Foreign Relations of the United States: Diplomatic Papers, 1944, The American Republics, Volume VII

810.154/3292

The Secretary of State to the Ambassador in Guatemala (Long)

No. 518

Washington, May 17, 1944.

Sir: Reference is made to your despatch no. 1016 with regard to the proposed cooperative agreement with the Guatemalan Government under the provisions of the Act of December 26, 1941,¹⁷ for the construction of the Inter-American Highway.

As you are aware the original agreement to construct the pioneer all-weather highway was entered into on September 23, 1942. This was modified by supplemental agreements of June 14, 1943 and August 8, 1943.¹⁸ Under the pioneer highway agreement, the United States (through the War Department) agreed to reimburse the Government of Guatemala at least monthly for the cost, without profit, of all of the work performed and the materials furnished by the Republic required to complete the work as specified, providing that the engineering and overhead expenses should not exceed ten per cent of all other costs. The maximum limit on costs on the June 14 supplement was stated as $1,600,000 and was increased to $3,289,250 in the August 8 supplement.

A new supplemental agreement terminating the pioneer highway project was entered into on September 28, 1943. It was estimated the reimbursable expense which would be incurred to October 31, 1943, the date at which the United States would withdraw, would be $2,600,000 and it was estimated that the construction required to complete the project after October 31 would cost approximately $1,000,000. It was also estimated that a fair value of the equipment belonging to the United States Government was also $1,000,000. It was therefore agreed that the contract should be modified in the following particulars but in no others:

• “(a) That active construction work as reimbursable by the Government be terminated October 31, 1943.
• “(b) That in lieu of and in complete fulfillment of this contract, the Government transfer without cost to the Republic all equipment, spare parts, materials, supplies, small tools and other property owned by the Government and stored or in use on the project as of midnight October 31, 1943.
• “(c) That all obligations, claims and damages properly incurred by the Ruta Militar de Emergencia prior to midnight October 31, 1943 as would have been reimbursable under the terms of the contract, will be reimbursed by the Government.
• “(d) That all expense incidental to the cost of carrying forward the project subsequent to October 31, 1943 and to closing the contract, except the direct cost of the Government in carrying out its part of such inventory, audit and final settlement, shall be borne by the Republic.
• “(e) That the Republic will proceed with the construction of the Pan American Highway at its own expense generally in accordance with the plans and specifications prepared by the Government to the extent that construction is not less than the value of the equipment, supplies, materials and other property transferred to the Republic under paragraph “b” above will be performed by the Republic.
• “(f) That the Republic will utilize the equipment, supplies, materials and other property transferred to the Republic solely for the purpose of completing the construction of the Pan American Highway, or in the maintenance of completed segments, until the construction is completed or the expense so incurred is equal to the value of the equipment, supplies, materials and other property transferred.
• “(g) That the Republic will prosecute the completion of the work with reasonable speed and dispatch.
• “(h) That the depreciated book value of equipment shall be the list value as posted in the Pan American Highway office in Los Angeles plus one half the freight charge from the United States to the project less the accrued rental from the time the equipment was made available in the United States to October 31, 1943.”

From the above it is evident that the title to the $1,000,000 of equipment was transferred conditionally to the Government of the Republic of Guatemala, the condition being that Guatemala undertake to carry on construction on the pioneer highway (now called CIPA) to the extent of the value of the property transferred. From the reports received from the Embassy it is apparent that Guatemala has continued its construction of the highway but at a slow pace. The title to the property will become unconditional as soon as Guatemala has made an expenditure equivalent to the value of the transferred equipment. As soon as this condition has been fulfilled there will be no objection to the agreement to permit the use of the rental value of this equipment as part of Guatemala’s contribution to the Inter-American highway at standard rental rates.

In a letter dated April 27, 1944²⁰ from the Public Roads Administration Mr. MacDonald, Commissioner of Public Roads stated:

“When this work has been completed, the title to this equipment will be clear and its use on the Inter-American Highway will not, as far as we can see, be open to question. It is my feeling that any delay in the initiation of work on the Inter-American Highway in Guatemala, which may result if this view is accepted, will be of less importance than the embarrassment which could easily result from the initiation of this work at this time if such initiation is based on an assumption as to the rights of Guatemala in this equipment which later was called into question.

“In this connection it seems appropriate to add that it is assumed that there is complete agreement that rental charges accrue as a credit only when and as equipment is used on a project that has been covered by formal agreement. It is unlikely that all of the equipment transferred to Guatemala under the agreement of September 28, 1943, will be in use on the Inter-American Highway at any one time. Ordinarily it would be distributed over various projects some of which would probably be on other parts of the Guatemala highway system. This suggests the importance of a clear understanding that when work on the Inter-American Highway is undertaken under formal agreements, rentals can be allowed only on such units of this equipment as are actually employed on this work and on these units only while they are so employed.”

The Department concurs with the opinion expressed by the Public Roads Administration and feels that the matter can be properly discussed as soon as the Republic of Guatemala has fulfilled its obligation under the terms of the agreement of September 28, 1943.²¹

Very truly yours,

For the Secretary of State:

A. A. Berle, Jr.

17. Public Law 375. See footnote 9, p. 189.
18. Neither printed.
20. Not printed.
21. On November 2, 1945, the Guatemalan Foreign Office notified the American Embassy that Guatemala had fulfilled its obligations to the United States Army Engineers to expend $1,508,257.60 (the value of equipment transferred) on the Pioneer Highway (810.154/11–845).