822.6341 South American Development Co./124
Memorandum of Conversation, by Mr. Edward J. Sparks of the Division of the American Republics
| Participants: | Messrs. Tweedy, Burden, and Luke, of the South American Development Company |
| Mr. Duggan | |
| Mr. Sparks |
Messrs. Tweedy, Burden and Luke called at the Department this afternoon to explain recent developments in the difficulties which have [Page 552] arisen between the South American Development Company and the Ecuadoran Government.
Mr. Luke, resident manager in Guayaquil, and who has just arrived by plane from there, reviewed his negotiations with the Ecuadoran Government seeking a solution of the demands of Ecuador for increased taxes. He stated that Mr. Rivas, the Quito representative of the company, had learned that the Government might entertain a proposal by the company agreeing to pay 35% of its net profits and an offer along those lines was immediately submitted. It appears that the Government upon rechecking its calculations decided that the tax should not be less than 40%. Mr. Luke discussed this percentage with General Enriquez who expressed his agreement. However, the Attorney General subsequently convinced the General that for political and other reasons he could not agree to substitute the 12% production tax and that he should insist thereon. Mr. Luke tried to return to Quito on February 18 in order to discuss the matter further with the General but the plane was unable to get through until the following day. Upon his arrival he found that a Decree had been issued on the previous day, requiring the company to pay a production tax of 12% instead of the former rate of 6%, and to pay customs duties on imports. In discussing this new situation with the President the latter indicated that the company must accept the situation and that if it found after a reasonable operation of the new law that the taxes exceeded 40% he would give favorable consideration to a modification of the Decree.
The company is convinced that no further action can be taken at this time to obtain any modification of the terms imposed on it. Accordingly the company will comply with the law, which compliance he does not wish to be interpreted as acceptance. Mr. Tweedy indicated that it was not considered desirable or feasible to make any protest and that when the next payments are made to the Government the question will then be taken up with the President in the event that the rate of taxation is greater than 40%.
Reference was then made to the Cotopaxi Exploration Company which is a new gold mining property which the company is developing. Mr. Luke stated that he had received written assurances from the secretary of the President that the Ecuadoran Government would cooperate in every way to permit the development of this company. As concerns free entry for machinery and supplies the Government is now preparing a revision of customs tariff so as to reduce, where necessary, the duties on essential mining supplies and equipment. Mr. Burden remarked that the assurances given would seem to provide for the development of the mine, in which $400,000 has already been invested. However, the question that bothered the company is what reliance can be placed on these assurances and whether or not a future government will respect them. It was indicated to Mr. Burden that [Page 553] this would appear to be a matter of business judgment and that there should be taken into consideration the recent actions of the Ecuadoran Government. It was further remarked that from the information available the measures in question seem to be aimed at unusually large profits and not to cripple or retard the development of the new industry.
Mr. Tweedy then stated that while it was thought that no effective action could be taken with the Ecuadoran Government at this time with respect to the tax modifications imposed upon the company in violation of its contractual rights, he did feel that the Department might be able to take some action with regard to the Pension Law. Mr. Duggan recalled that the Legation in Quito, upon the promulgation of the law, had made informal representations to the Ecuadoran Foreign Office which had stated that the Government was contemplating its modification. He added that the Department would review the situation and determine whether further action might be taken.