Bank, or private banking sources in the United States.
That the British did not intend to lose Argentina as a market for their goods early became apparent. On his return from Great Britain during the early part of our negotiations, the President of the local British Chamber of Commerce, Major William A. McCallum, made an emphatic statement to the effect that Great Britain intended to continue to retain Argentina as a market and that the local British representatives could count on full support of their Government to that end.
The course for Argentina to pursue seemed clearly indicated. It was in a strong position. More than ever the British needed Argentine meat and wheat, particularly the former. While Argentina would naturally continue to purchase what it required from England and what England was in a position to supply, it seemed only reasonable that it should be free to use the balance over and above such purchases elsewhere, notably in the United States. How far the Argentine Government pressed its case in this respect is difficult to say. It is known that some form of temporary agreement on sterling blockage was signed, to expire on January 23, 1940. An official of the British Embassy made the statement to a member of the Embassy staff on September 21 that the Argentine Government (perhaps meaning the Central Bank) had itself suggested the idea to the British Government of blocking sterling balances. As the Department is aware, at one point in the negotiations the possibility of securing our assistance in endeavoring to persuade the British Government to take a more liberal view in the matter was discussed informally with certain members of the Argentine Subcommittee. It was in fact [Page 299] suggested by one of the Argentine delegates that we ask the Central Bank for details as to the status of its agreement with the British and this request was informally made, but no answer was ever received. The Department’s intervention with the British Government was also proposed by the Embassy (see Embassy’s telegrams no. 216 of November 3, 3 p.m., no. 230 of November 21, 10 a.m., and no. 253 of December 4, 8 p.m.47), but for reasons undoubtedly sound, the Department thought it best to restrict its representations to a request through the Embassy at London for information as to the status of the situation. The reply from London, it will be remembered (transmitted to this Embassy in the Department’s telegram no. 223 of November 18, 4 p.m.48), while of a somewhat negative nature so far as the British Government was concerned, indicated that Argentina’s position, if the country wished to take advantage of it, was a strong one.
In any case, the alleged inability to secure free exchange from the British undoubtedly was used by Dr. Prebisch as a strong argument with his own Government justifying insistence upon the maximum tariff concessions from the United States.
While there is no reason to believe that the British Government officially or even indirectly did anything affirmatively to prevent an agreement between Argentina and ourselves from being reached, the fact that it failed to commit itself as to the future regarding the action it proposed to take on such sterling balances as might result from its large purchases in Argentina was certainly an important factor. Nor can there be overlooked the arrival in Buenos Aires of a Director of the Bank of England, Mr. Guy Watson, on November 20, during the negotiations, and the fact that he is reported to have been given a desk in the Central Bank here and to have been consulted on all occasions by Dr. Prebisch (see Embassy’s telegram no. 16, January 10, 6 p.m.48). This factor seems the more significant when one considers that it was about that time that the Argentine delegation, or those members of it most closely associated with Dr. Prebisch, first began to show signs of pessimism as to the possibility of our negotiations being brought to a successful conclusion—a pessimism shortly reflected in the view-point of the Foreign Minister himself. Finally, mention must be made of the now-famous exchange-control circular and the oral explanatory statement of Dr. Louro, reported in La Nation the day following.
So much for personalities and background. I have gone into some detail as it seems important for the future that the Department should have as complete a picture as possible of the personalities with whom we have had to deal; and presumably will have to deal in the [Page 300] event that, at some later date, another attempt to reach an agreement is made.
Our Schedule II Offers
As to the more immediate and direct causes of the failure to reach an agreement, these can be discussed in a few paragraphs. Our Schedule II offers when first presented on November 15 received a fairly good reception by the Argentine Subcommittee. There is little doubt that the Argentines considered them a first offer: that we would be prepared to go much further. The Latin American, perhaps particularly the Argentine, has a good deal of the Chinaman in his makeup. When it became evident that we were not prepared to make important improvements they were apparently genuinely surprised, almost to the point of indignation. Not only were we not prepared to make further concessions—sufficiently important in their view—but our original Schedule II offer as regards canned beef, one of the most important commodities, was later changed by the imposition of a quota—coupled, to be sure, with a reduction in the ad valorem duty from 30%to 20%.
To make matters more difficult for our negotiators, there was the time element. In the Department’s telegram no. 231 of November 29, 6 p.m. the Embassy was instructed to make it clear to the Argentine negotiators that our position was not a bargaining one, and that any effort on their part to maintain what appeared to us to be an extreme bargaining position could only result in unnecessary delay; furthermore, that a decision on their part regarding our offers would have to be made promptly. This point of view was presented to the Argentine Government in a note to the Foreign Office, and, although the language employed was as tactfully worded as possible, I feel that it was from about this time that the atmosphere changed from a friendly and optimistic one to one of aloofness and pessimism. In fact, it was shortly after receipt of this note that it became impossible to arrange further meetings for our Subcommittee with the Argentine Subcommittee, and from then on negotiations had perforce to be conducted through notes and memoranda. In my last talk with the President, Dr. Ortiz mentioned early December (a date more or less coinciding with the delivery of the Embassy’s note) as the period when he felt the cordial atmosphere that had hitherto prevailed in our negotiations changed to one of haste and pressure. The Latin American does not understand the need for hurry. He interprets it as an attempt to put pressure on him. From the beginning of the negotiations we had all done our best to make it clear to the Argentines how essential it was that negotiations should be completed before Christmas, in other words, before the re-convening of Congress. They professed to understand; but looking back, it seems doubtful whether they fully appreciated this point.
[Page 301]To return to the question of canned beef, from the tactical point of view, so to speak, the imposition of a quota on that product added greatly to our difficulties here. As the Department is aware, canned beef, of all products on the Argentine list, is the most controversial one, politically at any rate, in Argentina, as bringing back unhappy memories of the unratified sanitary convention and the “canned beef for the Navy” controversy. It also furnished further justification for those in favor of rejecting our proposals on the ground of the quota on linseed. Had the Argentine Government been forced to base its refusal on the linseed quota alone this might have been a more difficult thesis to maintain, but in being able to join to this a quota on canned beef it was enabled not only to rally the support of other members of its representation, but to present its case in a more logical light to the public, as it began to do even prior to the termination of the negotiations and as it has continued to do.
However, even admitting the above, had the Department felt justified in removing the quota on linseed, this concession might, and probably would, have still made an agreement possible. A quota on linseed had of course been included in our original Schedule II offers, but as already stated, this product, above all others, was relied upon by the Argentines to furnish their dollar exchange. Dr. Alberto Bonfante, following the termination of the negotiations, suggested that had we raised the linseed quota to 15,000,000 bushels this even might have been enough. Such an increased offer, however, would had to have been submitted with sufficient time for the Argentine Government to consider it adequately and to realize that we had really gone as far as we intended to go.
The Time Element
Referring again to the time element, I should be lacking in frankness were I not to stress the unfortunate effect of this factor. It will be remembered that our last note to the Argentine Government, insisting that we could go no further in our offers, was delivered on the night of January 2. This reply required—or the Argentine Government considered that it required—a reply formally to conclude the negotiations one way or the other. I was informed that the Department must have a definite reply not later than January 5, either orally or in writing. Every attempt was made by Dr. Cantilo to arrange to have this reply ready to be delivered to me when I saw the President on January 5. This was found to be impossible, however, and in my final talk with the President and Dr. Cantilo I was orally informed that they would be unable to recede from their position in insistence upon removal of the quotas on linseed and canned beef. In announcing the breaking-off of the negotiations immediately following this interview, Dr. Cantilo referred to them as being merely suspended [Page 302] until the international situation cleared, and the following day President Ortiz made a statement more or less to the same effect. I believe that the wording used by the President and the Foreign Minister was merely what they considered the amenities of the occasion required. When, therefore, the Department instructed me to insist that in the joint communiqué not only must the negotiations be referred to as terminated, but also the words “with no plan or understanding as to their renewal” be added, both the President and Dr. Cantilo, I fear, interpreted this as unnecessarily abrupt and even ungracious. In fact, Dr. Cantilo told me so in as many words. The Department later consented to the elimination of the additional phrase referred to, but I fear that much of the harm had been done. Again, I would not wish to give the impression of not understanding the extremely difficult position in which the Administration at home found itself. But this is intended as an objective report, and I am merely recording what I feel to be the impression created. To be sure, it is quite possible that, as the internal political situation at home made it imperative that no grounds for belief should be given that the negotiations were merely suspended for the time being, President Ortiz and the Government here for internal political reasons also were reluctant to give the impression that the negotiations were definitely terminated, not to be reopened at some later date. If this is true, then it is, perhaps, a hopeful sign as to the possibilities for the future, should another attempt to reach an agreement be made.
As I note that a memorandum of my last conversation with the President, summarized in the Embassy’s telegram no. 9 of January 5, 9 p.m., has not been forwarded to the Department, I am sending it herewith as an enclosure50 to this despatch.
Respectfully yours,