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. 20437/94.

[Untitled]

Embassy of the United States,
Berlin, May 18, 1910.

No. 697.]

Sir: After long and vigilant observation of the procedure of the German Government with respect to the regulation of the production and sale of potash, which has been the subject of much previous correspondence, I now have the honor to say that there has been no moment during the whole period of the consideration of this bill when the Imperial German foreign office has not been well informed of the position of our Government with respect to the American contracts for the purchase of potash. As evidence of this I refer to my despatch 622 of March 3, 1910, which resumes the course of events from January 10, 1910, down to that date.

By note verbale of April 18, 1910,¹ I formally expressed what I had previously proposed orally with regard to a friendly negotiation between the American contractors and the German producers with the aid of a committee of international bankers, and my telegram of April 25 states the reply of the German foreign office.

My note verbale of May 5¹ shows how forcefully these contracts were supported at that time.

On May 10 I had an important conversation with the German secretary of state for foreign affairs and with the imperial chancellor upon this subject, and as a result section 46 was introduced. The significance of this appears from the enclosed translation of the note of the Imperial German foreign office of May 11. I consider this note of May 11, in reply to mine of May 5, as the last word which we may expect from the German Government on this subject, and I therefore desire to call attention very particularly to some of its points.

1st. It is a fact, as stated in the note, that the purpose of this law, as I have previously pointed out, is the regulation of the sale of potash in such a manner as to prevent the exercise of monopoly privileges by one or a few of the producers.

2d. It is not the interest or the intention of the German Government to diminish the supply of potash to foreign purchasers, or to treat it as a subject of revenue, and I am confident that the representation that there is not in fact or intention any export duty under the terms of this law is correct. The tax imposed lies upon domestic sales as well as upon foreign sales, or more precisely not upon sales at all but upon production, and is intended to equalize the production among the various producers in order to prevent monopoly. This is certainly a reasonable aim and the tax appears to be the only effective method of attaining it.

3d. The point made in the German note in reply to our contention that the American contracts must not be impaired seems to me to be conclusive. In my note of May 5 I put the matter strongly, as I was instructed to do. I did not say, and felt that I had no right to say, that the Government Chargé referred to actually impairs existing contracts, for we know from having seen those contracts, although the German note does not make this positive assertion, that they include an agreement to pay any Government charges that may be imposed. If the contracts are valid, this agreement is valid, and the reference to possible Government charges can not be construed as a mere accidental expression. It is a definite reference to the foreshadowing of Government charges for the purposes already explained of securing equity in the potash industry by Minister Delbrück in the Reichstag on July 7, 1909, before these contracts were signed. It would seem, therefore, impossible for us to contend that the Imperial Government by imposing such a Chargé is doing anything it has not a right to do, for the Chargé is imposed by the law not upon the foreign purchaser, or any purchaser, but upon the producer, and is therefore of a wholly domestic nature. If the foreigner has beforehand agreed to take the burden of such a Chargé upon himself, that agreement is a part of the contract, and the action of the Imperial Government can not be construed as a violation of it.

4th. It will be noticed that while the action of the German Government might end at this point, under the representations I have made, to eliminate all possibility of wrong to the American contractors, the Bundesrath is authorized to reduce the duties in the case of contracts concluded before December 17, 1909, so that the prices shall not be higher than those which prevailed before these contracts were made. This is done in a spirit of equity, or I might rather say of generosity, for the other potash producers outside of the Schmidtmann interests have not at any time considered the American contracts, specifically the Bradley contracts, as fair to them. I have sent to the Department some literature upon this subject which is no doubt of a polemic nature, but at the same time it is necessary to take into account that from the German point of view these contracts were made against the general interest, and it must therefore be considered as a generous act if the advantages accruing from them to the foreign contractors are exceptionally protected.

I am personally convinced that the German Government in passing this legislation has been animated by a desire to regulate its own domestic matters in an equitable way and that at the same time it has wished not in any degree to imperil the general commercial relations now existing with the United States. I trust it may be found that the American contractors will be satisfied with the treatment which they are to receive under this new law, especially with the exceptional advantages afforded them by section 46. The Imperial Government appeals to the American Government for the exercise of its good offices with the American contractors in the final settlement of this matter, and it will be a great satisfaction to this embassy if now that the law has finally passed such an adjustment of the equities involved can be made as to conclude the negotiations.

I have, etc.,

David Jayne Hill.

[Inclosure.]

The Imperial Secretary of State for Foreign Affairs to the American Ambassador.

[Translation.]

Imperial German Foreign Office,
Berlin, May 11, 1910.

The undersigned has the honor to furnish the following information to his excellency, Mr. David Jayne Hill, ambassador of the United States of America, in reply to the note of May 5, on the subject of the potash law.

The Imperial Government ascertains with satisfaction that the American Government recognizes the right of the Imperial Government to regulate the sale of potash salts. The American Government will doubtless be strengthened in this view if it takes into consideration the fact that this regulation by law is directed toward prevention of the evils of the trusts, which it is likewise endeavoring to restrict by legal measures in its own country. In the case of such regulation of the sale of an important product of the country, a regulation incumbent in the interests of national economics, and demanded by the Reichstag by a large majority, the objection of foreign countries can appear justified only if they are subjected to differential treatment. Such discrimination is not provided for in the law in question.

The law provides that a fixed quota for the home market and for the foreign market shall be allotted each potash mine. Deliveries of potash salts within the quota are free from duty. A duty is only to be paid when the quota is exceeded. The American Government is not accurately informed if it supposes that the allotment of quotas is done arbitrarily and insufficiently. The intention of the law is by no means to restrict the sale of kalium. On the contrary, it is in the interests of German national economics to have the sale of potash at home and abroad increased as much as possible. The allotment office, which is composed of representatives of the German Government and owners of potash mines, has to fix the quotas according to the demand for potash at the time of allotment and in consideration of the demand which existed the year foregoing; in Germany’s interests it will not make the quotas too low either for the home market or for the foreign market. Furthermore, this office is required by express provision of the law (sec. 6)¹ to fix the quotas higher each year than they were for the year past at the time of allotment. In addition, the clause that the allotment office may subsequently increase the amounts fixed anticipates any possible increase in the demand at home or abroad which might arise in the course of a year by providing that such increase may find sufficient quantities of duty-free potash salts to satisfy it. The United States is thereby absolutely assured the amount of potash it requires each year. It follows from the foregoing that the (governmental) duty is not only not an export tax technically, but will not have the effect of one. There can arise no question of an export duty, for the reason that the duty on excesses is also imposed when the inland quota is exceeded. The duty is to serve to avoid overproduction exceeding the world’s demand, and to prevent single works or combinations of works from grasping for themselves the entire production of potash, creating a monopoly and rendering impossible the free competition of the other works. The legal provision in question has therefore the like aim for the potash industry as was contemplated for all branches of industrial life in the United States by the Sherman Antitrust Act of 1890.

In reply to the statements of the American note—that the charges imposed impair contracts legally concluded by American citizens, or even invalidate them; that they amount to an unforeseen burdening of the American contractors; and that they affect only such existing contracts as have been entered into by Americans—the following is submitted:

Firstly, contracts between German potash works and French citizens are also affected in the same manner. Secondly, according to the law, the duty is to be borne by the producer in Germany.

Now if in a single case the buyer has bound himself by contract to bear the duty, that is a private agreement, for the consequences of which the Imperial Government can not possibly be made responsible. If this is the case with the American contracts, the American buyers have assumed this obligation, as they must have taken into consideration the introduction of such a duty. For in the session of the Reichstag of July 7, 1909, Minister Delbrück, then royal Prussian minister of commerce, designated the levying of such a duty as a useful measure, and gave it to be understood that legal regulation to this effect was not improbable. This declaration had as its purpose to prepare interested parties for the introduction of the duty. Nevertheless, a month later, on August 8, the American contractors ratified the drafts of agreements made without binding force with Schmidtmann during the night from June 30 to July 1, and thereby made legally binding contracts out of preliminary agreements without binding force.

The Imperial Government is therefore unable to recognize that the duty provided for by the law amounts to an unjustifiable infringement of American contracts which could not have been foreseen. The situation is analogous to that which obtains whenever a new tariff law is introduced in the United States: in contrast with the usage in Germany, where a considerable space of time is left between the publication of a new customs tariff law and its enforcement, thus rendering possible the fulfillment of existing contracts at the rates of the old tariff, the Union puts the rates of a new customs tariff in force the day after its passage by Congress, and infringes upon contracts previously concluded by imposing the higher rates of the new tariff. Although contracts concluded by German nationals are often seriously impaired thereby, the Imperial Government has never made representations in such cases, much less called such procedure an unfriendly act, as was done in the American note of May 5, or gone so far as to threaten rupture of previously friendly commercial relations. The tariff legislation of the large English colonies, Canada, Australia, might be cited. In these countries the rates provided for by a mere customs tariff bill are enforced on the day the proposed law is introduced in Parliament. The Imperial Government has, however, never heard that in such cases, where without doubt numerous contracts concluded by American firms are materially affected by new and quite unforeseen burdens, the American Government has ever entered a protest.

Although the Imperial Government is quite satisfied that the regulation provided for by the law embodies no unjustifiable or disloyal restriction of American rights, it is not unwilling, in order to furnish the American Government with new proof of its friendly feeling, to accommodate to a certain extent the American wishes.

The fact that the duties fixed by the law would have a more unfavorable effect on foreign prices than the parties interested were led to suppose after the declaration of the royal Prussian minister of commerce mentioned above, might perhaps be looked upon as rigorous; in view of such possibility the minister of commerce inserted in the bill a duty equal to the difference between such “dumping prices “as might be made and the foreign prices paid up to July 1, 1909.

Accordingly, in order to be able to comply with the wishes of the American Government, the law contains a clause whereby the Bundesrath is authorized to reduce the duties for contracts concluded with binding force before December 17, 1909, so that the contractual prices, including the duty for quantities delivered subsequent to May 1, shall not be higher than the prices which prevailed up to July 1, 1909.

If the Bundesrath should make use of this authorization, the American buyers would be deprived of all pretext for complaints of injury to just interests. They would receive potash salts at the same prices as they paid before July 1, 1909, and they would only lose the purely speculative profit they endeavored to obtain by taking advantage of the unfortunate condition of the German potash market. It may be remarked in this connection that the insertion of this clause in the law is now being sharply attacked by the German interests. For example, in No. 106 of “Industrie” the Imperial Government is reproached with excessive complacence toward foreign countries. The American Government will perceive from this that the Imperial Government has gone to the utmost possible limits of courtesy towards it in the modification of the law just discussed.

The Imperial Government welcomes the American Government’s offer of its good offices towards overcoming the existing difficulties, and is for its part ready to negotiate further on the basis mentioned relative to the removal of these differences.

The undersigned avails, etc.,

Schoen.

1. Not printed.
1. Not printed.
1. Should be Ch. II, art. 7.