The Ambassador in France (Wallace) to the Acting Secretary of State
[Received February 19—6:40 p.m.]
494. R–328, for War Trade Board and Davis.
(1) Referring to Department’s 325, February 10, 4 p.m. Your part I. German proposal, our R–277, has no connection whatever with Versailles arrangement of October 4. Arrangement of October 4th did not state that all deliveries under paragraph 1 and 2 of annex VI would be credited at German list prices at current exchange rate. It only provided for prompt delivery to Allies of dyestuffs urgently needed up to an amount not to exceed 5,200 tons out of impounded stocks. It was understood that current exchange rate would apply to this lot and all Allied Governments have acted accordingly, including United States, as Textile [Alliance] have taken orders from consumers for reparation dyes on this basis. Any surplus from this 5,200 tons not taken by Allies will revert to balance of impounded stocks and will be allocated according to our [Page 487]R–288.10 Question of exchange rate for this balance has not been discussed by sub-commission nor settled by Reparation Commission but we believe majority of sub-commission is in favor of current exchange rate for all impounded stocks. Treaty does not, however, require use of current exchange in fixing values. The list prices of dyestuffs in inventory of impounded stocks were fixed by Germans and represented prices they were quoting to others at that time and they doubtless took into consideration current exchange rate in making prices. Exchange rate not discussed in connection with German proposal our 277 but as it provides that Allies pay lowest price quoted it can safely be expected that Germans will consider exchange rate in quoting any prices.
Your part I (b). You state impossible for the United States Government to guarantee against re-exportation or to give assurances that we will limit our demands to actual needs. Under these circumstances it would seem impossible for us to urge other Allies to adopt either procedure A or B. Your part II will imply the very assurances you refuse to give. German proposal refers only to dyestuffs. Please note that both Allies and Germans have separate and distinct committees for dyestuffs and pharmaceuticals.
Jacoby cannot use War Trade Board allocations of October alone in drawing up manufacturing program as these lists do not give exact brands but will use these lists in connection with orders actually placed by Textile. In this connection you should consider some method by which consumers can order against quantities asked for in this program either through our Textile or some Government agency.
Your part II, arrangement of October does not in any way govern distribution remaining stocks under paragraph 1 annex VI.
Procedure A. This in general is view of dyestuffs sub-commission and it is expected that Allies will trade products but as entire stock is only 20,000 tons against conceded consumption of 80,000 tons by five countries, it is evident that any surplus will be mainly junk, see our R–294, paragraph 7.10
Procedure and administrative difficulties too great and also we could not urge this in view of our inability to carry issues out ourselves.
Your part II paragraph 3, neither procedure can be made to cover 5,200 tons.
Your part III, pharmaceutical products will require same procedure as dyestuffs. One method of distribution for stocks, another for daily production, possibly program of manufacture may also be wanted. Useless to cable lists 2 and 3, which were mailed to [Page 488]Department January 23rd.11 In this connection see also our R–306.11 List 3 contains only pharmaceutical intermediates not colorings as you state:
Your part IV. You can not expect Reparation Commission to protect United States dye or drug producing industries in foreign markets and if menace is serious for United States market in drugs, suggest same method of control as now used for dyestuffs.
(2) Jacoby sails March 6th as technical dyestuff matters are in good shape and suggests that if you send another expert he should act both as adviser on dyestuffs and pharmaceuticals and also handle Textile matters.
(3) It is absolutely essential that some one be sent to take Jacoby’s place and that he reach here before Jacoby leaves. I have not the time to personally examine into these dyestuffs matters and must continue to have some one to handle same upon whom I can confidentially and wholly rely. Rathbone.