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ments with United Fruit and Pan American Airways to construct port facilities. An American banker, Willis Dearborn Howe, served as financial adviser to the Ministry of Finance and the Central Bank of Guatemala. The United States was the principal market and supplier for the Guatemalan economy, purchasing 34 percent of Guatemala's exports and furnishing 51 percent of its imports. Germany was the only potential trade competitor, also receiving 34 percent of Guatemalan exports; but since German products comprised only 12.5 percent of Guatemalan imports, the European state represented principally a market for Guatemalan coffee. No other nation approached the American figures. Guatemalan trade amounted to $5.9 million in 1933, only a fraction of the potential which in the predepression period from 1925 to 1929 had consistently exceeded $24 million annually.
Despite the auspicious factors, however, preliminary exchanges revealed serious difficulties. Ubico, anxious for the prestige of inaugurating the program, responded to the 1933 announcement of preliminary talks with several Latin American nations and to American inquiries by indicating a desire to begin negotiations at once. The Guatemalan government wanted expanded markets and credits in return for the broad tariff concessions sought by American negotiators. Washington was unwilling to extend credit at that stage of the depression. Furthermore, the United States considered the question extraneous to the trade discussions. By adopting this stand, American negotiators refused to recognize the domestic consequences of tariff reduction in
Guatemala. Since tariffs provided the bulk of the government's revenue, some source of credit was essential to compensate for the reduced income. The two issues were intimately connected. Because of the potential loss of revenue, the Guatemalan government was reluctant to grant concessions on its principal imports-the very products the Americans desired to include in the agreement. The basic attitudes of the two nations, it was apparent at the outset, clashed.
Existing trade patterns further complicated the negotiations. While the bulk of Guatemalan imports came from the United States, the commodities involved were so diverse that no product accounted for a significant percentage of the total volume. Small transactions made up some 42 percent of the imports. This factor compelled the United States to request tariff cuts on many items to encompass any substantial portion of the trade.8 Yet such concessions would constitute a general tariff reductionthe very policy Guatemala could not afford.
American concessions to Guatemala proved to be the principal difficulty, however. Two products accounted for the overwhelming portion of the Central American nation's exports-coffee and bananas. Because of the demand for these products in the United States, both were already on the free list. Consequently, American officials were unable to offer sufficient compensation for the concessions they desired. Only concessions on coffee and bananas would have any significant impact on the Guatemalan economy. Decreasing tariffs on commodities that constituted only a minute portion of Guatemalan exports or cutting duties on the products of embryonic industries would have no immediate effect. The Guatemalan government, aware of this problem, requested credits in return for tariff reforms. After refusing to consider credits, American
6 Whitehouse to Stimson, Dec. 30, 1930, 814.00 /1038, and June 1, 1931, 814.1561/37; Latin American Division memo, June 20, 1931, 814.1561/38; McCafferty to Stimson, Oct. 3, 1931, 814.01 A/16; Matthew E. Hanna, minister in Guatemala, to Hull, July 27, 1934, 611.1431/55, and Nov. 26, 1934, 611.1431/82.
7 Lawton to Hull, July 31, 1933, 814.00 General Conditions/68, Sept. 9, 1933, 611.1431/44, and Sept. 30, 1933, 710.G/242.
8 Hanna to Hull, July 27, 1934, 611.1431 /55; Lester H. Woolsey to Sayre, Feb. 15, 1934, 611.1431/6.
negotiators discovered, to their consternation, that they had nothing significant to offer Guatemala.
Once credits were excluded from the discussions, Guatemala sought a larger American market for its coffee through an import quota. A disproportionately large quota would stimulate coffee production by guaranteeing greater access to the high prices obtainable in the American market. A quota would also increase trade between the two countries. Guatemala exported more than twice as much coffee to Germany as to the United States, but a market quota would reverse the pattern. Because the Guatemalan economy depended so heavily on profits from coffee exports, a quota would have been a meaningful American concession. But the United States was unwilling to consider the proposal in the talks. Establishing a quota, the Americans said, would require multilateral discussions; one could not be negotiated with Guatemala exclusively.
Still searching for other compensation, Guatemala shifted efforts to minor products and negative gains. Chicle, the Guatemalan export third in importance, became the next focal point of discussion. This commodity was also admitted to the United States duty free, precluding a tariff concession. Noting that the United States had repeatedly asked Guatemala to curtail liquor smuggling from Puerto Barrios, Guatemalan Foreign Minister Alfredo Skinner Klee pledged that his government would take appropriate steps in return for American measures to prevent the smuggling of Guatemalan chicle through British Honduras. Closing the American market to contraband chicle, Skinner Klee observed, would increase Guatemalan revenues by ensuring payment of the chicle export tax, thus partially offsetting the loss of income from the tariff reductions. The request placed the United States in a difficult posi
tion, since Puerto Barrios bootleggers were a major source of illicit liquor shipments to Gulf ports. Yet American diplomats could not devise ways to stop contraband chicle. In desperation, Skinner Klee proposed the United States impose an import duty on chicle and then exempt Guatemala from it. This would not alter the free entry of Guatemalan chicle into the United States, but it might render smuggling unprofitable and thus aid Guatemala to recover lost revenue. Assistant Secretary of State Sayre, however, replied that such a step was impossible since Congress had authorized the president only to negotiate agreements reducing tariffs, not to impose new duties. The State Department had no counterproposal and instead instructed Minister Matthew Hanna to ask the Guatemalan government to suggest methods for suppressing smuggling. Skinner Klee proposed that the United States require certificates of origin for chicle shipments since no chicle was grown in British Honduras, the principal center of the smuggling. The United States agreed to consider this suggestion, but Guatemala withdrew the proposal when the minister of finance concluded it would be ineffective.10 Guatemalan efforts to devise an alternative method of curtailing chicle smuggling proved futile.
In the meantime, Guatemalan tariff concessions continued to be a problem in the negotiations. The government rejected the initial American proposals because, Skinner Klee observed, they would reduce Guatemalan government revenues by a disastrous 30 percent. Hanna reported that the minister of hacienda and the director of customs were "quite friendly and desire to continue
10 Hanna to Hull, Sept. 5, 1934, 611.1431/70; Sayre to Hanna, Oct. 2, 1934, 611.1431/70; Hanna to Hull, Oct. 30, 1934, 611.1431/77; Sayre to Hanna, Oct. 24, 1934, 611.1431/77; Hanna to Hull, Dec. 22, 1934, 611.1431/84; 0. Gaylord Marsh, consul general in Guatemala, to Hull, Feb. 4, 1935, 811.114 Guatemala/67; Sumner Welles to Hanna, Apr. 5, 1935, 611.1431/97A; Hull to Hanna, Apr. 5, 1935, 811.114 Guatemala /74.
9 Hanna to Hull, July 24, 1934, 611.1431/54.
to co-operate," but they thought "Guatemala should not agree to material reduction of customs receipts at this time without some immediate and direct compensating advantage.” Ubico and Skinner Klee maintained that any substantial reduction of customs revenues would imperil the future of the nation. The foreign minister recognized that it would be difficult for the United States to grant compensating tariff concessions, since already 99 percent of Guatemalan exports were admitted duty free, and he reiterated that only a guaranteed market and price for Guatemalan coffee "might compensate for a reasonable sacrifice by Guatemala.” Hanna reported: “The present attitude is that Guatemala can gain little or nothing from the agreement if the United States can find no way to help her market her coffee at a profit.” 11
With the negotiations clearly deadlocked, the Latin American Division of the State Department and the economic analysts split. Sayre dismissed the Guatemalan complaint against tariff reduction, contending that the resulting increase in trade would produce greater revenue from lower duties on a larger volume of goods. Such an argument seemed perfectly sound to the economists. Members of the Latin American Division, who had a greater understanding of the dependence of Latin governments on trade revenues, viewed the Guatemalan arguments more sympathetically. Willard L. Beaulac, assistant chief of the division, informed the Trade Agreements Committee that Sayre's argument was "not strong." Noting that Guatemalan purchasing power abroad depended exclusively on the price of coffee, Beaulac claimed increased trade in other commodities would have no appreciable effect. He also stressed that long-term benefits stemming from increased trade
would not compensate for the immediate loss of revenue.12
By the spring of 1935 State Department officials finally began to realize that no broad concessions based on economic objectives could be negotiated; only a narrow agreement encompassing minor adjustments and assurances dictated by political expedience was possible. Edward G. Trueblood of the Latin American Division thought "Guatemala could be persuaded in the course of negotiations to grant us a small list of relatively minor concessions, but there seems little prospect of working out an important agreement.” He concluded: “We can apparently only offer Guatemala ... the binding on the free list of coffee, bananas and chicle." American bargaining power was clearly reduced to a bare minimum, and the Guatemalan government could be expected neither to greet such terms with enthusiasm nor to offer significant concessions in return. American diplomats even argued that Guatemala, under the most favored-nation clause, could anticipate benefits from subsequent trade agreements with other countries and hence should endeavor to “contribute to the overall success of the entire program.” In other words, Guatemala would gain political prestige if not economic benefit from the agreement. This was a far cry from the original objectives of both countries. Secretary of State Cordell Hull on June 6, 1935, telegraphed for Hanna's “personal recommendations,” commenting "there appears to be nothing more we can offer.” 13 Thus the department decided to negotiate for whatever terms were acceptable to the Guatemalan government. Concluding an agreement had become an end in itself.
11 Sayre to Hanna, Jan. 29, 1935, 611.1431/87A; Hanna to Hull, Apr. 30, 1935, 611.1431/102, May 2, 1935, 611.1431/103, May 7, 1935, 611.1431/105, June 4, 1935, 611.1431/111, and June 4, 1935, 611.1431/114.
12 Sayre to Hanna, May 21, 1935, 611.1431/108A; Willard L. Beaulac to Edwin Wilson, chief of the Latin American Division, May 18, 1935, 611.1431/109.
13 Edward G. Trueblood to Wilson, May 23, 1935, 611.1431/115; Beaulac to Wilson, May 18, 1935, 611.1431/109; Hull to Hanna, June 6, 1935, 611.1431 1111.
Hanna prepared a list of minor tariff reductions, the most the United States could hope to obtain, and the department accepted his recommendations. He stressed the Guatemalan government's willingness to cooperate but said, "the authorities here think there is great disparity between what they consider a trifling advantage to our commerce and a serious reduction in their revenues.” The United States, the minister concluded, would have to settle for guarantees against Guatemalan tariff increases rather than reductions. He added: “I believe an agreement can be reached which while it may not give us any considerable immediate benefit will insure us against undesirable changes in tariffs and possibly give us a preferential position during the life of the agreement should the tariffs be raised for other countries." After considering this memorandum and conferring with Hanna in Washington, Hull directed Sidney E. O'Donoghue, the chargé in Guatemala, to resume negotiations and conclude an agreement on the best obtainable terms. The United States now sought only "a satisfactory agreement consisting of the general provisions, some duty reductions and assurances that rates on certain important American exports to Guatemala will not be raised during the life of the
General O. Gaylord Marsh felt "the concessions granted represent a praiseworthy effort on the part of the Guatemalan authorities” and recommended acceptance.15
The Guatemalan counterproposals served as the new basis for discussions and eventually constituted the framework of the agreement. O'Donoghue and Marsh informed the State Department that "the Government of Guatemala has granted all of the concessions which it will consider at the present time in view of the, to them, apparent lack of any direct compensating advantages.” The State Department rejected Guatemalan requests to include cocoa, sisal, and several other products in the list of concessions on the grounds that Guatemala exported only small quantities of these commodites and that reductions of duties on them had to be negotiated with the principal producers. Department officials did reluctantly agree to include pineapples, the only duty reduction granted to Guatemala. Agreement on the basic terms of the treaty was reached during early October 1935, once it became apparent that neither country was willing to consider further concessions. 16
Minor details, however, stalled the final settlement. Guatemala resurrected its request for protection against chicle smuggling, but the United States refused to incorporate the clause into the trade agreement. President Ubico then suggested a supplementary exchange of notes pledging cooperation against liquor and chicle smuggling without agreeing to any specific measures. Despite American consent the Guatemalan government later dropped the issue. A Guatemalan law requiring that certifi
Negotiations reopened in July, both sides seeking minimum concessions. Foreign Minister Skinner Klee said that “Guatemala would conclude a trade agreement with the United States, if only along the broad lines thereof; namely that Guatemala would guarantee not to increase duties on American products ... and that some small tariff concessions might be made.” Guatemala limited counterproposals to pledges of minor tariff reductions on twelve commodities and the mutual binding of tariffs at existing levels. O'Donoghue and Consul
15 O'Donoghue to Hull, July 9, 1935, 611.1431/117, July 26, 1935, 611.1431/120, Aug. 8, 1935, 611.1431 1121, and Aug. 10, 1935, 611.1431/123.
16 Hull to O'Donoghue, Aug. 22, 1935, 611.1431/123; O'Donoghue to Hull, Sept. 6, 1935, 611.1431/129; Hull to O'Donoghue, Sept. 19, 1935, 611.1431/133A; O'Donoghue to Hull, Sept. 21, 1935, 611.1431/135, and Oct. 7, 1935, 611.1431/137; Hull to O'Donoghue, Oct. 14, 1935, 611.1431/137.
14 Hanna to Hull, June 7, 1935, 611.1431/111; Hull to Sidney E. O'Donoghue, July 3, 1935, 611.1431 /115A.
cates of good condition accompany food imports caused another momentary delay. The United States sought a modification of the stipulation, because no federal agency was empowered to issue the certificates. The Guatemalans had difficulty comprehending the request, for in their country such certification was a function of the central government, but they eventually agreed to waive this stipulation. Discussions about the phraseology of the agreement also caused a delay until negotiators reconciled the Spanish and English texts, a process finally completed in April 1936.17
O'Donoghue and Skinner Klee signed the agreement April 24.
Hull telegraphed O'Donoghue "hearty congratulations" for “the effective way in which you have handled the trade agreement negotiations." The Guatemalan legislature approved the accord April 29, and President Roosevelt issued a proclamation May 16 declaring the agreement, to last three years but renewable indefinitely, would take effect June 15, 1936.18
In a quarterly trade report July 2, 1937, Consul General Walter F. Boyle summarized the effects of the trade agreement. "In the making of this agreement there was but little opportunity for mutual tariff reductions," since, Boyle noted, "the outstanding exportable products of Guatemala were
17 O'Donoghue to Hull, Nov. 16, 1935, 611.1431 1145; Hanna to Hull, Dec. 6, 1935, 611.1431/146, and Dec. 7, 1935, 611.1431/147; Hull to Hanna, Dec. 13, 1935, 611.1431/147; Hanna to Hull, Dec. 19, 1935, 611.1431/149; O'Donoghue to Hull, Mar. 11, 1936, 611.1431/163; Sayre to O'Donoghue, Oct. 23, 935, 611.1431/143A; Hanna to Hull, Jan. 15, 1936, 611.1431/153; Hull to Hanna, Feb. 4, 1936, 611.1431 /153; O'Donoghue to Hull, Mar. 10, 1936, 611.1431 1161; William Phillips, acting secretary of state, to O'Donoghue, Mar. 17, 1936, 611.1431/161; O'Donoghue to Hull, Mar. 18, 1936, 611.1431/164; Sayre to O'Donoghue, Apr. 13, 1936, 611.1431/176A.
18 O'Donoghue to Hull, Apr. 24, 1936, 611.1431 1183, Apr. 30, 1936, 611.1431/186, and May 5, 1936, 611.1431/195; Hull to O'Donoghue, Apr. 24, 1936, 611.1431/184A, and May 19, 1936, 611.1431/203c.
already on the free list.” However, he concluded, “the reciprocal binding of many articles on the free list or at existing tariff rates" was "of great value" for continued expansion of trade between the nations. 19
In fact, the agreement fell far short of the original American proposals and certainly did not comport with the objectives of the Reciprocal Trade Agreements Act. Both nations made only minimal concessions. Duties were not materially altered. Instead of promoting a new tariff pattern, the terms merely preserved the existing structure. This stabilization of rates did serve to promote trade, but the overall effects on Guatemalan-American commerce were meager.
The terms disappointed the economic idealists who viewed reciprocity as a means to a new world trade order, but the limited nature of the agreement was inevitable from the outset. Trade patterns between the United States and Guatemala were firmly established before the negotiations, and there was scant prospect of altering them. The industrial nation had little to offer its underdeveloped counterpart since it already accepted the latter's agricultural products duty free. In this situation, the United States could not grant concessions commensurate with those desired for its own products. Even if counterconcessions had been possible, the dependence of the Guatemalan government on tariff revenues precluded significant reductions of duties. Only a willingness to extend credits sufficient to compensate the Guatemalan government for loss of revenue could have produced a broad agreement. The theoretical objectives of the program were doomed by the realities of trade patterns and economic needs.
19 Walter F. Boyle to Hull, July 2, 1937, 611.1431 1216.