862.5151/1229: Telegram
The Ambassador in Germany (Dodd) to the Secretary of State
[Received June 23—7:43 a.m.]
115. Department’s telegram No. 75, June 19, 6 p.m. The provisional import prohibitions consecutively reported in cables from the Commercial Attaché applied to future business, not old contracts, and have all expired except prohibition wool and woolens extended to June 30th but are replaced by control boards created under decree of March 22nd providing regulation and supervision of trade in industrial raw [Page 431] materials. The existing 10 percent exchange quota and reduction in utilization of rembourse credits to 20 percent for June plus the operation of the control boards have not yet had full effect which will become evident after delivery of exempted old contracts.
While decrees themselves contain no discriminatory terms the character of the materials placed under control bears with particular severity on the United States. Control boards have already been provided for wool, hides and skins, cotton fibrous materials, base metals and rubber. Coffee importation to be licensed after July 1st. German importers are understood to favor establishment of controls because license from these boards assures obtaining necessary exchange for purchase.
The Foreign Office has orally described the Argentine agreement as a barter arrangement not between the Governments but by exchange of letters between the Reichsbank and Argentine Foreign Exchange Office by which 6,000,000 frozen German marks will be released in part payment for Argentine raw materials to total value of 10,000,000 marks, Germany exporting finished goods to same amount. In connection with payments for German goods it was explained that existing discrimination against Germany in the allotment of permits enabling the advantageous purchase of foreign exchange in Argentina had been removed and that as a result Germany would actually gain foreign exchange by the arrangement although it was characterized as not being very satisfactory and that no period of time had been specified for the exchange of commodities.
The Foreign Office mentioned simultaneously that Germany recently concluded protocols with Holland including Dutch East Indies colonies exchange for resumption of operation of central bank accounts temporarily suspended by Germany on June 9th in consideration for 3 years’ extension by Holland of expiring revolving goods credit of 140,000,000 florins and with Italy, Belgium and France not including their colonies. Although such accounts with Holland were not suspended a protocol with Holland of June 5 was taken as a model in limiting the inclusion in these accounts of the goods from third countries to proven habitual transit goods. Some imported American goods benefiting by the former procedure under exchange limitation will be affected by this change.
The granting of foreign exchange for purchase of hides, airplane parts, cotton, et cetera in excess of quota limitation through arbitrary action of control boards coupled with past speculative purchases of imports in anticipation possible mark devaluation and rise in world prices have maintained high imports in the face of exchange restrictions.
With regard to German textile raw material stocks no more reliable statistics are known than those of Business Research Institute [Page 432] sent with despatch No. 884, June 1.21 However, Commercial Attaché’s recent canvass of cotton importers reveals cotton stocks for nearly 6 months of which a third is in country and balance in importers’ hands still requiring foreign exchange.
Nonapplication of new restrictions to old contracts has accounted to a great extent for maintenance of imports as has granting of additional commodity credits in which American firms have participated under which mark balances of doubtful liquidity are accumulated in Germany. Action of control boards in continuing purchases of cotton, hides et cetera has also been factor in maintaining imports.
Cotton importers have informed Commercial Attaché that they have been receiving exchange quota of 50 percent which prevailed through 1933 and believe that this will be continued. In that event last year’s American cotton imports could be maintained. American hides and airplane parts have also been exempted from exchange percentage limitation to date.
The object of the decrees affecting exchange appear to be to reduce use of exchange as far as possible and to apply it to materials which Government acting through control boards deems essential. This limitation serves likewise in promoting a policy of diverting trade through countries which will take German goods since it encourages individual barter which the Government admittedly approves and is trying to foster. As soon as control is established the importer is limited to operation under license which definitely directs business to countries with which Germany has clearing agreements creating pressure on countries such as the United States to conclude similar agreements or other agreements guaranteeing more German exports.
Please see my 113, June 19.22