The Acting Secretary of State to the Chargé in Peru ( Trueblood )

No. 4140

The Acting Secretary of State refers to the Embassy’s despatch no. 2771 of March 5, 1945 regarding several Peruvian tax laws which include provisions considered to be in contravention of certain articles of the trade agreement between the United States and Peru.

In view of the forthcoming change of Administration in Peru90 and of the number of controversial matters that were still pending at the time the Embassy’s despatch was received, the Department considered it advisable to hold in abeyance an instruction on the subject of the trade-agreement violations. However, now that the new Administration will soon take office, it is hoped that the Embassy will early find a favorable opportunity to discuss this matter with the Peruvian authorities.

The following comments are made on some of the statements in the memorandum addressed to the Peruvian Ministry of Foreign Relations by the Ministry of Finance and Commerce, a copy of which the Embassy enclosed with the despatch under reference.

The interpretation given in several places in the memorandum with regard to the non-retroactive effect of the general provisions of the trade agreement is contrary to well-established international practice and the clear intent of the trade agreement. Were the general provisions of the trade agreement which apply to customs treatment (except for the duty reductions on Schedule items) to be considered [Page 1350] applicable only to laws and regulations which come into effect after the date of signature of the trade agreement, the result would be to continue in effect many of the very conditions which the agreement was intended to remedy. The so-called “national treatment” article in trade agreements embodies a recognized principle, just as does the unconditional most-favored-nation provision, which is applicable, from the effective date of the agreement, to all the commerce between the two signatory countries regardless of what the practice to the contrary may have been in the past. In other words, the discriminations in the form of taxes on toilet articles and tobacco products which are higher on imports from the United States than on like national products and which were in effect at the time the trade agreement was signed, should have been removed just as any discrimination in favor of a third country was or should have been removed because of the unconditional most-favored-nation provision.

The wording of Article II clearly indicates that products imported into either country from the other shall be exempt from all discriminatory internal taxes, regardless of whether or not such taxes were in effect at the time the agreement was signed.

The taxes on tobacco products provided for by Peruvian Law 8433 and Law 10090 would not be considered discriminatory if the ad valorem equivalent of the specific taxes were identical, or practically identical, on imported and national products. However, under both laws certain national products are exempt from the tax and in the case of Law 8433, at least, the ad valorem equivalents of the specific tax rates on the national product and on the like product of certain third countries are substantially lower than the ad valorem equivalent of the rate on the United States product. The Embassy is requested to ascertain whether the ad valorem equivalent is identical in the case of the taxes under Law 10090, as claimed in the Ministry’s memorandum.

With regard to Law 8433, the discrimination in favor of foreign countries other than the United States is, of course, a violation of the most-favored-nation provisions set forth in Article I and in the last phrase of Article II of the trade agreement. The wording of Article I clearly indicates that these provisions apply to charges of any kind and with respect to all laws or regulations in connection with importation, and to all laws or regulations affecting the sale, taxation or use of imported articles within the country. Furthermore, Article I clearly has retroactive effect since it expressly states that “any advantage, favor, privilege or immunity which has teen or may hereafter be granted … to any article originating in or destined for any third country shall be accorded immediately and unconditionally to the like article originating in or destined for the Republic of Peru or the [Page 1351] United States of America, respectively”. (Underlining added.)92

In the case of the Peruvian port taxes, the Department has been giving this matter further study and has come to the conclusion that if these taxes are levied also on the coastwise trade, as the Ministry’s memorandum claims, they are not of the kind for which exemption can be claimed under Article VII of the trade agreement as outlined in the Department’s instructions nos. 2174 and 2452 of March 2 and May 27, 1943, respectively,93 and a separate instruction will be sent the Embassy on this subject at a later date.

Since the Department will need further information from the Embassy with regard to port taxes and port charges, which may take time to assemble, the Embassy may wish to take up informally with the Peruvian authorities, as soon as the occasion presents itself, only the subject of the discriminations in the taxes on toilet articles and tobacco products. In that event, if the subject of port taxes is brought up, the Embassy may wish merely to say that the matter is being given further study by the Department.

It will be noted that in the foregoing paragraph it is suggested that the Embassy take up informally the matter of the discriminatory taxes. One reason for this is, of course, that the Embassy will probably be dealing with a new set of officials, and the other is that it would be well to avoid a written representation which would undoubtedly have to refer to the Embassy’s note 546 of January 22, 194593 in which the port taxes were mentioned and in which there were inadvertently omitted references to the exemptions from taxation of certain toilet articles and tobacco products of domestic origin. (See Embassy’s despatch no. 2491 of January 26, 1945.)

  1. José Luis Bustamante Rivero was elected President May 10 and was inaugurated July 28, 1945.
  2. Printed in italics.
  3. Not printed.
  4. Not printed.