The Acting Secretary of State to the Minister in Persia (Hart)

No. 159

Sir: Reference is made to your despatch No. 1077 of March 8, 1932,10 regarding your representations to the Persian Government on the subject of the Perso-Soviet Convention of October 27, 1931, and its effect on American trade with Persia. You enclosed with your despatch a copy of an aide-mémoire which you left with the Persian authorities and which, by its telegram No. 7 of April 6, 1932, the Department instructed you to retract for the purpose of making certain alterations both in contents and phraseology.

From your despatch above referred to, the Department learned for the first time of a proposal whereby importers in Persia would be required to furnish, in lieu of the hitherto required export certificate, an adequate bank guarantee the amount of which, according to the position taken by the Persian Government, was to be 100 per cent of the value of the import permit granted. In your aide-mémoire you informed the Persian Government that “the Government of the United States concurs in the suggestion that in future the Imperial Department of Commerce grant import permits without requiring the prior submission of export certificates but upon the submission in lieu thereof of a responsible bank or otherwise acceptable guarantee.” For the [Page 804] reasons elaborated below, the Department was unable to uphold your action in this respect and directed you to omit all references to a bank guarantee in the modified aide-mémoire which you were to submit to the Persian Government.

In its study of this question, the Department reached the conclusion that while the plan of furnishing a bank guarantee to insure the importation of and payment for foreign merchandise might on its face appear to be advantageous to American exporters, it would, by placing an additional burden upon importers in Persia, actually tend to restrict importations from the United States. The cost of such a bank guarantee, according to the Directing Manager of the Imperial Bank of Persia, was estimated at one per cent in the case of firms with respect to which it could be said that the bank would assume no risk whatever, the cost rising in proportion to the risk involved, and, in many cases, the desired bank guarantee perhaps being refused altogether. It would appear to be open to question as to how many firms in Persia, under existing circumstances, could secure such a guarantee without being charged an excessive premium, the amount of which would undoubtedly outweigh the present cost of tying up in the purchase of an export certificate a certain amount of capital, later recoverable through the sale of the imported merchandise. In this connection it might be pertinent to compare the current selling price of an export certificate with the price obtaining prior to the removal of the exchange restrictions, and the Department would appreciate being informed in this regard.

In furnishing a bank guarantee the importer apparently would be subjected to the serious disadvantage of having to forfeit, in case of non-importation, the entire face value of his import permit, an amount which the bank would be compelled to endeavor to collect from him. Furthermore, such a bank guarantee apparently would not relieve the importer from the requirement to supply an export certificate within six months, or upon importation of his goods. Not only would he contract through this form of bond to import and pay for his merchandise, but he would undertake as well to supply an export certificate, failing which the penalty would likewise be forfeiture of the amount of his bank guarantee. Far from safeguarding the process of authorized importation thereby, it is believed extremely doubtful whether importers would be willing or able to incur a heavy liability of this kind for the privilege of importing goods into Persia.

In view of the Persian Government’s established policy of strictly limiting imports on the one hand and encouraging the export of Persian products on the other, the Department is somewhat at a loss to understand the concern of the Minister of the Court lest importers [Page 805] in Persia fail to bring into the country the merchandise to which they are entitled under duly authorized import permits. While it is admitted that considerable inconvenience might result if Persia were deprived, through failure of importers to act on their import permits, of certain articles “of prime necessity,” it seems difficult to reconcile with the previously avowed aims of Persia’s foreign commercial policy the unexpected desire which seems to be implied in your despatch to insure the actual importation of all permitted commodities by means of a 100 per cent bank guarantee with its triple penalty of forfeiture in case of non-importation, non-payment for the permitted goods, or non-production of an export certificate.

It would appear to the Department from a perusal of the regulations already in force for the execution of the Trade Monopoly law that these regulations in themselves, or with appropriate modifications, would be adequate to insure the eventual utilization of all import permits which may be issued, and that the risk of Persia suffering from a lack of articles for which there is a legitimate demand, whether “of a prime necessity” or not, would be a minimum one. It is the understanding of the Department that the primary object of the Trade Monopoly is to make the import into Persia of foreign goods strictly contingent on the export of Persian produce in like value, and that whereas the law involves an obligation to export it does not in any way contemplate a similar obligation to import foreign commodities. Unless the Trade Monopoly is no longer successfully fulfilling its purpose, the Department is accordingly unable to perceive that a necessity exists for assuring Persia of the receipt, through adoption of the bank guarantee principle, of all the imports which that country may require.

You should of course in your discussions with the Persian authorities carefully avoid any reference to the observations and comments of the Department as contained in the immediately preceding paragraph.

The Department has noted the recognition by the Minister of the Court of the fact that governments of foreign countries, “not being organized on the socialistic basis of the Soviets, could not, practically,” give guarantees similar to those given by the Soviets, and that the Persian Government was prepared to continue as in the past the system of individual applications for import permits and to accept from applicants bank guarantees in lieu of export certificates. However, the Department does not consider that the bank guarantee proposal, for countries in the position of the United States, can be construed as being properly “equivalent to” the import privileges accorded [Page 806] to Soviet Russia under the terms of the Perso-Soviet Convention.

In your further conversations with the Persian authorities on this subject, you should make it clear that contrary to the statement in your aide-mémoire, the Government of the United States has not concurred in any suggestion looking toward the submission of a bank guarantee as a prerequisite to import. You should explain that this Government still is of the opinion that a practical equivalent of the import concession to Soviet trade would allow the production of export certificates, unencumbered by such additional requirements as the bank guarantee proposal, within six months after the date of actual importation.

Very truly yours,

W. R. Castle, Jr.
  1. See footnote 7, p. 798.