811.20 Defense (M) Ecuador/301
The Ambassador in Ecuador (Scotten) to the Secretary of State
[Received September 24.]
Sir: With reference to the Embassy’s telegram No. 814 of September 16, 10:00 a.m.,31 from Rainey to Scheuer, O.E.W.,32 I have the honor to report that President Arroyo del Rio called me on Monday, September 13 and requested that I come to his office to discuss questions which have arisen concerning the Quinine Agreement. When I arrived at his office I found Mr. Kinnear of the Ecuadoran Development Corporation,33 Senator Miguel Heredia Crespo34 and his manager, Mr. Ariziga.
The President was in a very belligerent mood and he made it perfectly clear that he was thoroughly dissatisfied with the manner in which provisions of the Quinine Agreement were being carried out. He stated that if the Defense Supplies could not comply with the provisions he felt that the Agreement should be canceled and Ecuadoran producers be free to sell where they saw fit.
The President then proceeded to list the principal shortcomings with reference to the Quinine Agreement.
[Page 296]- 1.
- He pointed out that paragraph 1 (c) states “If Supplies should not wish to purchase this type of bark, the seller is authorized to dispose of it freely”. He explained that Senator Heredia had offered a large quantity of cinchona bark to the Development Corporation but that since the analysis showed less than two per cent the bark had been rejected. He also stated that the Corporation had refused to release the bark in order that Mr. [Heredia?] Crespo might be free to dispose of it as he saw fit. He also indicated that Mr. Crespo had received offers from Argentina and that the action of the Development Corporation was seriously prejudicing the very substantial investment which Senator Heredia had made.
- 2.
- The President then called attention to paragraph 2 (a) (vii) which provides for the establishment within six months of proper facilities for analyzing the quinine and alkaloid content of cinchona bark and for making full and final payment for all bark thus analyzed. He pointed out that it was more than six months since the Agreement was signed and that thus far this provision had not been met.
- 3.
- He then referred to paragraph A which provides for the establishment of an efficient processing plant and said that so far as he knew nothing whatever had been done in this connection.
I was not sufficiently familiar with the details of the Quinine program to enter into the discussion of specific points and informed the President to this effect and stated that if there has been a failure to conform to the terms of the Agreement, I would do everything possible to see that such deficiencies were corrected. Mr. Kinnear attempted to clarify one or two points which the President brought up but he was in such a state of annoyance that it was utterly impossible for Mr. Kinnear to make any explanation whatever.
Following the meeting with the President, I held several conferences with Messrs. Kinnear, Rainey and Tewksbury regarding the provisions of the Agreement and progress which has been made to comply with these. After some discussion it was felt that bark which was rejected by the Defense Supplies Corporation because it contained less than two per cent crystallizable alkaloids should be held by the Ecuadoran Development Corporation for disposal as indicated by the seller, either to consumers in Ecuador or in export markets. It was clear that the second point raised by the President was an entirely justifiable complaint. Mr. Rainey pointed out, however, that within the past week or ten days sufficient technical help has arrived and that his office has adequate facilities for making final analyses of cinchona bark. He stated that it would be possible, if necessary, to commence immediately to make the final analyses and to pay the full hundred per cent price for bark on the basis of these analyses. It was realized that authority should probably be secured from Washington before taking this step but in view of the President’s attitude and the necessity for some immediate action, I felt that this concession [Page 297] should immediately be made since we clearly have not complied with the provisions of the Agreement.
Mr. Rainey explained that prior to the establishment of any processing plant, some information was essential as to the extent of cinchona stands, the type of bark available, et cetera. He indicated that the primary investigations have now been completed and that he and Mr. Kinnear have already requested that technical assistants be sent to Ecuador as promptly as possible to assist in determining the type of plant which should be erected in Ecuador.
On September 15 I again called on the President with Messrs. Kinnear, Rainey and Tewksbury. I explained that as far as the rejected bark of Senator Miguel Heredia Crespo was concerned, we felt that the Corporation should act as agent for the seller and that if it were to be exported, the Development Corporation was the sole entity having authority to undertake this. In this connection paragraph 3(b) was quoted. The President very emphatically took exception to this statement. He insisted that the statement “in no case shall exports be permitted after June 30, 1943 of cinchona bark or its products” referred exclusively to the contracts existing previous to the signature of the Agreement. In other words, the quoted clause referred exclusively to paragraph 3 (b).
After some discussion of this point I explained that it was essential that there be some control exercised which would prevent the exportation of bark containing over two per cent crystallizable alkaloids by those holding bark which had been rejected by Defense Supplies. The President agreed freely that there must be a rigid control. In the case of the consignments of Heredia Crespo held by the Corporation, the President said that since this bark was in the warehouse of the Corporation it could be shipped to its warehouses in Guayaquil and delivered directly to customs for exportation. He further stated that he was in entire agreement that all bark desired by the Defense Supplies Corporation should be delivered to it. He further stated that such measures of control as Defense Supplies and the Ecuadoran Development Corporation desired would be put into effect to insure that no bark was exported in excess of two per cent except by Development Corporation.
It may be that some authorities in Washington will raise a question as to the President’s interpretation of the contract as refers to the exportation of bark by private entities. There are a number of conflicting clauses in the Agreement. One says that bark rejected by Defense Supplies may be disposed of freely. Another (paragraph 2, (b)) states that the Agency “will be the sole and exclusive purchaser” and a third says that in no case shall exports of cinchona bark be permitted after June 30 except by the Agency. Due to the ambiguities, [Page 298] the President’s interpretation must undoubtedly be accepted but I believe that his willingness to provide adequate controls is a sufficient safeguard.
At that point Senator Heredia Crespo who had been waiting in the anteroom was called in and the President carefully explained that as provided in the terms of the Agreement, he would be authorized to sell his bark freely if the Defense Supplies Corporation rejected it. The President explained, however, that since some companies might be tempted to export bark of over two per cent, mixing this with rejected bark, it would be necessary to institute rigid export controls. He also made it very clear to Mr. Heredia Crespo that regardless of analyses which he might obtain, the analyses made by Defense Supplies must rule with reference to acceptance or rejection of any specific lots of bark.
Although Senator Heredia Crespo apparently was not completely satisfied with the decision, the President gave the impression that he considers the difficulties with Heredia Crespo settled and that he would support the Corporation and Defense Supplies in this matter. He stated, however, that his one interest was to avoid difficulties and to see that Defense Supplies received the bark it desired. He pointed out that if there was bark which was unacceptable to Defense Supplies he wanted to see this moved in order not to prejudice Ecuadoran interests by having the bark frozen. Senator Heredia Crespo has apparently invested some six hundred thousand sucres in bark, much of which is definitely of an inferior quality and unquestionably includes some lots previously rejected by Defense Supplies. He is apparently much worried for fear that he will not be able to dispose of it without substantial loss.
The President appeared to be satisfied when he was informed that there are now adequate facilities for analyses of bark and full payment on the basis of these.
The President was likewise satisfied with my explanation of what had been done thus far looking toward the establishment of a processing plant. I explained that both Mr. Rainey and Mr. Kinnear have specifically requested that a technical expert be sent to study this problem and I suggested that possibly the Ecuadoran Government would like to name an expert who might consult with the one to be sent from the United States. The President appeared to be pleased with this suggestion.
While it now appears that the immediate dissatisfaction of the President has been dissipated, the threat of a recurrence of this will remain unless every effort is made to comply strictly with the provisions of the Agreement as far as obligations of the United States are concerned. The President has a very legalistic mind and is extremely [Page 299] keen. Possibly as the result of previous difficulties in connection with the Rubber Agreement, he seems to be suspicious of the good faith of our Government in fulfilling its obligations. Whether the failure to do so has been due to negligence or other reason, it is definitely true that with respect to both the Rubber and Quinine Agreements, there have been clear cut failures to meet our obligations. Under the circumstances I feel that Mr. Rainey did the only thing which could be done in agreeing to make full payment for bark on the basis of his analyses and in admitting that private sellers could export with the proviso that adequate controls would be established. Respectfully yours,