The Secretary of State to the Chargé in Switzerland ( Riggs )
9. The Swiss Government has taken the initiative in pressing upon the German Government an agreement whereunder in return for so [Page 341] called extra purchases of German goods the proceeds of these extra purchases should be applied to the service of German bonds held in Switzerland over and above the service which the German Government is permitting on the same bonds held elsewhere.
The Dutch Government has made a similar agreement. The question of renewal of these agreements has been under discussion and a meeting is scheduled in Berlin on the 25th to deal with them. The British and Swedish Governments have taken initiatives in Berlin in protest against this more favorable treatment and are tending to take the position that if these agreements are maintained they would have to institute “clearing agreements” on German trade whereunder the exchange arising from that trade would be segregated and applied to supplement the service on the German securities held by their nationals. They, however, do not want to introduce such arrangement if discrimination is not practised against them.
The American Government was approached by the British Government to support this position and it has done so vigorously both here and in Berlin emphasizing the fact that discrimination against American holders of German securities as compared with the holders of other countries would be gravely resented. The President himself is talking about it to Ambassador Luther this morning.
The Bondholders Protective Council, a disinterested American body formed by private interests with the encouragement of this Government, has sent a representative, Mr. Laird Bell, to Berlin to protect the interests of American holders of German securities.
The Department believes it advisable to make known to the Swiss Government the position it is taking in the matter. Will you please therefore, before the 25th, see the proper Swiss authorities and inform them orally of the position which this Government is taking in the matter. You may find it advisable to emphasize the following points:
(1) That the only government that seems to be pressing with determination for special treatment is Switzerland; the Dutch Government would probably be willing to forego its special agreement if the Swiss Government would.
If the pressure of the Swiss Government succeeds, other governments are certain to pursue the same means leading to a general diminution of international trade.
(2) The Swiss position in this German debt situation may create a whole new area of controversy. If carried on it would mean great dissension among diverse creditors to their mutual injury in various situations. You may point out that the United States has abstained from taking any such position in various situations in which it might have been able to press an advantage to the detriment of other countries.
(3) A superficial argument may be made to the effect that the special agreements are not discriminatory because the special payments arise out of the application of exchange coming from extra purchases of [Page 342] German goods. It is in fact however, impossible to segregate a small segment of bilateral trade from the rest of the international trade process and to claim special debt payment on the basis of this small segment without creating discriminations and without even further causing countries to erect new trade barriers in order to gain still further advantage.
(4) In fact you can add that the whole bilateral commodity trade position in this Government’s view does not offer a sound basis for differential debt terms even apart from the aspects of general policy recited above; for the computations totally ignore the invisible items of trade such as tourist traffic, shipping services, and the rest, and they also ignore the fact that purchases in third countries, e. g., American purchases in the Dutch East Indies, create markets for other countries.
Please report the result of your interview.