Papers Relating to the Foreign Relations of the United States, With the Annual Message of the President Transmitted to Congress December 7, 1911

File No. 20437.

early history of the case.

[undated]

The correspondence begins with a letter from Representative Edwards, of Savannah, Ga., dated July 7, 1909, inquiring in regard to the reported intention of the German Government to levy an export duty of about $20 per ton on concentrated potash salts, in case the German syndicate, which was at the time dissolved, should not be reorganized.¹

In instruction 207 of July 14, 1909, the Department sent a copy of this letter to the American ambassador at Berlin, with instruction to inquire into the matter.¹

In dispatch 394 of July 29, 1902,² the ambassador reported the situation to be as follows:

The agreement under which the syndicate was formed expired at midnight on the 30th ultimo, and before all the members could be brought together again certain members signed independent contracts with the representatives of American fertilizer manufacturers, at prices much below those at which potash salts had previously been sold by the syndicate. The question then arose as to whether the proposed new syndicate would take over these contracts, and negotiations to this end have been going on during the whole of the present month. The Government, as the owner of valuable potash mines, and in view of the great sums invested in this industry, is interested in bringing about a reorganization of the syndicate and preventing the demoralization of prices and the closing down of the weak mines which would result from open competition. In order to bring pressure to bear on the groups that were reluctant to enter the new syndicate the Government allowed it to be announced in the semiofficial press and otherwise that in case of failure to reorganize, an export duty on potash salts would be imposed. It has been rumored that an export duty would be levied on the exportations of nonsyndicated mines such as to prevent them from selling in a foreign market at less than the syndicate prices, and the suggestion has also been put forward of a very ingenious tax on production in excess of the amount permitted by the syndicate agreement, which would have the same effect. However, a conditional reorganization of the syndicate for a period of one year was effected on the 24th instant, the condition to be fulfilled before the 1st of October next. This removes any immediate cause for apprehension lest an export duty be imposed at least in the near future.

On November 11, 1909, Mr. Robert S. Bradley wrote to the Assistant Secretary of State as follows:³

I beg to inclose herein a statement relating to the German potash industry as affecting large agricultural and commercial interests in the United States, and to the measure which I am reliably informed the Imperial Government of Germany proposes to adopt in order to prevent Americans from securing the rights and advantages to which they are entitled under contracts made in good faith with German subjects.

While it may be the theory of the proposed bill that an export duty on potash, equivalent to the difference between the prices established by the syndicate or the Government and any prices made to a foreign buyer below these prices, will impose no injustice or discrimination against such buyer, inasmuch as all will pay uniform prizes, yet in its application such duty would be an absolute discrimination against those Americans who have made the contracts herein alluded to, inasmuch as these buyers would be the only ones who would be obliged to pay any export duty upon potash, as the citizens of no other country hold contracts for the delivery of potash below syndicate prices. I claim that the question of price does not enter into the proposition at all, for any export duty imposed upon an article going to the United States, not imposed upon the same article going to other countries, would constitute a direct discrimination against citizens of this country.

[Inclosure.]

Potash in its natural state and in commercial quantities is found only in Germany, where it exists in very extensive deposits of kali salts, which vary in quality from 8 to 28 per cent of potash (K2O). * * * The entire sales of German potash salts amount to approximately 150,000,000 marks per year, of which about 20 per cent comes to the United States, being equal in value to about $9,000,000 delivered in this country on the basis of syndicate prices, of which about 85 per cent is used for agricultural purposes and 15 per cent in the manufacture of gunpowder and chemicals.

Since the kali deposits were discovered in Germany about 30 years ago the industry has increased to enormous proportions, now comprising over 50 mines, 3 of which are owned by the Prussian Government and 2 by other principalities of Germany. This expansion is due in large measure to the operations of the “Kali-Syndikat,” a powerful organization which markets the entire product, controls the prices in all countries, and allots the division of trade among the mines. By this means prices have been maintained at exorbitant figures, the net prices f. o. b. the mines running from 100 to 200 per cent over the actual cost of production. For example, muriate of potash, which can be produced at $10 per metric ton at the mines, has for years been sold to the largest buyers in the United States at a price equivalent to about $35.35 per metric ton delivered New York, which is equal to about $31.50 per ton f. o. b. the mines.

The great profits accruing from the high prices maintained by this syndicate have led to the development of many new mines until the capacity of the mines now in operation is three times as great as the entire world’s demand for potash salts. There are in addition 10 or 12 new mines being developed which will be operating in the near future and will then come under the control of the syndicate. The problem of maintaining prices at such a high level is therefore becoming more and more difficult; but in order to prevent further competition the Prussian Government has recently discontinued the granting of concessions for locating further kali deposits by borings.

The potash syndicate has usually been formed for a period of five years, and the syndicate which has been in operation for nearly five years past will expire by limitation December 31, 1909; but it practically expired at 12 o’clock midnight June 30 last, for the reason that the restriction prohibiting any sales except through the syndicate expired at that time, after which all members were to be allowed to make independent sales unless a new syndicate had been formed by that hour. For several months prior to that date the delegates representing the various mines had been holding frequent meetings, endeavoring to form a new syndicate, but when the appointed hour, midnight, June 30, 1909, arrived they had failed to reach an agreement, and many of the delegates departed supposing that an attempt to form a new syndicate was ended. Every mine was therefore free to make sales on its own account and some exercised this opportunity before the mandate issued by the president of the syndicate, between 1 and 2 a.m. that night, to convene again at 9 a.m. was received by the delegates. During this interim of one to two hours large contracts at prices considerably below those of the syndicate were made by American buyers who were in Berlin watching the situation and awaiting such an opportunity. These contracts, which were made for delivery to the United States over a period of seven years from January 1, 1910, aggregated over’ $20,000,000. When these sales were reported at 9 o’clock that morning to the syndicate the members were demoralized and the termination of all further negotiations seemed imminent. After days of deliberation it was decided to form a provisional syndicate, subject to securing the surrender of these contracts, or perfecting some agreement between the contracting parties and the syndicate whereby the advantages obtained by the Americans could be substantially eliminated. Thereafter negotiations between all parties concerned continued intermittently from July 1 to October 1, when, no arrangement for the consummation of this purpose having been reached, a new syndicate was formed, leaving out the Aschersleben and Sollstedt mines, which had made the principal contracts with the American buyers. The Aschersleben mine is controlled in Germany, but Sollstedt was transferred to an American corporation on the night of June 30. During these negotiations the Americans offered to give up for the sake of peace two-thirds of the entire advantage they had gained under their contracts, which provided for the delivery of potash to the United States at a reduction of about 45 per cent under syndicate prices. Not only were these offers declined by the syndicate but not a single mark was ever offered by it for the surrender of these contracts, but merely an arbitrary demand that they must be surrendered or that retaliatory measures would be adopted by the syndicate with the backing and cooperation of the Government itself.

After the formation of the so-called “Fighting Syndicate” on October 1, 1909, and as a result of the same, the Aschersleben and Sollstedt interests entered into contracts with other American buyers at the same prices as those contained in the contracts made on the night of June 30, whereby about 90 per cent of the American potash trade has been secured by these interests, the aggregate amount involved being approximately $35,000,000.

And now comes, in more definite form, the long-talked-of threat of the syndicate, that they will invoke the iron hand of the Government to prevent the Americans from reaping the rewards of their enterprise and from securing any advantages from the contracts which they hold. Though these threats had repeatedly been made by representatives of the syndicate and through the German press, they had not taken definite form until the receipt of a letter dated Berlin, October 20, from a perfectly reliable source intimately associated with the potash industry, from which the following is quoted:

“The first days of the sessions of the new Reichstag the ministerium will put a bill before the house recommending the following steps:

• “1. The Government will fix once and for all the prices for potash in Germany and in foreign countries. Sales that will have been made under this fixed price will carry an automatic export duty, in order to make the price equivalent to the price named by the Government.
• “2. Every mine will obtain from the Government a certain allotment or quota from the total consumption of the world; for every ton that the mine furnishes over this quota the Government will charge an extra tax, which will be so high that no mine could stand it without serious loss.
• “3. Every new mine will have to pay an extra tax for the first five years of its existence.

“The first two measures are strictly made for taking away the advantages from the American buyers and from the Sollstedt and Aschersleben. The third measure will prevent the development of new mines, and the whole bill means that every private impulse and energy must cease and everything has to be conducted for and under the Government.”

A production tax, as proposed in the letter above quoted, clause 2, would accomplish the same result as an export duty, for the American contracts specifically stipulate that “any export duty or other governmental charges shall be paid by the buyers.”

In a telegram dated November 22, 1909,¹ the Department instructed the embassy to report by telegraph the attitude of the German Government and the probable outcome of a rumored project of the German Government at the instance of the potash syndicate to impose a differential export duty that would upset important contracts and would fall exclusively upon American interests. This telegram contained the following passage:

In seeking from the foreign office information on this subject it may be well to raise the question whether the rumored project would not be to all intents and purposes a discrimination against the United States of a character to embarrass the impending tariff negotiations.

To this instruction Mr. Hitt telegraphed as follows:¹

November 24. Foreign office states that in view of the dissolution of potash syndicate on June 30 last, Prussian minister of trade and commerce is considering best means to protect the Government’s interest in its potash mines but that no conclusion has been reached, and that all newspaper reports concerning an export duty are merely the result of stock exchange manipulations.

Again on December 18, 1909:²

Prussian Government yesterday introduced bill in Bundesrat providing for compulsory pooling for 20 years of entire German potash production. Home prices subject to regulation by Bundesrat. Export prices not to be less than highest home price. All contracts not made through syndicate are void, except so much of existing contracts as is to be filled by December 31, 1911.

In confirming this telegram Mr. Hitt in his dispatch 542 of December 18, 1909,³ stated as follows:

It will be observed that the bill provides for the formation of a syndicate or trust through which alone sales can be made and that this syndicate, subject to supervision on the part of the Bundesrat, will fix prices. Also that export prices shall not be less than the prices in Germany unless special permission to that effect is obtained from the Bundesrat. Provision is made in section 53 for allowing existing contracts to run until December 31, 1911; all sales made in defiance of the law are to subject the seller to fines amounting to four times the syndicate price of the quantity of potash salts in question and imprisonment is also provided for.

Being doubtful as to whether existing contracts, such as I understand the American ones to be, running longer than to December 31, 1911, would be valid at all, I made informal inquiries at the foreign office of the director of the commercial department having Chargé of American affairs, but he informed me that he could make no official statement and referred me to the text of the law.

On January 8, 1910, the Department sent the following telegraphic instructions to the American embassy relative to the above-mentioned measure:⁴

The proposed imperial measure for control of German potash industry embodies substantial repudiation of 7-year contract obtained by American citizens, by limiting term to two years and taxing quantities to be shipped during this period an amount equal to advantage gained under the contract. Overtures of Americans toward compromise by reducing claims far beyond a reasonable basis are met by refusal of German delegates now here in conference, and negotiations likely to be declared off. Americans must now stand on original contract although willing to meet Germans more than half way. Repudiation by German potash interests is contrary to the sense of business integrity, and the Department can not conceive that governmental sanction of such action as represented by potash interests will be given, since to do so might be construed as evincing an unfriendly intent and operating to perpetrate an international injustice.

On January 10, 1910, the American ambassador replied:⁵

Your January 8. Have unofficially communicated your views regarding potash question to Imperial German Government. Will communicate any information received. It is reported that a protest meeting against the potash bill is to be held to-day in Berlin.

And on January 15, 1910, the ambassador telegraphed as follows:⁶

It is semiofficially stated that the proposed potash law will be amended so as to place no restrictions on prices up to the quota allowed each mine. This would seem to do away with the restriction that contracts are not binding after two years. There is no question of export tax.

On February 1, 1910, the Department, acting on information contained in a letter from Mr. Robert S. Bradley, of January 28, 1910,9 telegraphed to the ambassador as follows:¹

Americans having potash contracts advise that revision to recent proposed potash law provides for small general tax on all potash and heavy tax on shipments above quota allotted by Government. Such heavy tax would render nugatory all advantage obtained in contracts. Proposed revision as represented would be tantamount to repudiation of contracts. Ascertain details and intent of revised measure and report fully.

To the foregoing telegram the ambassador replied by telegram,² February 2, 1910, as follows:

Your attention is called to potash contracts, which are said to anticipate the proposed Government charges and to agree to them in advance. Proposed law limiting quota is said to impose tax not on shipment but on mining beyond quota allowed by law. Please advise me after examining American contracts if we can oppose this. Bundesrat has just assented to the proposed law.

Referring to the foregoing, the Department on February 3, 1910,² sent the following telegram to the embassy at Berlin:

Potash contracts provide for payment of tax required for governmental revenue. Proposed measure is represented as authorizing collection of heavy tax sufficient to countervail advantages gained, same being payable to Syndicate, not to Government. Contracts are in excess of mining quota now contemplated. In light of this explanation make further inquiry into intent of measure and effect on American contracts and report.

On February 5, 1910, the ambassador replied by telegram³ to the last-mentioned instruction as follows:

Your February 3. The text of the potash law now before the Reichstag affecting foreign buyers is as follows:

Paragraph 33. The syndicate can permit its members at their request to supply potash salts to third parties. It must permit the same so far as engagements for deliveries have been fixed by contracts closed before December 17, 1909; the request must be accompanied by the contracts.

The amount delivered will be charged to the quota of the member; when it goes beyond this the member has to pay to the syndicate a scale of compensation according to the amount of the excess delivery. The amount of compensation will be fixed by the board of appeal.

In his dispatch 591, of February 5, 1910,⁴ the ambassador sent the text of the bill presented to the Reichstag on February 4, 1910, containing the proposed law for the sale of potash salts, together with the reasons therefor. In transmitting the dispatch the ambassador quoted a translation of paragraph 33 of the bill, which affects buyers.

On February 17, 1910, the Department telegraphed to the ambassador as follows:⁵

The attitude of this Government is that potash contracts with Bradley and other Americans are entitled to due recognition in legislation now pending in Reichstag. Should it appear to you that contract rights are endangered by any form of countervailing tax or other charges upon buyers, you will advise this Department without delay. Bearing in mind the Department’s telegrams of January 8 and February 1, again represent discreetly the effect of legislation adverse to American interests.

In answer to the foregoing the ambassador telegraphed⁶ on February 18, 1910, as follows:

Your February 17. On February 4 I asked foreign office if proposed potash law contemplates tax to fall on foreign purchaser, and if American contracts¹ would in any way be affected. No categorical answer has thus far been received, but the bill is unanimously interpreted in Reichstag as involving payments only to and by members of potash syndicate, but no Government charges. Minister of trade and commerce has explained in Reichstag that the idea of an export tax was entertained, but has been abandoned.

In further reply the ambassador in his dispatch 622 of March 3, 1910,¹ reported on the proposed imperial measure, transmitting the reply of the German foreign office to a memorandum and a note from the embassy. The following extract, referring to the assurances of the German Government on the subject of the recognition of the American contracts, is taken from this dispatch:

In reply to the above communications the German foreign office contends that the object of the proposed potash law is to avoid the ruinous competition among the potash-mine owners, the result of which would be that the weaker works would be at the mercy of the strong ones, and that large pecuniary loss would threaten the community, and also that the workmen would suffer. To avoid this, the potash works will have a sales association, which will have the right, subject to the consent of the Bundesrat, to fix prices.

It is further stated that nothing in the proposed law will be detrimental to foreign users of potash salts. The paragraph dealing with the contracts made prior to the passage of the law is so worded that the purchaser under these contracts is not to be affected; the miners who made the contracts must be allowed to sell potash salts at the contract price up to the quota allowed by the sales association; beyond that quota they will be permitted to sell at the contract price, but must pay a compensation to the association as a return for the advantages arising from the increase in output; the compensation, however, is not to be fixed so high that the members can not fulfill their obligations. This compensation, judging from the wording of the law, is a payment to the members of the association and can not be construed to be a Government charge.

On April 9, 1910, the Department sent the following telegram to the ambassador:²

Would the German Government welcome efforts of this Department directed to a modification of American claims in potash contracts by which the respective parties would make equal concessions, the. basis of such settlement to be arrived at through a committee of international banks? If so, the Department will to secure the assent of Americans to such arbitration. This in the interest of commercial friendship and interchange, which it is desirable to promote.

On April 14, 1910, the ambassador telegraphed the following reply:²

Made inquiry as instructed, but will probably have to wait some time for an answer. There seems to be little probability that the situation will be changed by any legislation this session of the Reichstag, which adjourns on May 4.

On April 19, 1910, the Department, in instruction 366,¹ confirmed the foregoing exchange of telegrams and explained the basis on which the American parties were willing to make a settlement. The ambassador, on April 25, telegraphed the following further reply to the department’s telegram of April 9:³

Foreign office answers the suggestion of the Department, saying that in view of the uncertainty regarding the principles that will govern the legislation on the subject it is at present hardly possible to find a basis for friendly negotiations between the parties interested. I have strongly expressed the disfavor with which a virtual export duty would be regarded by my Government.

On May 2, 1910, the ambassador telegraphed as follows:³

Potash committee has passed paragraph concerning governmental charges. Newspapers state this was done after Government’s representative had declared that no commercial difficulties would arise with foreign countries. If present, bill becomes law it will greatly impair value of existing contracts. German Government denies that there is an export tax, since all overproduction is equally charged.

In pursuance of the information in the above telegram, the Department on May 4, 1910, telegraphed as follows:¹

If the proposed potash law will greatly impair the value of existing contracts, as stated in your telegram of May 2, you will immediately take up the matter with the minister for foreign affairs and will inform him that in view of the highly injurious effects which such legislation will of necessity have upon large American industries, by reason of its effect upon perfectly legal and binding contracts made by such industries with German miners under and in accordance with German laws in force at the time of the negotiation and conclusion of said contracts, and in view of the further fact that although, as the German Government contends, this may not be in form an export tax, still it appears to the Government of the United States that it is such a tax; in fact, your Government has directed you earnestly to protest against the enactment of the proposed bill into a law, and to state further that, having in mind that all the circumstances of this case have been fully presented to the German Government, the American Government can not but regard the enactment of such a bill as indicating such an unfriendly if not indeed hostile attitude toward this branch of American commerce and industry as may give rise to grave apprehension. You will add that the Government of the United States must observe that it does not perceive in this whole matter any question that might not be properly adjusted by mutual concessions, under some such plan as has already been suggested to the German Government, and you will therefore renew your request that an adequate effort be made so to arrange this troublesome and indeed acute controversy.

enactment of the potash law and subsequent correspondence.

The potash law² was passed on May 10, 1910, and contained the following provisions, to which frequent reference is made in the ensuing correspondence, particularly to section 46:

Article 26. In case the owner of a potassium salts mine exceed the amount of potassium salts he is entitled to sell, such owner shall pay into the treasury of the Empire a duty on the amounts of such salts sold in excess.

The amount of said duty shall be per double hundredweight [i. e., per 100 kilograms] of pure potassium protoxide (K2O):

	Marks.
On Groups I and II (carnallite containing 9 to 11 per cent K2O; and crude salts containing 12 to 15 per cent K2O)	10
On Group III:
Fertilizing salts containing—
20 to 22 per cent K2O	13
30 to 32 per cent K2O	14
40 to 42 per cent K2O	16
On Groups IV and V (potassium chlorid containing 50 or more per cent K2O; potassium sulphate containing over 42 per cent K2O; and magnesium potassium sulphate)	18

The duties on potassium salts not enumerated in paragraph 2 shall be fixed by the Bundesrat in accordance with the above-mentioned rates.

Article 27. Each owner of a potassium salts mine shall pay into the treasury of the Empire a tax on his total sales amounting to 0.60 mark per double hundredweight of pure potassium protoxide (K2 O).

The revenue derived from this tax is to be used for defraying the expense to be incurred by the Imperial Government for enforcing this law and for increasing the sales of potassium salts. The receipts and expenditures are to be incorporated in the budget of the Empire.

Article 46. The Bundesrat is empowered to reduce the duties provided for by article 26 and payable for deliveries under contracts concluded before December 17, 1909, so that the prices for quantities delivered after May 1, 1910, including the duty, shall not be higher than the prices that prevailed until June 30, 1909.

1. File No. 20437.
1. File No. 20437.
2. File No. 20437/1. File No. 20437/2–4.
3. File No. 20437/2–4.
1. File No. 20437/13A.
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2. File No. 20437/32.
3. File No. 20437/38.
4. File No. 20437/40A.
5. File No. 20437/41.
6. File No. 20437/46.
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2. File No. 20437/63.
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3. File No. 20437/67.
4. File No. 20437/74.
5. File No. 611627/67.
6. File No. 20437/72.
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1. File No. 20437/78.
2. File No. 20437/79.
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2. File No. 20437/94 contains the entire text in translation.