611.6531/99
Memorandum by the Chief of the Division of Western European Affairs (Moffat)
The Italian Ambassador came in late this morning to give a reply to the proposal put forward to him last Monday by Mr. Sayre that the United States and Italy should undertake a reciprocal trade agreement and that public announcement be made of this fact on September 24. Mr. Sayre had explained that while we did not ask for formal commitments, none the less we asked the Ambassador to assure us that during the life of the negotiations Italy would not put any new restrictive barriers against our trade, particularly of a discriminatory nature.
The Ambassador had just this morning received a long telegram from Rome which he had that moment finished deciphering. He read Mr. Sayre and Mr. Moffat a rough translation which they took down approximately as follows:
“To the Italian Ambassador, Washington. Referring to suggestions made by Mr. Sayre, you are authorized to declare that the Italian Government looks with genuine sympathy upon the policy which has been developed by President Roosevelt and his Administration to stimulate international trade. Italy is glad to accept the American proposal to initiate negotiations for an agreement between the two countries on the basis of reciprocal concessions. As Italy envisages the procedure, as soon as an agreement to negotiate has been reached in principle the both countries will set up organizations to start the work of preparation and only when this preparation has been finished shall the two countries select a date for the beginning of official negotiations.
[Page 588]“The Italian Government feels obliged to point out that the balance of trade with the United States is very unfavorable to Italy and expresses the view that the theory of reciprocity, upon which the American Government intends to base its negotiation, should result as far as possible in the realization of a certain equilibrium of trade. We consider it desirable that this equilibrium should be reached gradually, not by a decrease in importation from the United States into Italy, but rather through increased purchase of Italian goods by the United States. The Italian Government is also constrained to declare, albeit with regret, that although it is not their intention to create difficulties for the importation of American goods into Italy, none the less it would be unable to give a formal undertaking to abstain from now until the conclusion of the negotiations, from every measure of quota restriction or prohibition. The Italian situation in this matter is substantially different from the situation of the United States. Many servitudes imposed upon Italy by commercial agreements she has signed with foreign countries have prevented Italy from adequately protecting her domestic production even when the competition of certain countries has assumed a form of exceptional gravity. Moreover, the deficit of the Italian commercial balance has reached in the current year a figure which raises very serious concern and which weighs heavily on the international balance of payments. In such a situation measures of restriction might in certain cases prove to be the only way at the disposal of the Italian Government to prevent matters from becoming worse. An undertaking such as that mentioned by Mr. Sayre would remove the only possibility of protection at the disposal of the Government, not only with regard to the United States towards which Italy has the most favorable disposition but in the respect to every country which could invoke the most-favored-nation clause for its importations into Italy. With these reservations the Italian Government is quite willing to agree that notice should be given through a communiqué at the beginning of negotiations to the two countries. I am awaiting your telegraphic answer.”
Following the reading of this telegram, Ambassador Rosso quoted certain figures to show the seriousness of the available trade balance against Italy and in particular how much it had declined of late. For instance, he pointed out that comparing the first seven months of 1934 with the first seven months of 1933, it would be found that Italian imports had increased by 132 million lire while her exports had decreased 533 million lire. Thus the adverse trade balance for the seven months of 1934 amounted to one billion, 543 million lire, as compared with an adverse trade balance of 877 million lire in the first seven months of 1933.
Mr. Sayre said that the reading of the Italian telegram raised two questions in our minds: The first, the general philosophy advocated of endeavoring to create an exact trade balance between the two countries; the other was the nature of the assurances we had asked for to prevent the imposition of new trade barriers. Mr. Sayre pointed out that there were two ways in which one could approach these negotiations. The first was a narrow nationalistic point of view where [Page 589] each country endeavored to bargain so closely as to get the better of the other country, to build up a system of barriers which would be removed for concessions, that trade between two countries would show an exact balance, et cetera. This philosophy which had been practiced more or less by all countries during the past five years had resulted in the virtual bankruptcy of the world and was even today destroying trade more and more. When two countries endeavored to balance their trade, it was almost always on the downward basis. The other theory which the United States advocated was a gradual liberalization of world trade and an elimination of barriers which were preventing its recovery. In other words, we rejected the bilateral theory of trade in favor of a triangular or polyangular trade.
The Ambassador said that theoretically Italy entirely agreed with this point of view but that the situation was so desperate that the nation could not be expected to commit suicide for the sake of a theory. He pointed out how Italy had lost trade in Latin America, in the Danubian area, and even in the United States where, for instance, the Japanese had been underselling the Italians in silk which was one of their large exports. What Italy wants is more exports; it is very much against her wishes that she sometimes finds herself obliged to hold up imports. What the Ambassador felt that his Government wanted was more concessions from us than she was willing to give. In other words, Italy was asking us through a form of self-sacrifice to assist her in her present desperate need.
Mr. Sayre said that he clearly appreciated the frankness with which the Italian Government and the Ambassador had explained the Italian viewpoint. It was always a good augury when each side laid its cards upon the table and talked matters out fully. However, he felt constrained to say that the Italian point of view seemed at such variance with our philosophy in entering into these negotiations that it would be better to defer informal announcement of the intent to negotiate until we were a little more convinced that negotiations gave promise of success. The Italian Ambassador entirely agreed. He undertook meanwhile to ask Rome if it cared to elaborate on its telegram, while Mr. Sayre in turn informed the Ambassador that he would ask him to come down some time next week for a further talk.