Foreign Relations of the United States Diplomatic Papers, 1934, The American Republics, Volume V

611.1731/57

The Minister in Nicaragua (Lane) to the Secretary of State

No. 354

Managua, July 23, 1934.
[Received July 30.]

Sir: Referring to my despatches Nos. 348 and 350 of July 20 and 21, respectively, regarding the Department’s desire to conclude a reciprocal trade agreement with Nicaragua, I assume that the provision in Paragraph III of Title III of the amended Tariff Act (H. R. 8687)¹⁷ providing that articles may not be transferred from the dutiable to the free list, or vice versa, would preclude the imposition of duty on coffee and bananas by executive action. If my assumption is correct, it would seem that the implied suggestion contained in the Department’s memorandum of January 4, 1934, to the Nicaraguan Chargé d’Affaires ad interim in Washington (Department’s instruction No. 11 of June [January] 4, 1934, file 611.1731/40 [46]) namely: that we might impose a duty upon bananas and coffee imported into Nicaragua, unless Nicaragua should give us such tariff concessions on articles imported into Nicaragua as we might desire, can no longer be made with the same force. I trust that the Department, in accordance with the views which I express in this despatch, will not employ the procedure suggested in its memorandum of January 4, otherwise I fear that certain difficulties for us may be created.

Even though a discussion on the matter may now, because of the amended act, be purely academic, I desire to analyze briefly the situation which might be created should we use as a bargaining weapon the threat of transferring articles, which are now admitted duty free, to the dutiable list; furthermore the background of the existing political and financial situation should be in the minds of those officers of the Department who are to deal with the negotiations of reciprocal trade agreement with Nicaragua.

Parenthetically, let us first consider the probable effect of putting coffee and bananas on the dutiable list, or intimating that we may do so, unless we should secure the concessions desired from Nicaragua. I quote the figures for the years of 1932 and 1933 regarding the exportation of coffee and bananas, as taken from the report of the Collector General of Customs for those years.

Coffee Exportation From Nicaragua 1932

Country	Kilograms	Value in córdobas	Per cent of total
Germany	2,089,667	396,179
France	2,278,246	375,362
Great Britain	1,527,037	293,306
Netherlands	1,030,180	215,900
United States	486,387	93,620	6.46%
Italy	217,656	39,789
Spain	339,577	38,137
Others	158,700	26,851
Totals	8,127,450	C$1,479,144

Coffee Exportations From Nicaragua 1933

Country	Kilograms	Value in córdobas	Per cent of total
Germany	3,863,669	659,150
France	4,203,895	632,547
United States	1,592,618	284,973	12.82%
Netherlands	1,310,185	233,812
Spain	1,139,604	143,893
Great Britain	643,588	105,696
Italy	395,410	63,749
Others	554,955	90,591
Totals	13,703,924	2,214,411

It will be noted from the above figures that in 1932, 6% of the total coffee exportations went to the United States, and that in 1933 there was an increase to approximately 12%. Should we have threatened to impose a duty on coffee, it is not improbable that this commodity would have found ready markets in countries other than the United States. Furthermore, the amounts involved do not seem sufficient to convince Nicaragua that the United States as a coffee market is essential to Nicaraguan prosperity. I doubt, therefore, whether a threat to take coffee off the free list would have been effective.

Bananas—Exportation From Nicaragua

	Year	Bunches	Value in córdobas	Per cent of total
United States	1932	3,377,613	2,237,629	100.
United States	1933	3,613,859	1,806,930	97.73
Netherlands	1933	84,165	42,083	2.27
Totals for 1933		3,698,024	1,849,013	100.

It will be noted that in 1932 the United States consumed all the banana crop exported from Nicaragua and that in 1933 we consumed almost the entire exported crop. According to the best information available, all of the companies distributing and/or exporting in Nicaragua are American owned; consequently an imposition of duty on this product should primarily affect adversely the American interests concerned. Loss of revenue would, however, obtain with respect to the Nicaraguan Government, in case of lessened exportation, by virtue of the export tax imposed on bananas, at the rate of ½ to 2 centavos per bunch according to the size (hand count). The total Nicaraguan Government revenue from the exportation of bananas was in 1932 C$ 52,107.29; in 1933 C$ 54,357.91, (including tax on bananas exported to the Netherlands).

Any attempt or threat on our part to transfer bananas or coffee to the dutiable list or to raise the duty, or threaten to do so in the case of other commodities, would, I feel reasonably certain, be bitterly resented here, where the feeling against the United States is still hostile as a result of the intervention. Any threat or action such as indicated would almost certainly be interpreted here as another instance of our using our superior economic strength to dominate small countries, Nicaragua specifically.

We have endeavored in every proper way to counteract this sentiment and I believe, as a result of the policy of the “Good Neighbor” and of “Hands Off”, much has been accomplished. Nevertheless, the psychology of the Nicaraguan is such that should we now take some action which he considered drastic and adverse to Nicaragua’s interests, the good accomplished would soon be forgotten.

More practically, any action taken which would result in a decrease in the revenue of the Nicaraguan Government, might have very serious repercussions locally, which would have their effect on our prestige here and in other Latin American countries. As I have endeavored to point out in previous despatches, the present financial situation of the Government is highly precarious, due to the inroads which the expenses of the Guardia Nacional have made on the treasury, resulting in the budget of expenditures being exceeded monthly by C$ 60,000 more or less, according to the best information I have been able to obtain. If, as I understand, there remain less than C$ 300,000 to the credit of the Government in the Bank of Nicaragua from the proceeds of the two credits granted totaling $3,000,000 (half granted in 1932 and the remainder in 1933), then it seems to be merely a question of time before the Government will be out of funds. (I cannot conceive it possible that any serious banking institution will grant a further loan to this Government for the purpose of having it squandered by the needless expenditures of the Guardia Nacional, which at the present time, according to information furnished me orally by the Minister of Hacienda, consumes 65% or more of the budgeted income of the Government, and does not, so the President tells me, submit to the Government, detailed accounts covering the expenditures). When the moment arrives that the Guardia officers and men are unable to draw their pay, a serious moment for the Government and for the country is at hand. Already has this feeling been manifest in the activities of the Military Academy element of the Guardia, as evidenced by the Castillo plot against the Government (see my despatch No. 336 of July 18 and subsequent despatches on this matter¹⁸). Should any action of ours result in decreasing the revenue of the country, one may be certain that the anti-American journalists in Nicaragua and others will feature that point. When unfortunate happenings beset this country the finger of blame is invariably pointed at the United States. I cite as instances the fires following the earthquake in Managua in 1931¹⁹ and the assassination of Sandino in 1934.²⁰

The question which I respectfully submit for the Department’s very serious consideration is this: Is it worth while, from the point of view, not only of our foreign relations but also of the possible financial gain to ourselves, to run the risk of increasing the hostile feeling towards us in Nicaragua; of being a party, even though unwittingly, to the financial collapse of the Government here, with all the graver events which might follow in its wake; and thereby of undoing in Latin America generally some of the happy results already accomplished as a result of the policy of the “Good Neighbor”?

From past conversations which I have had with Nicaraguan officials I am of the opinion that the most effective bargaining instrument available (and the least liable to offend susceptibilities), is the desire of Nicaragua to obtain a quota for the importation per annum of 10,000 tons of cane sugar or of sugar products, such as rum. While the value of such an exportation would appear not to be excessive in comparison with the total Nicaraguan exports, it would, I believe, tend to satisfy government, congressional and small stockholding interests and would serve to stimulate sugar production here. At present quotations, the value of 10,000 long tons of sugar would be approximately C$ 360,800, f. o. b., Corinto. (I am informed by the Manager of the San Antonio plantation that its warehouse at Chichigalpa is stored full of sugar without any likelihood of disposing of it unless a market therefor becomes available in the United States.)

The Department will recall that the Nicaraguan Government has approached us on several occasions with a view to obtaining such a quota (See Note from Nicaraguan Chargé d’Affaires in Washington of September 16, 1933, and my telegram No. 46 of February 10—1 P.M., 1934²¹). Should we be able to grant the Nicaraguan request, in return for tariff concessions granted to us by Nicaragua, I am inclined to believe that this would be the course most advantageous to our interests, in so far as Nicaragua is concerned.

With regard to possible concessions which might be made to the United States, some months ago I made informal enquiries of the Foreign Office as to the most-favored-nation treaties in force to which Nicaragua was a party. According to the reply received, Nicaragua is a party to treaties of the type mentioned with Great Britain,²² France,²³ Germany,²⁴ Spain²⁵ and Italy.²⁶ A copy and translation of Dr. Argüello’s letter is transmitted herewith for the Department’s records.²⁷ Mr. Crain, Vice Consul at Managua, is at present engaged in preparing a report in compliance with the Department’s telegram No. 42, July 19—8 p.m.²⁷

Respectfully yours,

Arthur Buss Lane

17. Approved June 12, 1934; 48 Stat. 943.
18. Not printed.
19. See Foreign Relations, 1931, vol. ii, pp. 780 ff.
20. See post, pp. 526 ff.
21. Telegram not printed.
22. Treaty with Great Britain, signed July 28, 1905; renewed November 9, 1923; British and Foreign State Papers, vol. xcviii, p. 72.
23. Treaty with France, signed January 27, 1902; denounced by France in 1919; renewed by modus vivendi, January 21, 1921, and February 16, 1921; ibid., vol. xcv, p. 818.
24. Treaty with Germany, signed February 4, 1896; renewed by exchange of notes January 11, February 27, and March 6, 1924; ibid., vol. xcvii, p. 994, or League of Nations Treaty Series, vol. xli, p. 263.
25. Treaty with Spain, signed July 25, 1850; renewed September 29, 1923; British and Foreign State Papers, vol. xxxix, p. 1331.
26. Treaty with Italy, signed January 25, 1906; renewed March 3, 1922; ibid., vol. c, p. 1117.
27. Not printed.
27. Not printed.