Papers Relating to the Foreign Relations of the United States, 1922, Volume II

462.00 R 295/40a

The Secretary of State to President Harding

Washington , August 16, 1922 .

Dear Mr. President: Following the signature of the Treaty of Versailles in the summer of 1919, it was manifestly important that some arrangement be made by which American consumers might obtain the advantage of receiving German reparation dyes. Inasmuch as the treaty was not ratified by the United States, this Government was technically not entitled to receive these dyes under the treaty. However, as a part of the general equity of the United States in the peace settlement, it was recognized that the United States should have some participation. The need was particularly acute in view of the shortage of German dyestuffs in the United States, and it seemed necessary to make some arrangement in order that American consumers might not suffer.

Accordingly, representatives of the United States were sent to a conference on the dye situation held at London in September, 1919. This conference adopted a resolution recommending to the Committee on Organization of the Interim Reparation Commission that the immediate needs of the several countries concerned be met from German stocks impounded pursuant to paragraph one of Annex VI of Part VIII of the Treaty of Versailles. The plan proposed was adopted by the Interim Commission and placed in effect. American participation under this plan was approved by the Department of State, and on September 29, 1919, the Department addressed a letter to the Textile Alliance⁷⁴ suggesting that the Department would be prepared to have the Textile Alliance import and distribute the dyes in question subject to the following principal conditions: (1) the War Trade Board Section of the Department of State was to allocate the dyes among consumers; (2) the orders were to be placed and the technical arrangements made by the Textile Alliance; (3) the prices to be paid by consumers should be those agreed upon in Paris and communicated to the Alliance; and (4) the Textile Alliance was to receive a commission to cover expenses, any overplus to be distributed pro rata among the consumers. The conditions stipulated by the Department were accepted by the Textile Alliance.

In April, 1920, this Department made a further arrangement with the Textile Alliance for the importation and distribution of additional German dyes.⁷⁵ This arrangement was similar to the foregoing, but provided in addition that the Alliance should not charge prices considered unreasonable by the Department of State, that there should be no discrimination on the part of the Alliance between consumers of dyes, and that the net profits resulting from the proposed operation should be paid into the Treasury of the United States “on such conditions as shall be authorized by the Secretary of State and the Secretary of the Treasury.”

Since it appeared advisable to obtain for American consumers the benefits of receiving a share of the current German production as well as the impounded stocks, another letter was addressed to the Textile Alliance under date of July 30, 1920,⁷⁶ outlining an arrangement to take the place of previous arrangements.

The arrangement of July 30, 1920, specified in more detail the plan of operations of the Alliance in the matter, and contained a modification in regard to the disposition of the surplus resulting from its operations. The arrangement provided, in substance, that one-fourth of the surplus should be devoted by the Alliance to educational and scientific purposes, and that the remainder should be paid into the Treasury of the United States, the Secretary of State to recommend that said moneys be appropriated for educational and scientific purposes. I may say, parenthetically, that up to the present it has not been possible to bring about the payment of these moneys into the Treasury because of certain questions not as yet settled between this Department and the Alliance. The question of modifying this arrangement in the sense that the surplus should be paid into the Treasury on account of the costs of the American Army of Occupation is under consideration. I have not learned whether the suggested modification will be agreeable to those who underwrote the purchase of these dyes, but the matter is under active consideration and an early decision appears likely. Of course, we cannot insist upon payment into the Treasury without performing a condition, that is, making the above-mentioned recommendation to Congress, unless the Textile Alliance should be disposed to modify the arrangement on this point. The Textile Alliance received and sold reparation dyes under this arrangement until the close of 1921. However, a new situation was created by the proclamation of our treaty with Germany in November, 1921.⁷⁷ The wartime powers of the Executive had ended, and although the United States was clearly entitled to receive these dyes, it did not appear that the Executive had authority to continue the arrangement with the Textile Alliance. Accordingly, in a letter dated December 14, 1921,⁷⁸ I notified the Textile Alliance of the termination of the arrangement in question.

You will recall that the situation resulting from the termination of this arrangement was taken up with you by Mr. Fletcher, when he was Acting Secretary of State, in February last. In response to Mr. Fletcher’s letter of February 24, 1922,⁷⁸ with which he forwarded to you certain data relating to this matter, you replied under date of March 2⁷⁸ in the sense that it was your judgment that the matter was one that called for Congressional action, and that “it seems only fair to permit Congress to venture upon a line of solution, which is in accordance with its own expression of policy.” You will also recall that you wrote to Senator Frelinghuysen on February 20,⁷⁸ that the United States should “get the benefit of such reparation credit as might come to us through the German export of dyes to this country.” You also suggested that the Senator should confer with some of his associates “regarding a resolution which will deal with the dye question definitely and directly.”

I now desire to summarize the developments that have occurred since the time of the aforementioned correspondence, and also to lay before you the present situation.

Since the termination of the arrangement between this Department and the Textile Alliance, in December, 1921, the Reparation Commission has continued to allot dyes to the Alliance. This action has been due in large part to the fact that the Textile Alliance had previously been in close relation, to the Reparation Commission, during the period in which it has been receiving these dyes in accordance with the arrangement between the Alliance and this Department. However, the Reparation Commission has desired that this Government should indicate positively in what manner it wished the American share of these dyes to be disposed of. In view of the fact that, under existing legislation, neither the Department of State nor, so far as I am aware, any other of the executive departments is clothed with adequate authority in the matter, it has not been possible for this Government to take such action as it might otherwise have wished to take.

On April 28, 1922, Mr. Boyden telegraphed⁷⁹ that the Reparation Commission had decided to continue relations with the Textile Alliance up to June 30, 1922, and indicated that a further extension was unlikely. The following is quoted from the decision of the Commission:

“That the application of the arrangements at present in force should be continued until June 30th next, in the hope that before that date a decision might have been arrived at by the Committee which the U. S. Government had appointed to consider the question. Mr. Boyden would cable to America in order to hasten the decision of the above mentioned Committee as far as possible.”

On June 12 Mr. Boyden telegraphed again,⁸⁰ reporting that the situation remained as before and that relations between the Commission and the Alliance were likely to come to an end on June 30.

On June 16 Senator Shortridge introduced in the Senate a Joint Resolution which would give the President authority to take such measures as might be necessary to secure these dyes. I am attaching a copy of this Resolution for your convenience.⁸⁰

In view of this situation, it was deemed advisable to address a telegraphic instruction to Mr. Boyden, under date of June 23,⁸⁰ requesting him to inform the Reparation Commission of Senator Shortridge’s resolution. Mr. Boyden was also instructed to make to the Commission a statement similar to that which he had previously made at the time arrangements with the Textile Alliance were terminated in December last, to the effect that this Government would interpose no objection to the continuance of deliveries to the Alliance. On June 30 the Reparation Commission decided to continue its relations with the Textile Alliance pending action by the Congress of the United States.

It now appears that the Textile Alliance does not intend to place further orders for reparation dyes. A statement purporting to be an official announcement of the Alliance to this effect was published in the Press on July 31, but this Department is without advices in the matter from the Alliance.

Upon the termination of the arrangement between this Department and the Textile Alliance, a number of American importing firms expressed a desire to obtain reparation dyes. This Department has interposed no objection to the procurement of dyes from the Commission by such firms, but, as explained above, the Commission has continued provisionally to deal with the Alliance.

Whatever may be the intentions of the Textile Alliance or the importing agencies concerned, the fact remains that it is most anomalous that the enjoyment of the benefits from the receipt of these dyes should depend upon the action of private organizations which are independent of governmental supervision or control. Under existing arrangements the Government of the United States is entitled to about one-fifth of any reparation dyes that may be obtained from Germany by the Reparation Commission. The arrangements made between this Department and the Textile Alliance during the past administration had as their object the receipt by the Textile Alliance, for distribution to American consumers, of the American share of these dyes. The Textile Alliance has paid to the Reparation Commission the so-called “reparation prices” for these dyes; these prices are relatively cheap, since they are based upon the domestic selling prices in Germany. The sums paid by the Alliance have gone into the general reparation funds and have been distributed, mostly to Belgium on account of Belgian priority.

It has also been anomalous that the United States, while owed large sums by Germany for the cost of the American Army of Occupation and for American claims, should not have received these dyes for nothing. As long as the United States had not ratified the Treaty of Versailles there seemed no remedy for this situation. Now, however, in view of the Treaty with Germany, proclaimed November 14, 1921, the United States has been accorded the rights and benefits under the reparation clauses of the Treaty of Versailles that it would have possessed had that treaty been ratified by this country. Accordingly, I have felt that an arrangement should be made, if possible, by which these dyes might be received and credited upon the claims of this Government. Since last March, when communications were addressed to the Allied Governments in regard to the payment of the cost of the American Army of Occupation,⁸¹ negotiations with these governments have been undertaken with a view to devising a suitable means by which the sum due to this Government could be paid. The difficulties from the point of view of these governments are, of course, great, and as yet it has not been possible to make much progress in the matter. However, since it appeared possible and desirable to obtain at least the benefit of the value of these dyes, I instructed the Ambassador at Paris, on June 24,⁸² in cooperation with Mr. Boyden, to inquire whether the respective governments would be willing for the United States to receive reparation dyes in the future for nothing, the proceeds to be applied to pay current army costs and any surplus, should it exist, to be applied to the payment of accumulated costs.

I have now been advised that the Governments of France, Belgium, Italy, and Great Britain are willing that the proceeds of the disposition of the American share be applied to meet current army costs. It is not clear from the message received whether the accumulated costs are also included, but I do not anticipate any difficulty on this score.

As it appears possible for this Government to obtain reparation dyes for nothing, the importance of having authority to deal with this situation more definitely and directly is obviously enhanced. I feel that it would be most unfortunate if American consumers of these dyes should be deprived of the opportunity to obtain them cheaply and become dependent upon the German cartel, and also if this Government should be unable to receive the proceeds of their sale as a credit on its claims. The danger exists that both of these unfavorable contingencies will result, unless this Government can take some action.

Colonel Logan, who is acting in Mr. Boyden’s place during his absence in the United States, has reported by telegraph⁸² that the Dyestuff Bureau of the Reparation Commission is likely to recommend to the Commission, if the Textile Alliance takes no further dyes, that the share of the United States be held at its disposal for one month and then turned into the common pool.

To recapitulate, the points to be noted are these:

(1) It is desirable that the United States should receive reparation dyes.

(2) It is desirable to receive them without payment on account of current and accumulated army costs. It now appears that this can be arranged.

(3) In view of our treaty rights, I suppose you have authority to receive these dyes.

(4) The difficulty is as regards their importation and distribution In the United States for the benefit of American consumers. Suitable action to this end, I take it, requires more adequate authority than the Executive now possesses with respect to the disposition of public property. Congress ought to give this authority.

(5) There are also questions as regards settlement with the Textile Alliance, but these are distinct and can be disposed of in due course.

In view of this situation, I should be glad to have an opportunity to discuss the matter with you whenever it may suit your convenience.

Faithfully yours,

Charles E. Hughes

74. Letter not printed.
75. See Foreign Relations, 1920, vol. ii, p. 495.
76. Ibid., p. 501.
77. Foreign Relations, 1921, vol. ii, p. 29.
78. Not printed.
78. Not printed.
78. Not printed.
78. Not printed.
79. Telegram not printed; Roland W. Boyden was acting as American unofficial representative on the Reparation Commission.
80. Not printed.
80. Not printed.
80. Not printed.
81. See telegrams no. 90, Mar. 20, and no. 92, Mar. 22, to the Ambassador in France, pp. 220, 224.
82. Not printed.
82. Not printed.