800.6176/4–3045: Telegram

The Acting Secretary of State to the Ambassador in Peru ( White )

423. There is a thorough appreciation here of the Embassy’s feelings, as expressed in its 410 of April 24, regarding the desirability of coordinating the economic programs of this Government as they may affect Peru. It is, however, believed that the instructions contained in Department’s 387, April 19 and circular telegram of April 19 noon,65 can only fairly be judged in the light of the world rubber situation as well as the Peruvian and other agreement country situations. When it is considered that there is a framework of rubber agreements, at least bordering on the reciprocal most favored nation type, which it is essential to retain intact, and that each country has other agreement problems and open questions, the extreme difficulty of attempting to do more than simultaneously extend the rubber agreements in their present form will be apparent.

[Page 1338]

The summary of the Rubber Study Group proceedings, recently forwarded to the Embassy, clearly indicates that the shortage of natural rubber is expected to continue for at least two years after the liberation of rubber producing areas in the Far East. Within the past month the War Production Board has determined that it will be essential to procure from Western Hemisphere sources during 1946 as much or more rubber than will be obtained during 1945. The Directors of RDC, including a Department representative, considered the matter at some length and decided that to carry out such determination it was essential to seek immediate extension in unchanged form of all the existing Western Hemisphere agreements.

It is believed here that the Rodriguez matter stands as set forth in Department’s 618, May 28, 194366 under an agreement whereby the unamortized balance, if any, of the loan by RDC would be chargeable to the development fund.

The Department and RDC are aware of the possibility of a difference of opinion between the Peruvian and American authorities on the matter of the disposition of whatever funds remain in the development fund at the expiration of the rubber agreement. It is not considered advisable, however, to assume the initiative at this time in opening this matter for discussion. Such initiative might lead to the unfortunate inference by the Peruvians that the American authorities, in an endeavor to spend less than the stated commitment, may not be prepared to examine on their merits and approve projects for the development of wild rubber production.

It is felt also, that the aviation program question might better be discussed without reference to the extension of the rubber agreement. While the airport question is connected with rubber, it appears that its solution will depend in large measure on a further examination of what transpired at the Rio de Janeiro Conference.67

There also appear to be a number of questions on which the Peruvian authorities would seek more favorable terms if alterations in the rubber agreement, other than postponing its expiration date, were discussed. Outstanding among these are probably the matter of the tonnages to which the volume premiums apply and the production tonnage withheld for Peru’s consumption.

Since rubber program is so vital, it is believed that the offer to extend the agreement is more properly to be considered the opposite of a “hand-out” and should not be jeopardized by its use in connection [Page 1339] with negotiations for termination of the flax agreement or other matters which the Embassy and other United States agencies are seeking.

While the Department’s 387 was designed to limit Losa’s authority in connection with the offer to be made to Peruvian officials, there was no intention to limit his freedom to discuss all problems fully with the Embassy even should he disagree with the policies or instructions of his Washington office.

The foregoing represents the thoughts of the Department and RDC after full consultation. It is therefore requested that the Embassy and Losa proceed in accordance with Department’s 387 and the circular telegram unless further serious objections not covered by this telegram are perceived. It would appear particularly desirable to make the offer as soon as possible lest Peruvian authorities learn first from other sources that RDC is making these offers generally and thereby mistakenly conclude that Peru is not to be offered an extension. The Rio de Janeiro discussions are virtually completed and wide publicity is contemplated in Brazil.68

Grew
  1. See footnote 61, p. 1336.
  2. Not printed.
  3. For documentation on the Third Meeting of the Foreign Ministers of the American Republics, Rio de Janeiro, January 1942, see Foreign Relations, 1942, vol. v, pp. 6 ff. For text of the recommendations of the Conference, see Department of State Bulletin, February 7, 1942, pp. 117 ff.
  4. For documentation on the extension of the rubber agreements with Brazil, see pp. 701 ff.