611.8331/38

The Chief of the Division of Near Eastern Affairs ( Murray ) to the Minister in Egypt ( Gunther )

[Extract]

Dear Frank: On May 1st we sent you a telegram with regard to the matter of the commercial modus vivendi with Egypt. You will have noted from it that the Department was not able to accept your very logical suggestion that there be omitted from the agreement the clause providing for termination if the future action of the legislature of either Party prevented the terms from being carried out. I am sure you are wondering why this clause could not have been left out when there was such an obvious advantage to be gained as that suggested in your telegram of April 25th.

The fact is that such a clause has been inserted in all commercial agreements made by the Department since 1924. It is necessitated by our peculiar tariff system by which rates are determined by the Congress rather than by the Executive, and more especially by the insertion by Congress of certain provisos in the tariff law under which specified goods, including coal, automobiles, lumber, wood pulp and cement, when coming from countries which charge a duty higher than our own, are subjected to similar duties upon their entrance into the United States. Perhaps I can illustrate this more clearly by an example. The American duty on automobiles under the proposed new tariff is 10 per cent; the Egyptian duty on automobiles is 15 per cent. Under the provisions of the tariff act automobiles entering the United States from Egypt would pay, not the usual duty of 10 per cent, but the higher Egyptian duty of 15 per cent. Since automobiles coming from other countries, where the import duty is the same or [Page 750] less than our own, would pay only 10 per cent, it is obvious that the treatment which we would be giving Egyptian automobiles would not be that accorded to the most favored nation. It so happens that there are at present no provisions for such countervailing duties on any goods that we might import from Egypt. It is impossible to say, however, that there will not be in the Tariff Bill, if and when finally approved, any provision for countervailing duties on goods that might be brought from Egypt. If such a step were taken by Congress it would be incumbent upon the Treasury Department to collect the higher duty on the products coming from Egypt, and this action would, of course, constitute an infringement of the most-favored-nation treatment. As a result it is probable that Egypt would have a valid claim against this Government. Under the circumstances there appeared to be no choice but to omit [insert] the clause in question.

It has been suggested, however, that the mere fact that the Egyptian Parliament passed an act, such as that contemplated, placing a discriminatory duty upon products of American origin, would not release the Egyptian Government from exerting every effort to prevent the final enactment of such legislation which would obviously be contrary to the provisions of the proposed agreement according unconditional most-favored-nation treatment. That is, the Egyptian Executive has agreed to accord American commerce most-favored-nation treatment. If it encouraged or permitted the passage of discriminatory legislation it might be said that it (the Egyptian Executive) had not carried out its agreement in good faith. If, on the other hand, such legislation were passed by the Egyptian Parliament over the veto of the Government, then it could be said in truth that the Egyptian Government had been prevented from carrying out the terms of the agreement by “the action of its legislature.” In such a case, the agreement would automatically lapse.

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Sincerely yours,

Wallace Murray