Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

437. Telegram From the Department of State to the Embassy in the Philippines¹

Washington, May 13, 1959—7:11 p.m.

2987. Your 3683.² Results our discussions Aytona–Barot outlined in following memorandum handed to and accepted by Phils at final meeting today.

“Discussions were held in Washington on May 11–May 13, 1959 between officials of the United States and Philippine Governments relating to the application of the United States-Philippine Trade Agreement.

During these discussions, the United States officials expressed the view that the proposed bill now before the Philippine Congress to authorize the collection of a premium of 25% to 40% on licenses issued for the purchase of foreign exchange would be contrary to the provisions of the United States-Philippine Trade Agreement prohibiting any tax on the sale of foreign exchange during the life of the revised Agreement. The United States officials recognized that while the Agreement as revised in 1955 prohibits such a tax, it does not, as did the 1946 Agreement,³ contain commitments concerning the relationship between the Philippine peso and the United States dollar.

In view of the opinion expressed by the United States the Philippine officials indicated that the Philippine Government would now withdraw the proposal for a premium on the sale of foreign exchange and would substitute therefore a new proposal authorizing the Central Bank to establish a uniform margin of not more than 40% over the Bank’s selling rates stipulated by the Monetary Board, any proceeds from such exchange operations to accrue to the Central Bank for disposition in the same way as profits from other operations of the Bank under Sec. 41 of the Act establishing the Central Bank of the Philippines. The text of this new proposal is attached.

In presenting this new proposal the Philippine officials explained that its purpose was to restrain import demand, in conjunction with other fiscal and monetary measures already in effect or to be adopted by the Philippine Government designed to restrain inflation, to improve exchange reserves, to strengthen the currency and the balance of international payments of the Philippines. They emphasized that one of the purposes of this program was to make possible the immediate initiation of a progressive and gradual removal of exchange restrictions over four years.

After examination of the new proposal, the United States officials were of the opinion that this proposal, unlike the bill now before the Philippine Congress, was of the nature of a monetary or currency action which was not the subject of commitments in the United States-Philippine Trade Agreement as revised in 1955.⁴

During these discussions United States officials also brought to the attention of the Philippine officials a number of measures adopted by the Philippine Government which, in the view of the United States, are contrary to the provisions of the United States-Philippine Trade Agreement, including actions in the fields of foreign exchange allocations, non-national tax treatment, failure to consult on trade restrictions and the special import tax. The United States views on these matters are set forth in a memorandum handed to the Philippine officials on May 11, 1959.⁵ The Philippine officials undertook to bring the United States views on these matters to the attention of the Philippine Government and assured the United States officials that a reply would be forthcoming at an early date.”

[Here follows the text of the Philippine proposal, a summary of which is contained in the verbatim text printed above.]

Aytona read telegram received from Garcia that Garcia pleased prospective results of his mission and indicated Phil Govt approved text proposed Phil legislation outlined above. Department officials consulted with Congressman Mills,⁶ Chairman, Ways and Means Committee, who expressed no objection. Will explain Senator Byrd,⁷ Chairman Finance Committee, soonest.

Aytona has been informed US will use following line if questioned by press. United States and Philippine officials have held informal discussions in Washington regarding matters relating to the revised United States-Philippine Trade Agreement of 1955, including a proposed premium on sale of foreign exchange, the special import tax, prior consultation on trade restrictions, discriminatory allocation of exchange, and generally the operation of the Trade Agreement.

Memoranda of conversation being air pouched.⁸

Dillon

1. Source: Department of State, Central Files, 896.131/5–1359. Confidential. Drafted in SPA; concurred in by James L. O’Sullivan, Deputy Director of SPA; and approved by John M. Leddy, Special Assistant to the Under Secretary for Economic Affairs.
2. In telegram 3683 from Manila, May 13, Bohlen stated that the Philippine press had reported on the progress of the Aytona mission and he requested information on the status of the negotiations. (Ibid., 896.131/5–1359)
3. This trade agreement, based on the Philippine Trade Act of 1946 (60 Stat. 141), was signed in Manila July 4, 1946; entered into force January 2, 1947.
4. The new “margin bill” passed the Philippine House on June 25. (Telegram 4247 from Manila, June 29; ibid., 896.131/6–2959) Since it was a monetary measure, the United States did not consider it in contravention of the trade agreement. (Telegram 267 to Manila, July 20; ibid., 896.131/7–659)
5. Not found in Department of State files.
6. Wilbur E. Mills of Arkansas.
7. Harry Flood Byrd of Virginia.
8. A copy of the draft memorandum is in Department of State, SPA Files: Lot 64 D 391, Tax on Foreign Exchange.