611.626/128a: Telegram

The Secretary of State to the Ambassador in France (Wallace)

325. For Rathbone from War Trade Board and Davis.

This cablegram expresses views and recommendations of War Trade Board and Davis concerning entire question of delivery and distribution of dyestuffs and chemical drugs by Germany under paragraphs 1 and 2 of annex VI.

Part I. Embassy’s 324 January 31 10 p.m. R–277. We approve the acceptance of the German proposal with relation to deliveries under paragraph 2 of annex VI. It seems clear that such acceptance would result in partial modification of Versailles arrangement of October 2 and 4, which provided that Germany would be credited for all deliveries under paragraphs 1 and 2 of annex VI at the German list prices but on terms of the current exchange rate for the mark. Such result is desirable for two reasons, (a) Whatever the purpose of the option clauses in the treaty may have been, it is fair and advisable from the point of view of reparations that Germany should be credited with the real value of her deliveries as is contemplated in article 236 of part VIII, and in paragraph 3 of annex VI. (b) On the other hand, such result is essential to protect the dye and drug producing industries in the Allied and Associated countries from the improvident arrangement of October 2 and 4, whereby these commodities could be dumped on the markets of the world, including those of the Allied and Associated Governments at prices from 7 to 20 times less than their real value. Accordingly, the German proposal should be accepted for all times if Germany will live up to her guaranties under it.

However, with respect to the guaranty against re-exportation intimated in the proposal, it should be observed that it will be impossible for this Government to give such explicit guarantee in absence of appropriate legislation. Therefore, in lieu of such explicit guarantee, you may give assurances that this Government, during the existence of the arrangement resulting from the acceptance of the German proposal, will be careful to limit its demand for deliveries under paragraph 2 of annex VI to its actual needs for domestic consumption.

We assume, of course, that German proposal includes all dyestuffs and chemical drugs described in the French text of paragraph 5 of annex VI.

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Replying further to your R–277, it is difficult for us at this time to say what our needs for dyestuffs and chemical drugs will be for April, May and June. However, you may advise Jacoby that with respect to dyestuffs our needs in a general way for these three months should be at least one-half of the quantity of each dyestuff specified in the list which he has of vat and non-vat dyes for which we made allocations in October last. In this connection, Jacoby should make no deductions from that one-half on account of any quantity of dye-stuffs which may be allotted to us from the 20,000 tons of stocks on hand. The reason follows: When those stocks are impounded, our internal control may not authorize the importation of any quantity from our allotments, in which case they would go by default. With regard to our needs for chemical drugs for the three months to be supplied from daily production, see part III below.

Part II. Deals with the delivery of dyestuffs and chemical drugs under paragraph 1 of annex VI. These are not included in the German proposal. Therefore, they are still governed by the arrangement of October 2 and 4. With respect to them the danger of noncompetitive dumping referred to in part I still persists. Accordingly, we suggest advisability of eliciting promptest adoption of policy by Reparation Committee along following general lines. Whatever policy is adopted should insure against this danger. We suggest two following alternative procedures to attain the desired end.

A. Each country should give assurances that it will not draw on its allotments in excess of its actual quantitative requirements for domestic consumption. The surplus of the aloltments to each country should be tendered to the other countries to make up any deficit in their requirements for domestic consumption which could not be filled from their original allotments. Thereafter, the ultimate surpluses should be disposed of for account of the Reparation Commission at their real value, either by the Reparation Commission, by Germany or by the Allied and Associated countries at prices to be fixed by the Reparation Commission, the proceeds to be paid into the reparation fund and Germany cerdited accordingly.

B. If the Allied and Associated Governments will not give the assurances referred to in A above, or if a plan cannot be devised giving reasonable promise that such assurances will be carried out in good faith, then the following procedure shall be adopted: Each Allied and Associated Government should give assurances that, having exhausted its entire allotments, it will not dispose, nor permit the disposition of any part of such allotments in any other country of the world, except for the real value of the comodities, the prices to be under the supervision of the Reparation Commission. In such [Page 485]case, each Allied and Associated Government, if it desired, could apply the proceeds beyond the cost to the payment of Germany’s debt either to the particular country or to its nationals. For a statement of the present intentions of this Government in that contingency, see paragraph 4 of Department’s 252, January 31. This latter procedure presents administrative difficulties. For instance, in our own case, in the absence of an appropriate agency, we would experience difficulty in enforcing resales outside of this country at competitive prices. But, we feel that if procedure A is not adopted, procedure B is the only one that will insure against non-competitive dumping.

We believe procedure A is more desirable from the standpoint of treaty construction and from the standpoint of safety to domestic industries. Besides, in view of Embassy’s 383, February 6, 4 p.m., R–294,8 it should be the more acceptable to France, Italy and Belgium. For it insures to these three countries a surplus beyond their original allotments from which they might draw to make up any deficit in their original allotments for domestic consumption. Any suggestion by France, Italy or Belgium that such deficit in their original allotments should be provided for when the original allotments are made should be met with the following statements:

–The percentages of distribution have already been fixed and have been approved by France, Italy and Belgium. See Embassy’s 352, February 2, 9 p.m., R–288.8
–An original distribution on the basis of the respective needs of the five Allied and Associated countries would involve most careful and elaborate investigations into constantly varying production, consumption and substitution of each commodity in each country.
–The internal control over imports in any one country prevents a determination in advance of domestic requirements.

Under procedure A, France, Italy and Belgium may make up any deficit in their requirements for domestic consumption from the large surpluses which will be left over from British and American allotments.

We do not know whether procedure A can be adopted in time to include within its scope the 5,000 tons of dye stocks on hand already impounded. If not, then procedure B should be adopted in respect thereto.

Part III. Referring to paragraph 7 of Embassy’s 236, January 23, 9 p.m., R–239,8 we are now investigating our quantitative requirements for chemical drugs detailed in list which accompanied your letter of December 10.8 We will not be able to advise you of extent to which we will exercise option on the quantities of chemical drugs [Page 486]specified therein or for the chemical drugs to be delivered under paragraph 2 of annex VI, until such investigation is completed in about 15 days. We will also cable you our recommendations concerning basis for distribution. Meantime refer to Embassy’s 111, January 12, 8 p.m., R–209,9 and cable us list number 2 of drugs not listed, and list number 3 of intermediates not listed.

Part IV. The length of this cablegram reflects the importance we attach to its subject matter. In view of present control and of pending legislation, non-competitive dumping would be no menace to our dye producing industries except in foreign countries where our domestic products are sold. But we view with grave apprehension the possible dumping, particularly in this country and in foreign markets of chemical drugs from Reparation sources at prices with which our drug producing industries could not hope to compete.

Part V. To the extent to which this cablegram conflicts with the views expressed in Department’s 252, January 31, and in memo of War Trade Board forwarded last week to Rathbone by Davis, entitled “Dyestuffs and Chemical Drugs, a Paradox in Reparations”,9 it should be construed as a modification of both.

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