811.512 Boats/8
The Secretary of State to the Chairman of the Committee on Finance of the United States Senate (Smoot)
Sir: I have the honor to enclose for your consideration a copy of a memorandum of November 29, 1927, received from the German Embassy at this capital relative to an alleged conflict between Section 702 of the Revenue Act of 1926, in so far as it affects the taxation of yachts built in Germany, and Article VIII of the Treaty between the United States and Germany of Friendship, Commerce and Consular Rights. I understand that a bill (H. R. 1) proposing an increase in the rates of the taxes under Section 702 is before the Committee on Finance.
A copy of the memorandum from the German Embassy was transmitted to the Secretary of the Treasury in a letter of December 16, 1927, copy of which is enclosed herewith,78 from whom a reply of December 30, 1927, has now been received, a copy of which is also enclosed. From the latter letter you will observe that the Secretary of the Treasury states that he must adhere to the conclusion already reached by him, as set forth in his letter of January 8, 1927, to the Department, a copy of which is enclosed, the last paragraph of which reads as follows:
“I am, therefore, of the opinion that the effect of Section 702 of the Revenue Act of 1926 is not to impose a different tax in this country on the merchandise of Germany than is imposed on the merchandise of the United States, and that the Act of Congress does not violate the provisions of the treaty.”
Without entering into a discussion with regard to the question whether the tax on foreign built yachts imposed by Section 702 of the Revenue Act of 1926 is, technically a tax on merchandise in the sense in which that term is used in Article VIII of the Treaty between the United States and Germany, I believe you will concur with me in the opinion that there is some force in the argument of the German Government that the tax does, in fact, constitute a violation of the spirit of the Treaty. In view of this fact and of the possibility of reprisals in Germany against American made goods, I have deemed it advisable to bring this matter to your attention for consideration in relation to the bill H. R. 1.
While I appreciate, of course, the desire of American yacht builders to protect their industry against the competition of lower priced foreign built yachts, I am hopeful that your committee may find it possible to consider whether such protection could not be accorded through appropriate amendments to the Tariff Act, so drawn as to give due [Page 944] consideration to the decision of the Supreme Court of the United States in the case of The Conqueror (166 U. S. 110).
In this connection there are also enclosed copies of a letter of March 6, 1928, received from the National Automobile Chamber of Commerce and of a further communication of February 29, 1928, from the Treasury Department79 concerning the application of customs duties to the importation of foreign built yachts.
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