660f.116 Auto/13

The Secretary of State to the Minister in Czechoslovakia (Einstein)

No. 502

Sir: The Department has received your despatch number 1434 of December 12, 1927,30 on the subject of the Czechoslovak contingent system as applied to importations of automobiles and trucks.

With reference to your request for instructions whether you should press for the entire or partial abolition of such restrictions upon trade, the Department perceives no ground upon which this Government can properly insist upon the abolition of the contingent system. The Legation should avoid any threat of retaliatory measures to that end.

You may, however, argue informally against continued restrictions upon American trade with Czechoslovakia, especially restrictions affecting the importation of automobiles and trucks. You may informally point out the misunderstanding to which the contingent system gives rise as a result of the more or less arbitrary apportionment of import quotas among the various exporting countries and the consequent inability of each country definitely to assure itself that its commerce has in fact been accorded equitable treatment. As the Czechoslovak authorities no doubt have had occasion to observe, the administration of such a system gives rise to frequent disputes.

On November 8, 1927, a convention on Import and Export Prohibitions and Restrictions was signed at Geneva by a number of countries, including Czechoslovakia. In the event that the obligations imposed by this convention are accepted by Czechoslovakia and the United States it may ultimately afford relief from the import restrictions now imposed by Czechoslovakia. For your confidential information, the [Page 693] Government of the United States is now in the course of determining its attitude toward the convention.31

The Legation should, however, devote its attention primarily to obtaining a suitable contingent for American cars, rather than attempting to bring about the complete abolition of the contingent system. The contingent of 530 cars, which it is understood is all that is now available to American automobile manufacturers for the current year, obviously is wholly inadequate to the needs of the American motor industry. In this connection, the Department is enclosing a copy of a letter written by Mr. S. D. Briggs, European Director of the Chrysler Sales Corporation, which has been transmitted to the Department by the Washington Representative of the National Automobile Chamber of Commerce.32

The modus vivendi of October 29, 1923, between the United States and Czechoslovakia33 provides that each Government so far as it maintains the system of licensing will assure to the commerce of the other treatment as favorable as may be accorded to the commerce of any other country. Should the Czechoslovak authorities seek to justify a refusal to increase the American contingent on the ground that the terms of the modus vivendi would require only that the United States be given a contingent equal to that granted the most favored nation, you may bring the following considerations to their attention.

The contingent system involves in practice the more or less arbitrary division of the trade in a given article among the various countries supplying the article in question. The decision of governmental authorities is thereby substituted for the economic factors which normally would determine the distribution of the trade among the exporting countries. In this respect the contingent system differs from the usual method of regulating trade by means of customs duties. The levying of a customs duty on a given article, applicable alike to the commerce of all countries, does not disturb the relationship existing between the different countries supplying the article in question, to the relative disadvantage of the country which occupies the leading position in the production and trade in that article. The latter may feel assured that the same factors which have given it a leading position among the foreign countries supplying the market in question will enable it to retain that relative position even after the import duty has been imposed.

With the contingent system, on the other hand, the situation will be radically different unless the authorities who allot the contingents among the various exporting countries give due regard to the relative [Page 694] position which each exporting country might normally be expected to occupy in supplying the article in question. If this consideration is not taken into account, the contingent system will operate to the serious disadvantage of particular countries.

Thus, if the United States might normally be expected to obtain the largest share of Czechoslovakia’s import trade in automobiles, the allotting of the same contingent to the United States as to other countries would result in a more serious curtailment of the market for American cars than that for automobiles manufactured elsewhere. Consequently, American manufacturers would not, in effect, receive equal treatment with those of France, or other countries, if the contingents allotted to France and the United States were exactly the same.

The normal share of the United States in Czechoslovakia’s automobile import trade is not, of course, a matter which can be determined with precision. Although the fact that this country occupies the leading position among the countries of the world in automobile manufacturing and trade gives rise to the natural presumption that its leadership in this field also extends to the trade of Czechoslovakia, it must be recognized that such a conclusion would not necessarily be valid. The position of the United States in the Czechoslovak market obviously will be subject to influences peculiar to that particular market, such, for example, as the competitive advantage enjoyed by the automobile manufacturing countries of Europe in consequence of their proximity to Czechoslovakia.

A more accurate indication of the share of the trade which, in the absence of the artificial restrictions imposed by the contingent system, each country might now be expected to enjoy, is afforded by statistics showing the share of the trade in any given article which each country has enjoyed in the past. Inasmuch as the circumstances which influence the course of trade are subject to change, it appears that the latest available statistics afford a better indication of the share of the trade which each country might now be expected to obtain than those for previous years.

However, the use for this purpose of recent statistics of actual importations is open to some objection on the ground that the operation of the contingent system itself may have placed American manufacturers in a different relative position in the Czechoslovak market than they otherwise would occupy. Accordingly, any conclusions which might be reached on the basis of import statistics alone, would properly be subject to modification in the light of any other available information which might indicate in a general way the demand for American as compared with other foreign cars in Czechoslovakia, such, for example, as the relative number of applications for import licenses [Page 695] filed by importers of American and other foreign cars, if such information is obtainable.

It is suggested that the Legation, in consultation with the Commercial Attaché, ascertain what evidence along the lines above indicated may be adduced to show that, if the trade in automobiles were subject only to normal economic influences, the United States would now occupy the leading position in the Czechoslovak market. If you consider such a contention well founded you should point out that this consideration should be taken into account by the Czechoslovak authorities to the end that the special hardship which the contingent system would otherwise impose upon American automobile manufacturers may so far as possible be avoided.

In discussing this matter with the Czechoslovak authorities you may make it clear that the principal objection to the contingent system does not arise from the fact that the products selected for licensing include those of greatest importance in the export trade of the United States to Czechoslovakia. The position you should take is rather that when any article has been subjected to import restrictions the relative position which the United States might normally be expected to occupy among the foreign countries supplying the article should so far as possible remain undisturbed.

The above position is in harmony with the provisions of paragraph four of Article VII of the draft treaty of friendship, commerce and consular rights, which was transmitted to you with the Department’s instruction of May 5, 1927.34 The Department will be glad to have a report from you concerning the status of the proposed treaty and the possibility of proceeding with negotiations.

It is understood that some American cars, or cars assembled from American parts, are imported into Czechoslovakia from certain foreign countries, including Germany and Belgium. The Department is not informed whether such cars have been charged against the German or the Belgian contingent, respectively, or against that of the United States. The Department will be glad to have such information as you are able discreetly to obtain on this subject. In particular the Department desires to be informed as to the extent of the importations of cars assembled from American parts in foreign countries, the principle upon which the Czechoslovak authorities determine the contingent to which such cars are to be charged, and the contingent allotted to countries in which such cars are assembled.

For your confidential information, the Department has instructed the American Minister at Warsaw to inform the Polish Government, which maintains a contingent system similar to that in force in Czechoslovakia, that cars manufactured in Denmark from American parts [Page 696] entering Poland on Danish certificates of origin are regarded as properly chargeable against the Danish rather than the American contingent.35 According to information furnished the Polish Government by the Government of Denmark, over 50 per cent of the value of automobiles assembled by the General Motors Company in Denmark is added in that country. You should not take any similar action, however, without specific instructions.

With reference to the large importations into Czechoslovakia in recent years of automobiles and trucks from Trieste, the Department is informed that these consist largely, if not entirely, of Ford cars. The Ford Motor Company maintains what is termed a “service plant” at Trieste in which are performed the final operations necessary in preparing the cars for use. The Department is informed that the operations performed in Trieste represent only a very small portion of the final cost of such cars and could not properly be regarded in any sense as destroying their identity as an American product. It is under stood that these cars are credited in the official statistics of Czechoslovakia as coming from Italy, but are regarded by the Czechoslovak authorities as American cars from the standpoint of import licenses. If the foregoing statement is correct, importations of Ford cars from Trieste may properly be included in any import statistics which you may submit to the Czechoslovak authorities as evidence of the importance of the position which American cars occupy in the automobile import trade of Czechoslovakia. On this basis the Department is informed that the number of cars imported in 1926 from the United States and from Trieste, which were presumably largely or entirely of American origin, amounted to approximately 2300 passenger cars and trucks, or about 50 per cent of the total number of cars imported into Czechoslovakia.

I have [etc.]

For the Secretary of State:
W. R. Castle, Jr.
  1. Not printed.
  2. Vol. i, p. 336. Signed by the United States on Jan. 30, 1928.
  3. Not printed.
  4. Foreign Relations, 1923, vol. i, pp. 873 ff.
  5. Draft treaty not printed. For text of instruction, see Foreign Relations, 1927, vol. ii, p. 542.
  6. See telegram No. 58, Dee. 8, 1927, to the Minister in Poland, Foreign Relations, 1927, vol. ii, p. 622.