File No. 20437/108.
The American Ambassador
to the Secretary of State.
American Embassy,
Berlin, June 23,
1910.
No. 729.]
Sir: Referring to the Department’s telegraphic
instruction of June 1, to its instruction of June 4, No. 393,1 and to its second telegraphic
instruction of June 7, regarding the conclusions reached by the Imperial
German Government with respect to the regulation of the production and
sale of potash, I have the honor to report that, etc. [references to the
following three inclosures].
[Page 212]
With regard to the third numbered statement in my dispatch No. 697, of
May 18, in which I emphasize the German position that the imposition of
a Government Chargé does not impair the existing contracts, since these
contracts contained a specific agreement to pay any Government charges
that may be imposed, I ought perhaps to explain that in stating that
point to the Department without having at all conceded it in any
expression to the Imperial Government, I was relying upon the
declaration of Minister Delbrück before the Reichstag on July 7, 1909,
before the signing of the American contracts, that the levying of a duty
and legal regulation of the output of potash would be useful and would
probably be resorted to. As explained to me personally by Minister
Delbrück, this announcement was intended to prevent the making of
separate contracts which would disorganize the potash industry, in
which, it should be remembered, the Prussian Government is directly
interested. He therefore maintains that the execution of that proposal
is just, because the proposal was meant to be prohibitive of such
contracts as were afterwards made. In making my statement above referred
to in dispatch No. 697 I was fully persuaded that this allegation on the
part of Minister Delbrück is true, and I still believe it to be so. On
the other hand, I now have reason for doubting that the American
contractors were aware of the intention of the Imperial Government to
impose such heavy penalties as have been imposed by the recent potash
law, for I am informed by the legal adviser of some of them, Justizrat
Schneider, that he assured the American contractors that if any
Government charges were imposed, and he thought it doubtful if any would
be, they probably would not be of such a character as to create a heavy
burden. In this it seems he was mistaken. I have, therefore, felt
justified in emphasizing the department’s view, which is also my own
view, that the “Government charges” contemplated in the American
contracts, and which it is agreed the American contractors are to pay,
are not such heavy penalties as those imposed by paragraph 26 of the
existing law, but rather such moderate revenue charges as are imposed by
paragraph 27 of the law.
Of course, all these questions would be swept aside if the interested
parties on both sides could come to a voluntary agreement, and, if it
should prove possible, that would no doubt be the most desirable
termination of the present situation.
I have, etc.,
[Inclosure 1.]
The American
Ambassador to the Secretary for
Foreign Affairs.
American Embassy, Berlin, June 9,
1910.
Excellency: Referring to the previous
exchange of notes on the subject of the effect of the law regulating
the production and sale of potash, of May 25, 1910, I have the honor
to call the attention of your excellency to the condition in which
the American contractors find themselves placed by the operation of
that law.
The American contractors referred to took upon themselves contract
obligations at the solicitation of well known and responsible mine
owners in Germany
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able and
willing to fulfill their obligations. It is true that the American
contractors agreed to assume the light government charges which
might in the future be imposed upon this industry, as has been
provided for in section 27 of the present law. It was not
anticipated and it could not have been imagined that a penalty
considerably greater than the price of the product agreed upon in
these contracts would be imposed, yet this has been done in section
26 of the law.
The contract price per 200 kilogrammes of muriate of potash named in
these contracts is 7.70 marks; the penalty imposed upon the mine
owners for production over their assigned quota is 9 marks, which
makes the cost 16.70 marks, whereas the general market price, even
as protected under the law, is not over 14 marks.
It is evident from this mere statement of facts that the American
contracts have been since May 25 not only rendered valueless but
that there is imposed upon the American contractors, if the
contracts are fulfilled, the obligation to pay much more than the
market price. The government charge has been, from the moment this
law was passed, added to the contract price by the producers, on the
ground that exporting the whole of their product they have no quota
exempt from the penalty and that the American contractors must pay
this extortionate sum.
In order to understand fully the Injustice of this law in its effect
upon the American contractors, it is necessary to consider the fact
that the German producers affirm that if not interfered with by law
they could fulfill these contracts at a large profit. It is
therefore evident that by imposing a Government Chargé considerably
greater than the contract price of the commodity sold at a price to
afford a generous profit the action of the Government has inflicted
a serious injury upon the American contractors and not only
destroyed all the profits of their business but placed them under
obligations to meet a heavy loss.
Such being the existing circumstances of the case, it is a
satisfaction to believe that in fulfillment of the assurances of the
Imperial German Government that this law was not intended to
invalidate or impair the American contracts that it will take such
action as to restore to them their value.
The probable effect of this law was so clearly foreseen that
provision was made in the law itself for averting such consequences.
I am instructed by my Government to invoke the sense of justice of
the Imperial German Government in this matter as respects contracts
concluded before December 17, 1909, to the end that such exemption
be made as may be necessary in order to avoid the impairment of
these contracts.
As the American contractors have already incurred large obligations
at an absolute loss and these losses are continuing day by day under
the present conditions, it is evident how extremely pressing the
matter is, and the Imperial German Government is urgently requested
to give it early attention.
I avail, etc.,
[Inclosure 2.]
The Secretary for Foreign
Affairs to the American
Ambassador.
Foreign Office, Berlin, June 21,
1910.
The undersigned has the honor to inform his excellency, Mr. David
Jayne Hill, ambassador of the United States of America, in reply to
the note of the 9th instant, that the Imperial Government is ready
to lay before the Bundesrath a motion that the advantages of
paragraph 46 of the potash law be extended to the contracts
concluded by American purchasers previous to December 17, 1909. It
may, however, be pointed out that the advantages to be granted must
be kept within definite limits, since the legal provision in
question is intended merely to offer foreign purchasers security
that they will not be compelled, in consequence of the legal
charges, to incur higher expenditures in the purchase of the salts
than would be the case in buying salts not burdened with duties from
another source.
Therefore, in calculating the average expenditures, including the
reduced duties, which the purchaser has to pay out for the salts,
the quantities not in excess of the quota of the seller and not
burdened with the duty, must also be included.
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- Secondly. As was already stated in the note of the foreign
office of May 11, the reduction can only be applied to
quantities which the buyer can prove that he is obliged to
accept, and not to quantities with respect to which he may
exercise the right of option.
- Thirdly. The buyer would have to petition for reduction of the
duty to be paid by the seller, and at the same time furnish
proof that he is not only bound to accept the goods, but to
defray the duty also.
- Lastly. The Imperial Government would not like to omit the
suggestion that perhaps the proper moment has arrived for an
amicable agreement between the American buyers, the potash works
supplying them, and the other potash works, which would settle
the question of levying a duty on the ground, of paragraphs 26
and 46 of the law. The Imperial Government would be ready to
promote such an agreement as far as possible.
The undersigned avails, etc.,
[Inclosure 3.]
The American
Ambassador to the Secretary for
Foreign Affairs.
American Embassy, Berlin, June 23,
1910.
The undersigned has the honor to acknowledge the receipt of the note
of his excellency, Baron von Schoen, imperial secretary of state for
foreign affairs, of June 21, 1910, stating that the Imperial
Government is ready to lay before the Bundesrath a motion that the
advantages of paragraph 46 of the potash law be extended to the
contracts concluded by American purchasers previous to December 17,
1909.
While it is a satisfaction to know that the Imperial Government is
ready to act upon the provision of law intended to prevent the
invalidation of the American contracts through the operation of the
general provisions of the recent law for the regulation of the
potash industry, it is not clear from the qualifications added in
the note of June 21 that the American contracts may not suffer
considerable losses even with the favorable action of the
Bundesrath, provided the three conditions laid down in that note are
applied.
The first condition laid down in the note is that “in calculating the
average expenditures, including the reduced duties, which the
purchaser has to pay out for the salts, the quantities not in excess
of the quota of the seller and not burdened with the duty, must also
be included.” It is not clear what relation the reduction of duties
can have to those quantities which under the law are exempt from
duty.
The second condition is that “the reduction can only be applied to
quantities which the buyer can prove that he is obliged to accept,
and not to quantities with respect to which he may exercise the
right of option.” While it is admitted that the reduction of duties
can apply only to quantities actually taken at the present time or
in the future under the contracts, it can not be admitted that the
rights of option agreed upon in the contracts themselves, including
the right of extending the contracts as specifically provided for,
can justly be denied.
The third condition requiring the buyer to petition for a reduction
of the duties to be paid by the seller and to furnish proof that he
is not only bound to accept the goods but to defray the duty also,
requires a special comment. It is a fact that the American buyer is
at the present time actually charged and is held bound to pay the
maximum duty on his purchases, since the sellers have no untaxed
quota to dispose of. There will be no difficulty in establishing the
facts that these duties are demanded and apparently must be paid,
unless relief is afforded to the American contractors. It is true
that a fair interpretation of the contracts would not oblige the
American contractors to pay the confiscatory charges imposed by the
present law, for the obligation to pay the Government charges that
might be imposed, as stated in my last note, was only in
contemplation of a light revenue Chargé such as that imposed in
paragraph 26 of the potash law and not a Government charge exceeding
the value of the goods as named in the contracts. It is at this
point that the injustice to the American contractors is rendered
most plain, for they are held by the terms of the contracts to bear
burdens which were never contemplated when they were signed and
which are absolutely ruinous to their business unless relief is
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afforded. It is therefore
expected that this relief in accordance with the promises and
representations of the Imperial Government will be afforded and that
it will be ample to prevent the invalidation of the contracts. It
may be doubtful if under the provision of paragraph 46 of the law it
is possible to prevent heavy losses on the part of the American
contractors, and if this should prove to be the case the American
Government would feel obliged to ask for still further exemptions.
Attention should also be drawn to the fact that options provided for
in these contracts, extending the one and two year contracts for
longer periods, must be closed by or before July 1, which is very
near at hand. If the existing conditions of affairs, which is a
practical invalidation of the American contracts, be continued until
July 1, 1910, it is evident that the American contractors will not
wish to extend relations which they can sustain only at a heavy
loss. As this condition has been imposed by the existing potash law,
the petition of the American contractors is one of very great
embarass-men t unless it is promptly relieved, and the undersigned
feels it to be his duty most urgently to request that action be
taken to terminate the present situation in time for the American
contractors to decide whether they will or will not exercise their
right of option on or before July 1, 1910.
Finally the undersigned notes the suggestion contained in the last
paragraph of the note of June 21 that perhaps the proper moment has
arrived for an amicable agreement between the American buyers, the
potash works supplying them, and the other potash works, which would
settle the question with regard to the levying of duties. It is
noted also that the Imperial Government would be ready to promote
such an agreement so far as possible. The American Government would
no doubt be entirely satisfied with any amicable arrangement
voluntarily accepted by the American contractors, but until such an
amicable arrangement is effected it must continue to maintain its
attitude of remonstrance against the invalidation of the American
contracts as an act of injustice which it can not believe that the
friendly disposition of the Imperial Government would permit it to
sanction.
The undersigned avails, etc.,
