611.6131/445: Telegram
The Secretary of State to the Ambassador in the Soviet Union (Davies)
85. Your 150, July 6, 10 a.m. The Department is most appreciative of your promptness in obtaining a reply from the Soviet Government. References are to your numbered sections and lettered paragraphs.
1. Your 1 (a). The Department cannot accept the proposal to grant most-favored-nation treatment on a bilateral basis.
As the Embassy is aware, the extension of most-favored-nation treatment on the part of the Soviet Union is valueless and misleading in view of the Soviet monopoly of foreign trade. For this reason the Department has insisted that the only adequate quid fro quo for the extension of tariff concessions to the Soviet Union is an undertaking on the part of the Soviet Government to purchase goods in the United States. The Department is strongly opposed to the inclusion in the present agreement of a pledge which has no real value, but which would give the appearance of a concession to the United States on the part of the Soviet Government and which might therefore be utilized in the future by the Soviet Government as an argument for reducing those of its undertakings which constitute the real quid pro quo.
2. Your 1 (b). The Department has no objection to the substitution of the language of the first four paragraphs of Article I of the Netherlands [Page 415] Agreement with, however, the elimination of the bilateral features and references to exportations.
Your 1 (c). The Department would object to the inclusion of a termination clause. You should point out to the Soviet officials that the Netherlands Agreement is for an indefinite period, subject to termination after January 1, 1939, on 6 months’ notice, whereas the proposed agreement with the Soviet Union will expire automatically after 12 months. Furthermore, in the Netherlands Agreement the right to terminate under the last sentence of Article I, could only have been exercised within the 15 days after September 1, 1936. In view of the assurances to be given by you in writing to the Foreign Office (see Section 4 below) there would seem to be no necessity for the inclusion of a termination clause.
Your 1 (d). This paragraph is unnecessary since the bilateral basis is unacceptable.
Your 1 (e). The Department must insist on the inclusion of a safeguarding paragraph of this nature and prefers that the paragraph be retained as written; such a paragraph is usually included even in our less formal agreements such as our exchange of notes with Czechoslovakia on March 29, 1935,66 and with Ecuador on June 12, 1936.67
Paragraph 3 of Article XII of the French Agreement contains a reference to the question of quotas and it is considered inadvisable to introduce this question into the proposed agreement.
The following is the proposed text of Section 1 of the Department’s draft, as revised in accordance with the points mentioned in the preceding paragraphs:
“1. The United States of America will grant to the Union of Soviet Socialist Republics unconditional and unrestricted most-favored-nation treatment in all matters concerning customs duties and charges of every kind and in the method of levying duties, and, further, in all matters concerning the rules, formalities and charges imposed in connection with the clearing of goods through the customs, and with respect to all laws or regulations affecting the sale or use of imported goods within the country.
Accordingly, natural or manufactured products having their origin in the Union of the Soviet Socialist Republics shall in no case be subject, in regard to the matters referred to above, to any duties, taxes or charges other or higher, or to any rules or formalities other or more burdensome, than those to which the like products having their origin in any third country are or may hereafter be subject.
Any advantage, favor, privilege or immunity which, has been or may hereafter be granted by the United States of America in regard to the above-mentioned matters, to a natural or manufactured product [Page 416] originating in any third country shall be accorded immediately and without compensation to the like product originating in the territory of the Union of the Soviet Socialist Republics.
It is understood that so long as and insofar as existing law of the United States of America may otherwise require, the foregoing provisions, insofar as they would otherwise relate to duties, taxes or charges on coal, coke manufactured therefrom, or coal or coke briquettes, shall not apply to such products imported into the United States of America.
It is understood, furthermore, that the advantages now accorded or which may hereafter be accorded by the United States of America, its territories or possessions, the Philippine Islands, or the Panama Canal Zone to one another or to the Republic of Cuba shall be excepted from the operation of this Agreement.
Nothing in this Agreement shall be construed as a limitation of the right of the United States of America to impose on such terms as it may see fit prohibitions or restrictions (1) imposed on moral or humanitarian grounds, (2) designed to protect human, animal or plant life, (3) relating to prison-made goods, or (4) relating to the enforcement of police or revenue laws.”
3. Your 1 (f). The Department has no objection to the simultaneous proclamation of the agreement in both countries. It will be necessary, however, to retain the wording used in the Department’s draft regarding proclamation by the President. This can be followed, if desired, by an appropriate statement regarding proclamation by the Soviet Government. Please telegraph immediately what will be considered as constituting proclamation in the Soviet Union and by what Soviet official or organization it will be proclaimed.
4. Your 2. The Department has no objection to your informing the Foreign Office, at the time of signing, by letter not for publication, that the Embassy has been informed that in view of the wording of Section 1 of the agreement Treasury authorities will hold that Soviet coal will be exempt from the excise tax during the 12 months of the agreement, subject, however, to possible adverse action by the courts.
5. Your 3. The Department has no objection to the Soviet note in regard to the restriction of coal exports to the United States being in the form of the Soviet note to the Embassy of July 13, 1936. Please telegraph as soon as possible for the Department’s approval the proposed text of the note to be sent by the Commissar for Foreign Affairs.
As indicated in the second paragraph Department’s No. 23, 6 p.m., at the time of the publication of the exchange of notes the Department desires to issue a statement along the following lines:
The Government of the United States has been informed by the Government of the U. S. S. R. that the exports of coal from the Union of Soviet Socialist Republics to the United States in the course of the next 12 months will not exceed 400,000 tons.
6. Your 4 (a) and (b). Since it was made definite and clear in previous negotiations (see Department’s 111 of May 27, 1935, 6 p.m.,68 86 of June 15, 1936,7 p.m.,69 and 92 of June 24, 1936, 11 a.m.70) as well as in a memorandum transmitted to Ambassador Troyanovsky by a letter dated June 5, 1936,71 that section 1 of the existing agreement was so framed as not to have the effect of exempting Soviet coal from the excise tax, and since it is believed, therefore, that the tax on Soviet coal was properly levied, you should inform the Soviet officials that it would not be possible for the Executive Branch of this Government to take any action or give any assistance to importers of Soviet coal to obtain a rebate of the excise taxes already paid. In this connection, the Department desires that you again emphasize the point you have already made, namely, that the entire question of a rebate is not pertinent to the present negotiations.