611.8131/383: Telegram

The Acting Secretary of State to the Chargé in the Soviet Union ( Henderson )

86. Your 141, June 9, 2 p.m. While the Department thought that the situation with respect to the imposition of a tax on Soviet coal was fully clarified in the discussions which took place prior to the exchange of notes of July 13, 1935, the Department desires that you make every effort to ensure that the Soviet authorities correctly understand [Page 328] the matter. You should make clear that the imposition of a tax on Soviet coal is not the result of any desire or policy to discriminate against Soviet coal, but the result of the operation of a law enacted by the legislative branch of the Government, and that the executive branch of the Government does not have the power to abolish the tax imposed under that law. In discussing this question with Soviet officials you should stress the points set forth below. It is suggested that it may be advisable to take particular pains to make the situation clear to the appropriate officials of the Commissariat for Foreign Trade, since it appears to be that Department which is raising the question.

1.
The Revenue Act of 193256 provides that a tax of 10 cents per 100 pounds shall be imposed on coal imported into the United States from countries to which exports of coal from the United States have not exceeded during the preceding calendar year the imports of coal therefrom, unless “treaty provisions of the United States otherwise provide.” This provision of the law has been extended to June 30, 1937.
2.
According to Treasury Decision 48146, imports of coal from the following countries are not subject to the tax in 1936: Belgium, Canada, China, Colombia, Cuba, France, Italy, Japan, Netherlands, Netherlands West Indies, Norway, Peru, Sweden, and United Kingdom. Coal imported from Canada, Colombia, Cuba, France, Italy, Netherlands, Netherlands West Indies, Norway, Peru, and Sweden is exempt from the tax by virtue of the fact that the exports of coal from the United States to each of these countries exceeded in 1935 the imports therefrom, in which circumstance the tax is not applicable in 1936 under the law. Coal imported from Belgium, China, Japan, and United Kingdom (as well as from Poland from which coal has been imported subsequently to Treasury Decision 48146) is exempt from the tax by virtue of the operation of the most-favored-nation clause contained in treaties with those countries.
3.
Although the United States has concluded trade agreements with Belgium, Canada, Colombia, Cuba, France, Netherlands (including Netherlands West Indies), and Sweden, the exemption from the tax of coal imported in 1936 from any of these countries is based, not upon any provision in the trade agreement, but upon the fact either that the exports of coal from the United States to such country exceeded in 1935 the imports therefrom or (in case of Belgium) that the United States has a treaty with that country containing a most-favored-nation clause.57
4.
In accordance with the law, imports of coal from the following countries listed in Treasury Decision 48146 are subject to the tax in 1936 because (1) exports of coal thereto did not exceed in 1935 imports therefrom, and (2) no treaties containing the most-favored-nation clause are in force with these countries: French Indo-China, Germany, Mexico, Spain, Soviet Union.
5.
The Trade Agreements Act does not give the President power to proclaim the abolition of any tax on imports, such as the tax on coal.
6.
It is doubtful that a most-favored-nation clause in an executive agreement would be held by the courts to be a “treaty provision” within the meaning of those words as used in the safeguarding clause of the Revenue Act of 1932 referred to above, since under our Constitution “treaties” are made by and with the advice and consent of the Senate. Moreover, even if the words “treaty provisions” were held to cover executive agreements, it is highly improbable that this interpretation would apply to agreements concluded after the enactment of the Revenue Act of 1932. This is probably the case, since “treaties” made after the Revenue Act of 1932 would require no such safeguarding provision inasmuch as subsequent treaties under the Constitution override prior conflicting statutes. Because of these considerations and in order to avoid the possibility of international claims arising out of a court decision that exemption from the tax could not be afforded by a most-favored-nation clause in an executive agreement, the Department has insisted on the insertion in trade agreements with countries from which exports of coal to the United States are or might be subject to the tax under the law, a clause reserving to the United States the right to impose the tax in question on coal from those countries. Reference is made in this connection to the fifth paragraph of Article I of the trade agreement with the Netherlands58 and the second paragraph of Article II of the trade agreement with France.59 No such reservation was inserted in the trade agreement with Sweden because of the improbability that imports of coal from Sweden would exceed exports of coal to Sweden.
7.
It will be seen from the foregoing that there are only three sure ways in which the tax on Soviet coal could be removed: (1) as a result of an excess of exports of coal from the United States to the Soviet Union over imports therefrom; (2) through the operation of a most-favored-nation clause contained in a treaty with the Soviet Union; and (3) by congressional action.
8.
The Department hopes that you will be able to induce the Soviet authorities without protracted discussion to drop the question of the [Page 330] removal of the tax on Soviet coal and agree to the extension of tariff reductions to the Soviet Union on the basis provided in paragraph one of the exchange of notes of July 13, 1935.
Phillips
  1. Approved June 6, 1932; 47 Stat. 169.
  2. For text of the Treaty of Commerce and Navigation between the United States and Belgium, signed at Washington, March 8, 1875, see William M. Malloy (ed.), Treaties, Conventions, etc., Between the United States of America and Other Powers, 1776–1909 (Washington, Government Printing Office, 1910), vol. i, p. 90.
  3. For text of the agreement signed December 20, 1935, see Department of State Executive Agreement Series No. 100, or 50 Stat. 1504.
  4. For text of the agreement signed May 6, 1936, see Department of State Executive Agreement Series No. 146, or 53 Stat. 2236.