811.114 Liquor/787
Memorandum by the Second Secretary of Embassy in France (Williamson)67
This morning, on behalf of the Ambassador, I again called upon M. de la Baume, Director of the Commercial Section of the Ministry for Foreign Affairs, in order to discuss in detail the proposal that the French accord American products relief from the higher rates of the import turn-over tax and grant the minimum duty on American rice in return for protection of French geographic wine names. The Embassy based its conversation upon the content of the Department’s telegram No. 383 of September 22, 3 p.m., 1934.
The Second Secretary pointed out that the American Government strongly feels as it always has that the discrimination inherent to the application of the higher rates of the import turn-over tax to American products, while such rates are not applied to the products of some other countries, should be removed without the offering of any quid pro quo and that furthermore a certain moral obligation attaches to the French Government in this regard on account of the assurances which the latter some time ago gave and never carried out with regard to the reclassification of copper. Amplifying this statement, the Secretary asserted that the French Government instead of recognizing the injustice of the present situation and attempting to place trade between the two countries upon as untrammeled a basis as possible asks the maximum of a quid pro quo for rectification of the American position and that it is evident from my Government’s telegram that the Department of State has been somewhat irritated and justly so by this new manifestation of the propensity to bargain. M. de la Baume countered by affirming: that the import turn-over tax was by no means erected as a bargaining weapon; that in every instance where the higher rates of the tax had been removed for the benefit of other countries France had insisted upon a satisfactory quid pro quo and that in fact it is legally bound so to insist. He stated furthermore that there is evidently a sharp misunderstanding between the Foreign Office and the Embassy concerning the interpretation to be placed upon the oral promise of two years ago to reclassify copper, in actual fact the French authorities having indicated their disposition to adjust the copper matter in return not only for the admission to the United States of dress samples but as well (and basically) in return for protection of French designs and models. I replied that such an understanding is utterly incomprehensible to me since the memoranda and telegrams which we [Page 205] have on the subject make it clear that only the free entry of dress samples was envisaged. I offered to show M. de la Baume our archives on the subject. He said that of course he was not here at the time but that he had gone into the matter very thoroughly and that if we had thought that only the dress samples were concerned we had in some manner misinterpreted the conversations with French officials since the latter had all regarded the protection of designs and models as paramount. He also cited, in rebuttal of any allegation that France always drove hard bargains, that after the devaluation of the dollar the French Government had not levied the exchange compensation surtax against American products and that this omission had brought charges of discrimination from other countries.
Cutting short the fencing relative to the background of the situation, the Secretary proceeded to inform M. de la Baume of just how far our Government is prepared to go in the present discussions and how far it cannot go. The ensuing conversation was friendly and most satisfactorily frank on both sides.
I told him that the French Government was asking much more than we could possibly accord in the way of protection for wine names. He replied that he had visualized that such would probably be the case which was the reason for his inserting at the end of the last French note the suggestion of a compromise solution if the Embassy desired immediate relief under the import turn-over tax. I then said that my Government could not possibly envisage giving the protection requested to French geographic wine names which, because of long usage, had become generic in the United States. These names include such nomenclatures as Bordeaux, Champagne and Sauterne. However, with regard to these names, M. de la Baume was informed that we could grant protection which should be reasonably satisfactory to French interests; that is that the use of these generic names would not be permitted unless coupled in outstanding characters with the employment of a qualifying word such as type or an indication of where in the United States the wines were manufactured or both. As to proprietary names we would be glad, if our demands are met, to afford full protection; in other words the total interdiction of the employment of such names as in the instance of cognac. The Foreign Office representative was further advised that if he would submit a list of geographic names on which full protection was desired the American Government was disposed to consider it and to state precisely which names could be given full protection and which could not.
M. de la Baume remarked that it is above all names such as Champagne and Burgundy for which the French Government desires full protection and that any arrangement not including complete protection on these names would be entirely unsatisfactory to France. He [Page 206] said that in particular competition for French champagne with the cheaper champagne produced in America is very difficult and it is rendered more arduous by the use by American producers of the word champagne since the American public, if two products are offered both bearing the name champagne, would naturally be inclined to purchase the cheaper article, i. e., the American champagne. I informed M. de la Baume that, as a matter of fact, there is but very little difference in the price on the American market between the two champagnes and that the clientele which is accustomed to drinking French Champagne would probably not be deterred in continuing to do so by the slight difference in price. He said that this might be so, but in order to put French Champagne on the American market at such reasonable rates in spite of the payment of high duties and the excise tax, it was necessary for French producers to export to the United States at quotations which yield insufficient profits. In any case, M. de la Baume was unswerving in stating that relief on the import turn-over tax could not be granted the United States unless we granted full and satisfactory protection to French wine names. In this connection, he cited recent commercial conversations with South Africa and Canada, in which France had obtained entire satisfaction in the former country and almost complete satisfaction in the latter Dominion. I said that regardless of the concessions made by other governments, my Government could not possibly go any further than it has in its present offer and that, if his views were unalterable, ours were likewise. It was added that, as M. de la Baume had himself intimated, we were also indisposed to compromise and insisted on the lifting of the 4 and 6% tax on all American products and not merely on copper and some other products. Under the circumstances I said we had better abandon here and now the efforts to reach an accord on the present basis.
M. de la Baume said that had been his idea as well and that he therefore now proposed instead that, if we still want prompt relief on the import turnover tax, France is prepared to give it on the basis of a tariff concession. I told him emphatically that while I could not speak for the moment on behalf of my Government I was strongly of the opinion that the United States would not desire to couple tariff matters with the import turnover tax. I said that it would seem preferable under the circumstances to defer settlement of the import turnover tax matter until the time of the resumption of the commercial treaty discussions. He remarked that he had been under the impression that we were very anxious to obtain immediate relief on the tax question. I said that of course we desired early adjustment of the matter but that we were under no new impelling urge and that our overtures at the present moment had been made simply because of the [Page 207] consideration now being given in Washington to the wine label regulations, which seemed to render the occasion a propitious one to attempt to obtain for France as full protection for wine names as possible and at the same time to liquidate once and for all the import turnover tax controversy.
M. de la Baume returned to his thesis of granting import turnover tax relief on the basis of tariff concessions. He said that France would be glad (by a mere informal exchange of notes as previously suggested) at once to reduce the import turnover tax on all American products to a uniform 2% in exchange for a tariff concession. He asserted that there were several such concessions which France had long wanted, among them, for example, a reduction in the duty on lace and a reduction in the duty on cigarette paper. He said that in the Calais district the lace business is in a most dire state on account of the falling off of lace exports and that unemployment there is very large. As to the cigarette paper, he observed that while admitting that French exports to the United States of this product are thus far holding up most satisfactorily, there is reason to believe that the future of this trade is greatly menaced. One of the threats to the trade comes from the recent installation in the United States of a factory which will probably constitute serious competition, protected as it is by the high rates of the present duty. I immediately reiterated my personal feeling that tariff reductions should wait upon commercial treaty negotiations and stated frankly that he might well realize that our Government would probably find it inexpedient to relinquish at this time such a potent trading factor as the possible reduction of the duty on French lace, especially since we would undoubtedly have numerous tariff concessions to request of France when the treaty discussions commence. He replied that the United States already has a wealth of trading material for the treaty negotiations such as, for example, the matter of the excise tax and duties on wine. I here made a final attempt to get the Foreign Office representative back to the wine name quid pro quo, stating that it would seem to me preferable for the French to avail of the present opportunity for reasonably satisfactory protection of wine names rather than to discard the occasion thinking to obtain more at a later date, since it would appear unlikely that time will alter my Government’s views on the subject. He reaffirmed that the present American offer is unacceptable even provisionally.
In conclusion M. de la Baume inquired if the Embassy would receive a proposal for liquidation of the import turnover tax difficulty in return for tariff concessions. I observed that we would of course be interested in learning the French point of view but that, in the first place, I could not commit my Government to any serious study of such a proposition and also I wanted it clearly understood that the initiative [Page 208] in this regard comes from France and that the Embassy is not seeking a tariff proposal. He said he entirely comprehended this stand but that if we did not object he would in the next few days forward to the Embassy, in order that we might see if there were any basis therein for negotiation, a counter-proposal. This counter-proposal would name, in order of preference, several tariff items which the French desire reduced. I remarked that of course we had no objection to receiving such a communication but that, speaking frankly, if the proposal were made, it should not be an exaggerated one. I emphasized that it would be inadvisable to send a list of several tariff items upon which relief is desired in the hope of bargaining and only obtaining ultimate satisfaction on one or two items. I further suggested that in my opinion in submitting a list he should in the first instance reduce the tariff demands to the final minimum and that the proposal should be coupled by a concrete statement of exactly what France was prepared to grant in return, that is, that it offers complete import turnover tax relief on all articles of American production. M. de la Baume said that he is in thorough accord with this view and that the French Government of course intends to give us complete relief from the tax without any quibbling if we would give a counterpart in the way of tariff reduction. Moreover he stated, in regard to the emphasis laid by me upon not exaggerating French demands, that while he would submit a list of several French products for which tariff reduction is desired, we might be definitely assured that France would let us choose among those articles and that only relief on a single tariff item would be expected.
As to the minimum tariff on rice, the Foreign Office holds that that issue should be considered separately.68 It does not believe that the French should be bound to offer what we call modus vivendi treatment on articles like rice, when the augmentation of the duties on the article in question were imposed for the protection of the colonies, the matter therefore becoming a colonial rather than domestic one. In other words, if French Indochina is asked to make a concession to the American rice trade, that colony should be given satisfaction in some other way, in the present instance in the way of the removal of the excise tax on Indochinese coal.
In leaving I referred to previous conversations concerning the expediency for France of building up a good atmosphere in the United States in anticipation of the treaty negotiations and remarked that a generous attitude with regard to the import turnover tax would be a useful contributing factor.