The Chargé in Estonia (Carlson) to the Secretary of State

No. 212 (Diplomatic)

Sir: I have the honor to refer to previous despatches regarding the steps taken by Estonia since November 1931, for the regulation of its foreign trade activities and for the limitation of imports to a point when they will under no circumstances be in excess of exports. To this end the Estonian Government has established a system of control over a considerable share of its import transactions.

In the present despatch especial reference is made to despatch No. 193 (diplomatic)1 which the Tallinn Legation submitted to the Department on January 23, 1932, and in which a few statements were made as to the prospects for future imports into Estonia of American products under the import control system or the import monopoly as it is called. These statements were based upon an interview between Mr. Ph. Kaljot, the official of the Estonian Ministry for Economic Affairs, who is in charge of the administration of the present import license system and the American Chargé d’Affaires, a.i., at Tallinn. From the above despatch it would appear that the Estonian Government had decided to distribute its imports proportionately among the countries from which it had previously secured its supplies of goods which could not be produced within the country. On the basis of the above information it appeared that the United States would in the future be assured of a certain market in Estonia for its products, and that American firms which had previously sold goods to Estonia could still expect to receive a certain proportionate share of Estonia’s future requirements of the goods in question.

The Tallinn Legation regrets to report that in the interval which has elapsed since its last despatch on this subject was written, the Estonian Ministry for Economic Affairs has apparently changed its attitude towards the above question. It appears that in the future [Page 177] in passing upon licenses for the importation of goods from any one foreign country, the above Ministry will before such licenses are approved, assure itself that the said country has within a reasonable period purchased Estonian goods in an amount which compares favorably in value with that of the goods the importation of which into Estonia is being sought. In other words, the principle of barter, or an exchange of goods for goods is to be followed.

While the Department has already been advised on several different occasions* that the Estonian authorities were considering the introduction of a system of the above kind the Tallinn Legation was not of the opinion that they would go so far as to put it into actual practice. The first indication of the determination of the Ministry of Economic Affairs to regulate its foreign trade on the basis of a “give and take” system was given in the final days of the week which has just closed when it became known that negotiations are in progress which have for their purpose the conclusion of an agreement between Estonia and Belgium for the exchange of Estonian butter for Belgian super-phosphates.

On Saturday, February 13, 1932, I called upon Mr. Kaljot, of the Ministry for Economic Affairs, to make representations in behalf of the Estonian subsidiary of the Standard Oil Company, to which licenses permitting the importation of gasoline, and lubricating oils have been refused. In reply to my inquiry Mr. Kaljot stated that the above licenses had been refused (1) because the stocks on hand of the products in question were sufficient to cover present requirements and (2) because of the unfavorable status of the foreign trade balance between Estonia and the United States.

Mr. Kaljot’s attention was then called to our conversation on or about January 23, 1932, in which he had mentioned the fact that Estonia’s imports under the license system would be apportioned equably between the countries which had hitherto taken part in this trade. Mr. Kaljot’s answer indicated that the Government’s attitude on this question had changed considerably during the past weeks, and that it had by no means taken final form as yet. At the present moment, he added, the Government was inclined to favor rigid adherence to a strict system of exchange of goods for goods.

Mr. Kaljot indicated that there were many factors which the Government had to take into consideration in connection with this matter, of which the following may be taken as being the most important.

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England is the country which is the greatest purchaser of Estonia’s export products. The devaluation of the British pound has made further transactions with England difficult. Furthermore, England is on the point of forming a “closed circle”, with the Scandinavian countries, from which Estonia will most probably be excluded. The effect thereof upon Estonia’s future dealings with its best customer constitutes one of Estonia’s most difficult current problems.
The second best purchaser of Estonian products is Germany. Recent German customs tariff increases have endangered Estonia’s future butter exports to that country. For the present, Estonia has been granted a contingent of 5000 tons at a favored rate of duty. When this has been exhausted there is no telling what may take place.
The Soviet Union has recently begun to show an interest in Estonian goods. Negotiations are under way for the conclusion of an agreement which, if perfected, will assure Estonia of a market in Leningrad for bacon, and of fairly large annual revenues from transit trade routed by the USSR through Estonia. In return the USSR has requested a partial monopoly upon importation of petroleum and petroleum products into Estonia.

Mr. Kaljot pointed out that in the face of this situation, Estonia could not for the present do otherwise than to use its import license system to bring pressure to bear upon countries having favorable foreign trade balances with Estonia.

Without trying to gainsay the observations made by Mr. Kaljot I, nevertheless, took the liberty of making the following general observations to him upon the above subject.

His attention was, in the first place, called to the fact that, under ordinary circumstances, “goods do not sell themselves.” If the trade balance between Estonia and the United States is in the favor of the latter, this is due entirely to the fact that American manufacturers have come to Estonia and created markets for their products. I also drew his attention to the fact that during the six years of my stay in Estonia, very few cases had come to my attention where Estonian manufacturers had endeavored to make a study of the market in the USA for their products. Furthermore, I ventured the remark that it was hardly fair on the part of Estonia to expect a country like the United States not only to send representatives to Estonia to market American made products, but also to send buyers for Estonian products as well. It is a well known fact that while the United States now has the highest protective tariff in its history, at the same time the tariff contains a substantial free list, which, if studied properly, might disclose market possibilities in the United States for Estonian goods. The burden of the task must, however, rest upon the foreign country and not upon the United States.

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Mr. Kaljot admitted the correctness of my observations, but stated that Estonia, being a small and a poor country, could not well follow the example of a country as large and as powerful as the United States.

Before leaving Mr. Kaljot, I endeavored to secure information as to future prospects for the sale of American products in this country. In 1931 the total foreign trade turnover between Estonia and the United States amounted to about $2,000,000, imports from the United States having been valued at $1,500,000, while Estonia’s exports to the United States were valued at about $500,000. On this basis I suggested to Mr. Kaljot that for 1932, Estonia should at least purchase goods in the United States to the value of $500,000. He, on the other hand, was inclined to the view that no American goods at all should be purchased until the unfavorable balance, not only of 1931, but of previous years as well had been made up.

In leaving Mr. Kaljot, I made arrangements to call upon him again in the near future for the purpose of continuing our conversations on the above subject. If the Estonians are willing to let the invisible item of transit trade be taken into consideration in the computation of their foreign trade balance, with the USSR, I see no reason why invisible items in the balance of payments between Estonia and the United States can not also be similarly used. It is my intention to secure his reaction to this matter.

It is my personal opinion that the present moment calls for the putting forth of every effort possible to safeguard the markets which American manufacturers have thus far created for their products in this country. Even if the market is small, much work has been done to build it up, and there is no reason why it should now suddenly be relinquished to British, German or to Soviet competitors. The situation is being watched very carefully, and the Department will be kept fully informed as to future developments therein.

Respectfully yours,

H. E. Carlson
  1. Not printed.
  2. Despatch No. 141 (Diplomatic), November 10, 1931, (Pages 3–4). Despatch No. 144 (Diplomatic), November 13, 1931, (Page 6). [Footnote in the original. Neither despatch printed.]