611.2231/226
The Consul General at Guayaquil (McDonough) to the Secretary of State
[Received April 5.]
Sir: I have the honor to report that during a visit to Quito, ending March 30, I conferred with Dr. Francisco Banda C., Chief of the Department of Commerce and Consular Affairs, Ministry of Foreign Relations of Ecuador, on the subject of a trade agreement, and that the prospects for completing such an agreement seem favorable if negotiations are resumed at once.
The Department will recall that Dr. Banda is in charge of the negotiation of trade agreements for Ecuador. He believes that he can obtain the approval by his Government to all the suggestions or assurances which he made in the course of our personal and very informal discussions.
As the Department is well aware, the negotiations failed last year because Ecuador insisted upon the incorporation of a clause making the agreement contingent upon the balance of trade being favorable to this country. Ecuador at that time exhibited a reluctance to include in its exports the amount of gold-bearing cyanide precipitates produced in Ecuador and shipped to the United States.
Ecuador has adopted a policy of making the granting of the benefits of its preferential tariff contingent upon the continuance of a favorable balance of trade with the other country. A new agreement just signed with Germany2 is reported to contain a provision to that effect. Similar provisions are contained in several other agreements or treaties signed by Ecuador.
The statistics of trade between the United States and Ecuador for the year 1937 show the importance of the questions of the balance of trade between the two countries and of the inclusion of cyanide precipitates [Page 510] in Ecuador’s exports. The figures furnished by Dr. Banda are as follows:
| Exports to the United States | 54,422,146. | sucres |
| Imports from United States | 52,085,893. | sucres |
| Balance favorable to Ecuador | 2,336,253. | sucres or 4.49% |
In the exports to the United States, there are included cyanide concentrates valued at 18,681,943. sucres. If those gold-bearing concentrates are excluded from the exports, the figures are as follows:
| Imports from the United States | 52,085,893. | sucres |
| Exports to United States | 35,740,203. | sucres |
| Balance unfavorable to Ecuador | 16,345,690. | sucres or 45.93% |
If exports of cyanide concentrates are excluded from exportations to the United States, the balance of trade is thus unfavorable to Ecuador by more than 30 percent of the exportations to the United States. On this basis, a surcharge of 50 percent on the duties on American goods could be applied under the provisions of article 8 of Ecuadoran supreme decree of February 13, 1936 (Registro Oficial no. 120 of February 20, 1936). Dr. Banda informs me confidentially that the representative of a third country has asked that the surcharge of 50 percent be applied by Ecuador to American goods. He seems to believe that, unless some undertaking on the subject is given by the Ecuadoran Government, the placing of the ruinous surcharge on American goods may be a possibility.
I had several interviews with Dr. Banda in an endeavor to harmonize the commercial policies of our two countries, and was able to advance some additional reasons for entering into a trade agreement. Dr. Banda agreed with those reasons.
The only important obstacle to the negotiation of an agreement is that of the inclusion of an unconditional most favored nation provision. Dr. Banda suggests that a trade agreement containing an unconditional most favored nation provision be signed, but that, at the same time, a private note or undertaking be written or given that the enjoyment of the provisions of the preferential tariff would be suspended in case the balance of trade is unfavorable to Ecuador. An assurance would be given at the same time by Ecuador that the full amount of the exportations of cyanide concentrates and of crude petroleum would be included in the computation of the balance of trade.
Dr. Banda probably would be willing to agree to an unconditional most favored nation agreement with a provision for termination after notice of six months. In that event, it would be agreed in a separate note, memorandum or undertaking that this notice could be given [Page 511] if the balance of trade between the United States and Ecuador becomes unfavorable to the latter. It is believed to be rather unlikely that the balance of trade will become unfavorable to Ecuador if the full amount of exports of cyanide concentrates is included in the trade balance. It is to be remembered, however, that heavy diversions of exports to other countries occurred during 1937 and that the balance favorable to Ecuador was quite small.
The final suggestion of Dr. Banda is that the experts of the State Department will be able to suggest a formula which will satisfy Ecuadoran policy and not be contrary to the settled policy of the United States.
From the conversations had with Dr. Banda, it is believed that more concessions can be obtained than those offered by the Ecuadoran Ministry of Foreign Relations in its memorandum of September 23, 1937, a translation of which was forwarded to the Department as an enclosure to the Legation’s despatch no. 911 of September 27, 1937,3 on the subject of “Concessions offered by Ecuador on the Proposed Trade Agreement”.
The necessity for very prompt action is emphasized by Dr. Banda. He expects to go abroad to a consular post before May 15 and must complete all pending negotiations before the end of April, if possible. His successor is a consular officer now stationed in Europe who has had no experience in trade agreement negotiations and has no knowledge of Ecuador’s trade with the United States. The successor would probably not be in a position to negotiate for months.
Dr. Banda has made an extensive study of the entire subject. Because of his education in the United States and his long experience there as a representative of Ecuador, he appears to have a much better understanding of the subject than has any other Ecuadoran.
The conversations with Dr. Banda were conducted on a most cordial basis because of our personal friendship. It is believed that he is genuinely desirous of negotiating a trade treaty with the United States.
Both Minister Gonzalez and Mr. Gade, who is Chargé d’Affaires ad interim upon former’s departure from this country, know of my discussions with Dr. Banda, approve of steps for negotiating a trade treaty, and have been informed in advance that I am writing a despatch on the subject.
If the Department desires me to go to Quito to cooperate with Mr. Gade, or with Minister Long upon his arrival, in the negotiation of a trade agreement, I shall be glad to do so. I have studied the trade of Ecuador with the United States for a long time and am familiar with the negotiations already conducted.
Respectfully yours,
- Signed March 29, 1938; for text, see Ecuador, Registro Oficial, April 8, 1938.↩
- Foreign Relations, 1937, vol. v, p. 508.↩