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

411.9631/1–754: Telegram

No. 350
The Ambassador in the Philippines (Spruance) to the Department of State

secret

Manila, January 7, 1954—4 p.m.

1474. Reference Deptel 1691.¹ Summary paragraph for Secretary and Assistant Secretary Robertson from Ambassador:

Revision of tariff provisions of trade agreement very important to Magsaysay, and because our reliance on him in pursuit our political objectives this region, we must assist him on TA revision. I strongly recommend we agree negotiate on this point, but within broader framework than selective free trade proposal so as to permit adherence our general trade policy and international commitments. To extent such revision can promote Philippine economic development and free exchange convertibility, which are primary Philippine objectives in requesting it, revision will be highly useful to us. If US executive declines to even ask Congress for temporary extension duty-free period if Philippines requests it, this would have bad effect on Magsaysay’s position here as well as on Philippine feeling toward US. I would appreciate reconsideration Department position reference telegram.

Revision of tariff provisions of agreement is heart of Philippine proposals, and outright rejection this proposal by US will be sharp rebuff new administration, reflecting on Magsaysay’s influence with US and detracting from our influence with him. Embassy believes he is our best hope in Southeast Asia, perhaps all Asia, as democratic example and as authentic native leader in resistance to Communism, and that it is to our political interest assist him this matter as far as we can. Regardless of US willingness to consult on changes in non-tariff provisions, which are important in terms of Filipino self-respect, refusal undertake any revision of tariff provisions will be considered here tantamount rejection proposals in general.

Embassy concurs Department’s view that neither country likely suffer immediate adverse economic effects by coming into force of declining preference arrangement. It believes, however, that Philippine economic development would be accelerated by revision permitting application of tariff to US articles, with specific exceptions, and providing for abolition of import and exchange controls and taxes as recommended in Embassy despatch 456, part IV, quota proposals.² These controls and taxes are today burden on business and in some cases deterrent to new investment. Their removal would benefit Americans doing business in and with Philippines, a fact recognized by representative American businessmen with whom subject discussed. Such revision would aim at achieving free exchange convertibility.

Embassy recommends, therefore, in order secure political advantage inherent in situation and to achieve economic results generally beneficial to Philippines and in some respects also to American business, that US indicate it prepared to consult with Philippine Government as proposed by Department in part II, first paragraph, reference telegram; and also prepared consult on possible revision of tariff provisions of TA but without limiting itself to selective free trade principle proposed by Philippines. Embassy believes approach of this kind would be acceptable, helpful to Magsaysay. Department will recall that from beginning Philippines wanted general consultation and made specific proposals only on our request.

Within this broader scope of consultations on tariff provisions it should be possible eliminate most of adverse factors enumerated part I, reference telegram. For instance, on Philippine exports to US: US could stand firm that no ground existed for liberalization present TA provisions on sugar. Embassy confident this position could be sustained. Same probably true for some other products such as coconut oil, cigars, tobacco. On other Philippine articles where genuine need was shown and for which Philippines constituted principal foreign supplier, US might offer Philippines choice of:

(a) Free list treatment in US, with understanding that US would generalize to all other foreign suppliers, or

(b) Continuation of present TA provisions. Such course should give Philippines some satisfaction where needed, while avoiding conflict with US overall trade program and GATT commitments, and calming opposition of US and Cuban sugar interests. On US exports to Philippines we might accept principle of selective free trade, permitting imposition full duties on some American goods in return for:

(a) Free list treatment of others, or continuation present TA provisions where preferred, and

(b) An undertaking to eliminate existing import controls, exchange tax and exchange controls on current transactions and impose no new ones. Philippines, not being member of GATT, would be free to generalize free list treatment given, or not, as it chose.

Embassy convinced that nothing less than all-out effort by US Government to get Congress to extend duty-free period sufficiently to permit negotiation of changes would be understood here or accepted as consonant with US professions of friendship for Philippines, if Philippines requests extension. Evident that Philippine Government has accepted risk of adverse action by Congress suggested in part I–b, reference telegram. Philippine Government understands, however, that possibility of completed action on wider revision prior July 1954 is remote if not nonexistent.

If Congressional leaders, when approached by Department, are sufficiently sympathetic to Philippine request for revision, Embassy suggests they be asked whether, in addition to extending duty-free period, Congress would request executive branch to negotiate and submit for Congressional approval, a revised agreement with Philippines designed to accomplish certain objectives, such as:

(1) Release Philippines from Article 5 of TA

(2) Make Article 7 substantially reciprocal to extent permitted by US and state laws

(3) Permit Philippines to collect full Customs duties on US articles, with certain exceptions, to end of affording reasonable protection for Philippine industry, raising revenues sufficient at least to replace existing 17 percent exchange tax, and achieving balance of payments position where free convertibility of pesos into dollars possible without resort to import and exchange controls

(4) Eliminate exchange tax, import controls, and exchange controls on current transactions

(5) Permit modifications in US tariff treatment of Philippine articles, where necessary, within framework of overall trade policy and commitments in GATT

(6) Effect such other improvements in TA as appropriate and mutually desirable. A directive from Congress in this sense would greatly facilitate negotiations and eventual ratification, and allay possible apprehensions of other countries.

Spruance

1. The number 1669 was written above 1691 on the source text, indicating that the reference is to telegram 1669, supra, rather than to telegram 1691, summarized in footnote 3, supra.
2. See footnote 2, Document 346.