427. Despatch From the Embassy in the Philippines to the Department of State1
SUBJECT
- Proposed Reimposition of Foreign Exchange Tax
On July 16, 1958, Ambassador Romulo submitted an Aide-Mémoire to the Department, requesting that the United States Government agree to the reimposition of the tax on the sale of foreign exchange. The Department replied with an Aide-Mémoire, dated July 25, 1958,2 stating that action on the part of the United States Congress would be required in the form of an amendment to the Philippine Trade Agreement Revision Act of 1955 before the U.S. Government could agree to the reimposition of such a tax. The Aide-Mémoire also states: “It is by no means certain that even if every effort were made that Congress would approve an amendment which would permit the reimposition of a tax on exchange.”
The Department’s Aide-Mémoire of July 25 and the representations made to Ambassador Romulo and other Philippine representatives, as reported in a memorandum of conversation dated July 16, 1958,3 to the effect that “Congressional approval would be difficult to obtain”, does not seem to have convinced Philippine authorities of the difficulties in securing Congressional approval to the reimposition of a foreign exchange tax. Governor Cuaderno is actively proposing that a foreign exchange tax of 25 percent be adopted, and such action has received wide publicity in the press during the past few days.
It may not be premature, therefore, to consider what course of action the U.S. Government should take with respect to this threatened reimposition of the foreign exchange tax. Interested Washington agencies will recall that the imposition of the original 17 percent exchange tax required the approval of the President of the United States, under Article V of the original Trade Agreement. This approval was required when the tax was first instituted, and periodically on each of several occasions that it expired and the Philippine Congress extended it. Interested Washington agencies will also recall that the Philippine Congress passed the required legislation for continuing this tax on several occasions without first securing the concurrence of the President of the United States as required under the Trade Agreement, [Page 903] and that on several occasions it was necessary for the U.S. Government to remind the Philippine Government, by means of a diplomatic note, that the Philippine Government should request the approval of the President before actually putting the tax into effect. If this experience is any guide, we may well expect that the Philippine Congress, if it considers an exchange tax desirable, will proceed to pass the necessary legislation long before consultations with the U.S. Government take place.
Since the farther along the Philippine Government might be in taking the necessary steps to reimpose a foreign exchange tax, the more difficult it will be to get them to reverse themselves and, probably, the more convincing would allegations be that the U.S. is still attempting to limit Philippine sovereignty, it may be well to consider ahead of time at what point the U.S. Government would want to make its intentions known once again to Philippine authorities.
- 1.
- Despite the lack of impression which the Department’s Aide-Mémoire and representations have made, we can let these actions stand as official announcements of U.S. policy in this matter and probably leave the impression with the Philippines that, even though Congressional approval may be difficult to secure, in the event, it probably would be forthcoming.
- 2.
- If it appears that action on a foreign exchange tax, such as the submission of a bill to the Philippine Congress, is imminent, we might discuss the matter informally with the Department of Foreign Affairs and the Philippine Congressional leaders sponsoring any such legislation to reiterate the attitude expressed in the Department’s Aide-Mémoire and point out that the U.S. Congress may not approve of the reimposition of the tax.
- 3.
- It might also be advisable to go one step farther and, if action on the reimposition of a tax appears imminent, the matter might be discussed with our own Congressional leaders (presumably after the November elections) in order to be in a position to give the Philippine Government a more definite indication of U.S. Congressional sentiment on this subject.
In any event, if it will continue to be U.S. policy to oppose the reimposition of an exchange tax, it will be advisable to make this unmistakably clear to the Philippine authorities in both the executive and the legislative branches at the earliest practicable moment, since, as experience has aptly shown, it is very difficult to convince Philippine officials of anything which they do not want to believe, and still harder to get them to reverse course once they have initiated action.
Treasury Attaché