611.623/67
The German Embassy to the Department of State
The German Embassy has the honor, by direction of its Government, to advise the Department of State as follows:
I. By order of September 23d of this year, the Reich Economic Ministry has established new provisions in the place of the previous rules relative to the use of old, frozen, and registered assets for the payment of the additional exportation of German goods, which went into effect on the 1st ultimo and have been designated as the basis of the so-called “Scrip procedure”.
According to reports received, doubts have arisen with officials of the United States, as to whether shipments of goods, made to the United States from Germany, under those new provisions, are affected, either by Section 303 of the Tariff Act of 193084 or by Section 201 of the Antidumping Act of 1921.85
The German Government fears that, if an affirmative interpretation were made, there would be a very unfavorable reaction on German-American trade relations, which relations it wishes to maintain and promote.
It is said that several American importers have already stopped shipment of consignments affected by the above sections. On the other hand, it is said that German exporters have encountered difficulties in closing contracts in this connection.
The German Government therefore has the honor to request the American Government to make a decision as soon as possible to the effect that in its opinion there is no reason to subject German import shipments into the United States to the provisions of Section 303 of the Tariff Act of 1930 or Section 201 of the Antidumping Act of 1921, because of the scrip procedure.
So far as known, the American Government is acquainted with several fundamental features of the scrip procedure. In view of the great importance of the matter for the German Government, as already stated, I shall point out the following facts, in connection with which we are always glad to answer, when desired, further questions that may arise, as well as to give other information that may be considered necessary or useful.
[Page 401]II. The transfer regulation established by Germany, by reason of the German foreign exchange situation provides in itself for only a 50% transfer of exchange for foreign interest claims. The German debtor, however, himself pays, not 50%, but the full amount of his debt in Reich marks into a special German bank, the Conversion Office. The foreign debtor receives notes (scrip) from the Conversion Office for the amount not transferred. The foreign creditor can, if he so desires, sell this scrip with the aid of his American bank, to a German bank, i. e., the Gold Discount Bank, and indeed at the rate of 50% of the nominal value of the scrip. The American creditor therefore receives, if and to the extent that he undertakes to sell the scrip, a total of 75% of his interest claims in foreign exchange, in which connection there is a special regulation for individual debts, for example, the Young and Dawes loan.86 The procedure is therefore, to a great extent in the interest of foreign creditors, including Americans. Only through the regulation now established has a stable, practicable market for the scrip in favor of foreign creditors been created, which until now has been lacking.
III. The use of the scrip by the German exporter takes place through the following procedures:
The German exporter is personally responsible for delivery, with respect to those amounts of foreign currency which he receives from his export business, in accordance with the German foreign exchange laws. He is partly relieved from the obligation to deliver foreign exchange, under conditions to be presently explained, by the fact that he is allowed an amount of foreign exchange with which he can buy scrip at the Gold Discount Bank. For this he pays not the full face value of the scrip, but only 55% of the face value, and is authorized to sell the scrip again to the Conversion Office at the full face value. He therefore profits by the purchase and sale of the scrip.
The conditions for receiving permission for effecting a transaction in scrip, are, inter alia, the following:
- (a)
- It must be fully proved that an additional exportation is involved.
- (b)
- The proceeds of the sale for the export goods, plus those profits from the purchase and sale of the scrip may at the most cover the original costs of the export transaction.
- (c)
- The selling price of the export goods may not in any case be lower than the price, at which the goods are offered for sale in open market in the country of destination. Only when these conditions are fulfilled and are fully proved does the exporter, as has been repeatedly emphasized, receive the permit to use the scrip.
IV. Section 303 of the Tariff Act of 1930 states that:
“Whenever any country, dependency, colony, province, or other political subdivision of government, person, partnership, association, cartel, or corporation shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture or production or export of any article or merchandise manufactured or produced in such country, dependency, colony, province or other political subdivision of government, and such article or merchandise is dutiable under the provisions of this Act, then upon the importation of any such article or merchandise into the United States whether the same shall be imported directly from the country of production or otherwise, and whether such article or merchandise is imported in the same condition as when exported from the country of production or has been changed in condition by remanufacture or otherwise, there shall be levied and paid, in all such cases, in addition to the duties otherwise imposed by this Act, an additional duty equal to the net amount of such bounty or grant, however the same be paid or bestowed. The Secretary of the Treasury shall from time to time ascertain and determine, or estimate the net amount of each such bounty or grant, and shall declare the net amount so determined or estimated. The Secretary of the Treasury shall make all regulations he may deem necessary for the identification of such articles and merchandise and for the assessment and collection of such additional duties.”
In the opinion of the German Government, this provision cannot be applied in the present case, because neither a country, a district, or a colony, or a province or other political subdivision of a government or a person, company, or association, etc., receives a bounty or grant. Grants are not made directly or indirectly to the exporter from any of the offices named in Section 303. In so far as relief is allowed, it originates exclusively with such foreign bondholders as have sold their scrip voluntarily, therefore in their own interest. The scrip cannot be brought into commerce at all unless it has previously been offered to the Gold Discount Bank by the foreign bondholders. There is no obligation of any kind to make such offer. Therefore, in the opinion of the German Government, Section 303 of the Tariff Act of 1930, does not appear to have been violated, according to either the text or the meaning.
This is also true of Section 201 of the Antidumping Act of 1921, which reads as follows:
“That whenever the Secretary of the Treasury (hereinafter in this act called the ‘Secretary’) after such investigation as he deems necessary, finds that an industry in the United States is being or is likely to be injured, or is prevented from being established, by reason of the importation into the United States of a class or kind of foreign merchandise, and that merchandise of such class or kind is being sold or is likely to be sold in the United States or elsewhere at less than its fair value, then he shall make such finding public to the extent he deems necessary, together with a description of the class or kind of merchandise to which it applies in such detail as may be necessary for the guidance of the appraising officers.”
As pointed out under III c the selling price of the export goods must in no case be lower than the price at which the goods are offered in open market in the country of destination. It is therefore impossible to conceive any circumstance that could result in injury to American industry, unless every importation is to be considered as an injury to domestic industry. The only question involved is that of regular everyday competition.
In reality, there is no other idea back of the whole procedure than there is back of the dollar bond procedure, which has not been objected to by the United States for a year and a half.
V. The aggravation of the German economic situation by the devaluation of the currencies of many of the largest states scarcely requires exposition in detail. The efforts which Germany has undertaken again and again for years, and up to this time, to meet at least the greatest part of her debt obligations threaten to fail if still further difficulties should be created for her export trade. An objection to the scrip procedure on the part of a great economic power of the rank of the United States would certainly necessitate an extension of the German transfer moratorium. It would also be bound to have an unfavorable effect on the character of German-American trade relations, since German business would hardly be in a position still to undertake purchases in the United States to the same large extent as hitherto, which have given a balance in favor of the United States in the trade between the two countries. The German Government would like to avoid such a future development just as much as the necessity of meeting American extra duties imposed under Section 303 of the Tariff Act or the provisions of the Antidumping act by corresponding increases on American imports. For (let me emphasize this once more) the German Government is, on the contrary, extremely interested in preventing so far as possible disturbances of German-American commercial relations, for the sake of both countries.
VI. The following observations may also be made:
It is undisputed that Germany’s balance of payments is unfavorable to her. It is acknowledged that the shortage cannot be made up by credits or reserves of gold and foreign exchange. This was acknowledged in an impartial manner even by Germany’s foreign creditors during the moratorium negotiations and the transfer negotiations. The foreign creditors have gone even a step farther and have also acknowledged that Germany has done everything, within the limits of her inadequate means, to fulfill her obligations faithfully. The best proof of this understanding of the foreign creditors is that they were ready to conclude a bilateral moratorium agreement,87 and that during the discussions on a restriction on transfers they did not deny the necessity for it.
[Page 404]But the foreign creditors did express the wish, or even made the stipulation, during those negotiations that it should be made possible for them gradually to liquidate their frozen balances in Germany by the importation of German goods. Thus the initiative in using the “register mark”, “frozen mark” and scrip for export trade was taken by the foreign creditors. This must be emphasized and repeated again with full clearness in the discussion of this question.
The above mentioned Conversion Office (see II above) is a public legal organization under the supervision of the Reichsbank. It acts only as a curator. It transmits the amounts owed in Reichsmarks by German debtors to foreign creditors by sending to the foreign creditors, as stated, 50% of the amount in Reichsmarks in foreign currency and 50% in the form of scrip.
The aforementioned Gold Discount Bank is a stock company under private law. Most of its capital stock is held by the Reichsbank and is not subject to the provisions of the German regulations on foreign exchange. The Gold Discount Bank uses, as already emphasized, quantities of foreign exchange for export released by the Reichsbank or the Foreign Exchange Management Offices in the interest of foreign creditors, for the purchase of the scrip offered to it by such foreign creditors, who get 75% of their interest in this way instead of 50%.
The extent of the amounts of scrip is limited, as far as the United States is concerned, by the extent of the interest service which Germany maintains toward the United States. Scrip only to the total nominal amount of some 150 million marks is involved, in making which calculation allowance has already been made for the devaluation of the dollar. Up to and including October, approximately 36 million marks in notes have been sent to America. It remains to be considered, however, that considerable amounts of scrip are forwarded from the United States to other countries, as German issues in the United States have been purchased from abroad to a considerable extent, particularly from England and Holland.
VII. The German Government has the honor to ask once more in particular that the decision by which security is to be granted to commercial relations between the two countries, in accordance with the wish of the German Government be expedited. The present state of affairs, which leaves commerce in a state of uncertainty, cannot long be tolerated. Just such investigations of a tedious nature have proved to be serious, almost unendurable, obstacles to commercial relations because of the uncertainty caused to import and export business by them.
- 46 Stat. 590, 687.↩
- 42 Stat. 11.↩
- For the Young Plan, see Great Britain, Cmd. 3343 (1929): Report of the Committee of Experts on Reparations; for the Dawes Plan, see Great Britain, Cmd. 2105 (1924): Reports of the Expert Committees Appointed by the Reparation Commission. ↩
- The German Credit Agreement of 1933 (Druckerei der Reichsbank, Berlin).↩