The Ambassador in Germany (Dodd) to the Acting Secretary of State

No. 317

Subject: Apparent Contravention of our Treaty of Friendship, Commerce and Consular Rights with Germany, by German Law of June 1, 1933, for the Decrease of Unemployment.

Sir: Referring to previous correspondence on the above subject, I have the honor to transmit herewith a copy of the Embassy’s note No. 66 of September 23, 1933,5 sent to the Ministry of Foreign Affairs in compliance with the Department’s telegraphic instruction No. 114 of September 21. 6 p.m., and, in copy and translation, Note Verbale No. III A 3508, dated November 23, 1933, from the Ministry of Foreign Affairs, written in response to the Embassy’s note above referred to.…

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As it appeared desirable to secure a consensus of opinion of the officers of the Embassy and Consulate General most in touch with this situation, before the departure of Consul General Messersmith on leave for the United States, a conversation was held at the Embassy on December 1 at which Messrs. Messersmith and Beitz of the Consulate General, the Acting Commercial Attaché, and various members of the Embassy staff were present. Mr. Messersmith states that it was his opinion that the law of June 1, 1933, introduced undoubted discrimination against the sale of American goods in Germany and that American trade is still [Page 469] suffering from this discrimination. While urging that every possible effort should be made to further press this question of discrimination at the Foreign Office, Mr. Messersmith stated that he did not believe that any form of commercial retaliation should be resorted to at the present time. Apart from the usual risks with which such action would be fraught, Mr. Messersmith expressed the opinion that an obscure struggle for predominance is proceeding between the moderates and the extremists in the present German Government. The former realize the dangers and objections of tolerating discriminatory practices such as those introduced by the law of June 1, 1933, but that their hour has not yet come. The extremists, on the other hand, would be capable of resorting to combative measures with reckless alacrity. It was his opinion that the coming months would show which element was the stronger. Meantime, while keeping the question open by representations, our Government should avoid resorting to commercial retailiation. For the time being this point of view seems safe and conservative.

Respectfully yours,

For the Ambassador:
J. C. White

Counselor of Embassy

The German Foreign Office to the American Embassy

No. III A 3508

Note Verbale

Supplementing its note verbale No. III A 3113 of September 30, 1933, and in reply to note verbale No. 66 of September 23, 1933, from the Embassy, relative to the Law for the Reduction of Unemployment of June 1, 1933, the Foreign Office, on the strength of a re-examination of the matter in question, has the honor to inform the Embassy of the United States of America as follows:

The German Government cannot concur with the interpretation of the American Government that, under the provisions of Section 2 of the Law of June 1, 1933, a bounty is in effect allowed on certain German products. From the explanations, already given in the note verbale of August 30, 1933—III A 2622—appearing in sub-paragraph II, 1 of the “Explanatory Notes to the Law governing Tax Exemption for Replacement Acquisition”, a copy of which is enclosed herewith,6 it is quite obvious that the reduction of the income tax, the corporation tax and the trade tax, which takes place in accordance with the above-mentioned law, cannot be interpreted as a bounty to firms on their expenditures for the acquisition or manufacture of machines, implements, etc.

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Even if the tax reduction in question might essentially be interpreted in some way as tantamount to a bounty on merchandise of German production, objections thereto based on Article VIII of the German- American Commercial Treaty could nevertheless not be deduced. For the bounties and drawbacks in the meaning of this agreement refer exclusively to internal taxes (consumption taxes, turnover tax), to transmit duties and to certain charges which have been paid on merchandise of American origin or on non-American merchandise imported by American citizens. Hence, there is no connection between Article VIII, above referred to, and the Law governing Tax Exemption for Replacement Acquisition (Ersatzbeschaffungen).

Neither can the German Government regard as valid the citation of the general principle concerning freedom of commerce stipulated in the beginning of Article VII of the German-American Commercial Treaty. The term freedom of commerce derives its concrete significance from the various treaty provisions governing traffic in commodities and those governing the legal status of the citizens of both countries. But Section 2 of the Law of June 1, 1933, violates none of the agreements in the German-American Commercial Treaty. It must be pointed out, furthermore, that the law affects only a limited field and that even there it does not hinder American trade from entering into competition with German industry on the German market. The question whether American machines, implements, etc., can hold their own against the German supply is, after all, a question of prices and before declaring that it is impossible that they should do so all factors must be taken into account that have to be considered in connection with price formation. At any rate, the principle of freedom of commerce does not mean a guarantee of profitable sales in interstate commerce, in so far as this depends upon government measures on the part of the importing country—and that is what its application in the foregoing connection would amount to.

To its regret, the German Government is therefore not in a position to give consideration to the representations made in the note verbale of September 23 against the Law governing Tax Exemption for Replacement Acquisition.

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