Foreign Relations of the United States, 1952–1954, East Asia and the Pacific, Volume XII, Part 2

411.9631/11–1953

No. 343
The Ambassador in the Philippines (Spruance) to the Department of State

confidential
No. 541

Manila, November 19, 1953.

Ref:

• A–144, October 21, 1953¹

Subject:

• Reasons for Philippine Trade Proposals

Economic Motivation for Trade Proposal

The economic reasons behind the Philippine request for revision of the trade provisions of the Trade Agreement are considered by the Embassy to be the following:

a. A belief that industrialization is essential if the Philippines is to provide for its increasing population, and that industrialization on the scale needed cannot come about as long as protective duties may not be levied against American imports.

b. A belief that the present Agreement makes the Philippines economically dependent on the United States and that it condemns the Philippines to a role as a producer and supplier of raw materials.

c. Fear that some Philippine exports cannot pay U.S. duties. Proponents of revision are seldom specific as to which products require free or preferential treatment, and few have bothered to inform themselves on this point.

d. A desire to obtain revenue from duties on U.S. products in sufficient amount to compensate or over-compensate for the elimination of the foreign exchange tax which is expected to occur as a result of the revision.

e. A desire to provide balance of payments protection by way of import duties and thus to reduce the need for import and exchange controls.

Political Motivation

The political motivation for revision of the Agreement derives from the Agreement as a whole, and the trade provisions may be less important as a motivating force than the parity and exchange provisions which many Filipinos consider as unilateral in character and a reflection on their sovereignty. There is also the view, which is fairly widely held among Filipinos who are conversant with the history of the Trade Agreement, that the Agreement was forced upon the Philippines by being made one package with the Philippine Rehabilitation Act which the war-devastated Philippines could not afford to reject. The desire to correct a relationship which seems to many one-sided is a natural motivation which is bound to have popular appeal. Actually, it is overshadowed in the minds of most Filipinos by the great affection and admiration they have for the United States.

The request for revision, which was sparked by two leading economic figures, Central Bank Governor Miguel Cuaderno and Finance Secretary, Aurelio Montinola, was espoused particularly by the Liberal Administration as a popular cause and a vote-getter. The effort to make political capital out of revision was unsuccessful, however, because the Nacionalista Party, so far as it took any stand on the question at all, seemed to favor revision, and because too little headway was made with the request for revision prior to the November elections for the Government to be able to claim any particular credit for its effort in this direction.

Outlook

It is too early to tell what the Magsaysay Government, when it comes into power on December 30, will do with regard to the proposals for revision which have already been submitted by the present Government. Three Nacionalistas, Senator Francisco Delgado, Congressman Jose Roy, and banker Daniel Romualdez, were represented on the President’s 15-man Commission that drew up the proposals. The Party’s top leaders, however, have given no indication of their thinking on the subject, and there is good reason to believe that most of them have not thought about it at all. Senator Gil Puyat has publicly stated that he favored deferment of the tariff provisions of the existing agreement rather than the selective free trade arrangement suggested by Cuaderno, but in so doing he was speaking for himself and not for the Party.

Revision of the agreement has been rather fully aired in the Philippine press, with almost all publications appearing to favor it. Philippine business groups and individuals who have had anything to say on the subject have with very few exceptions advocated revision. Revision of the kind proposed by the Government, namely, continued free entry for Philippine goods going into the United States and the immediate application of full tariffs on American goods coming into the Philippines, except for those articles selected for free list treatment, has naturally had considerable public appeal.

American investors in the Philippine export industries have been rather inconspicuous in the movement for revision. When invited to express their views in official hearings, however, a number of them have stressed the need of their products for low or preferential duties in the United States. The American Chamber of Commerce, which reflects more the view of American importers into the Philippines, is distinctly cool to the selective free trade proposal, or to any modification in the agreement which would weaken the tariff preferences they now enjoy.

For the Ambassador:

Daniel M. Braddock
Counselor of Embassy for Economic Affairs

1. This airgram requested the Embassy’s assessment of economic and political motivation behind the Philippine proposals for revision of the Trade Agreement. (411.9631/10–2153)