The Minister in the Netherlands (Emmet) to the Secretary of State

No. 45

Sir: I have the honor to acknowledge the receipt of the Department’s instruction No. 29, of May 24, 1934, enclosing a copy of the commercial treaty draft recently submitted to the Netherlands Minister in Washington for the consideration of his Government.

Due note has been taken of the Department’s reasons for initiating the negotiation of this treaty and of the necessity for such a treaty in case the United States were to grant the request presented by the Netherlands Minister in Washington to extend to his Government the benefits of the provision of the Revenue Act of 1932 exempting from the excise tax upon coal and coke all countries which import more coal from the United States than they export to the United States. Such privileges had been extended to Germany and Great Britain on the basis of most-favored-nation treaties with those countries, and I observe from the Department’s instruction that in claiming equal treatment the Netherlands Minister implied that the Dutch interest involved was negligible but that the question of most-favored-nation treatment between the two countries required clarification.

The Department’s instruction states that the Netherlands Minister in Washington made this claim somewhat later than the claims presented by Great Britain and Germany, but presumably it was not long after the passage of the Revenue Act of 1932. Since that time the economic and commercial policy of the Netherlands has undergone a complete transformation. That policy had been based primarily upon the free trade theory, and such restrictions as existed were held in check by a general observance of most-favored-nation clauses. Since the failure of the London Monetary and Economic Conference and the adoption of the British Empire trade agreements, the Netherlands has abandoned free trade and has gone in for an aggressive policy of special trade agreements and restrictive quotas. Extra-parliamentary powers have been granted to the Government, giving it [Page 630] a free hand in these matters, and the appointment of Mr. Steenberghe9 to succeed Mr. Verschuur, reported in the Legation’s despatch No. 43, of June 26, 1934,10 indicated that this policy is to be carried out without any limitations. Only if this policy proves to be a failure will there be any likelihood of a general use of bargaining tariff.

The new policy has already produced special trade agreements with a dozen countries, including Italy, Portugal, Belgium, Switzerland, South Africa, Chile, Argentine and Germany, and negotiations are now being conducted with Great Britain. Quota restrictions have been applied against imports on a non-discriminatory quota basis but special reciprocal extension quotas are granted under the special agreements. All this has been and is being carried out without regard to most-favored-nation treaties. While the Legation has not received an official statement to that effect, it is understood that the point of view of the Netherlands Government is that when most-favored-nation clauses were included in international treaties, no such situation as the present one had been contemplated as a possibility, and that therefore quota agreements do not violate such most-favored-nation clauses.

Under the circumstances and in view of the fact pointed out in the Department’s instruction that the most-favored-nation treatment accorded to the Netherlands by the United States and vice versa has only been based on an understanding and not on an actual treaty, it seems very doubtful if the Netherlands will consent to enter into the treaty recently presented to its Minister in Washington. I have had no official expression of opinion but understand that the treaty is being studied at present in the Department of Economic Affairs, where there seems to be considerable scepticism among the officials with whom the Commercial Attaché is in touch. It may be assumed that our draft treaty, had it been submitted two years ago, would have been acceptable, but as things stand today it is probably not so much to their liking, particularly, of course, Article 3.

I regret to note that in the last paragraph of the Department’s instruction there seems to be some doubt as to the negotiation of a trade agreement with the Netherlands. Since the bill authorizing the President to enter into reciprocal agreements has become law and certain other rights have been given him through the National Recovery Act,11 it seems advisable that a special trade agreement should be negotiated with Holland, particularly as they themselves are anxious to have one. Dr. Colijn12 recently said to me, “When you are ready to negotiate, we will be.”

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It does not seem likely that the Netherlands will be prepared to make reciprocal reductions in tariff schedules, nor does this method of bargaining seem an advantageous one for us. The new tariff Act just passed reestablishes all duties on an approximately 12% level. Such reductions as might be obtained through negotiation would therefore be so small as not to be in a practical sense worth while. There are one or two articles, such as gasoline and cigarettes, against which especially high duties are levied, but since the importation of these articles does not seem to have greatly diminished, they do not present any problem for the moment. It is true that by the new Tariff Act the special duty on gasoline will be raised from six guilders to eight guilders per hundred kilos. This is in addition to an original basic tax of Fl. 1.25 and a sales tax and compensating duty of 5% ad valorem, which when taken altogether makes an excessively high tax. However, only a small percentage of the gasoline imported by American companies comes from the United States so that this item seems also not to present an opportunity for bargaining.

Without going into too great detail concerning specific articles, which have been reported on in full by the Commercial Attaché, I venture to suggest that the following considerations be kept in mind:

Trade relations between the Netherlands, including the Indies, and the United States are at present on a fairly satisfactory basis, there being a slight balance of trade in favor of the Netherlands, principally due to exports from the East Indies.
The Dutch are at present keenly interested in helping the Indies out of a serious economic slump. Inasmuch as most East Indian articles do not compete with American production, with the exception of sugar, it may be possible to remove certain restrictions on East Indian products in return for special quota concessions for American exports to Holland.
As stated above, it does not seem most advantageous for the United States to negotiate for reductions in the Netherlands tariff, though perhaps it may be necessary to do so in accordance with the wording of the new American law.
It would seem advisable that, once the Department is prepared to negotiate, either the Netherlands Minister in Washington be requested to present proposals or that this Legation be instructed to obtain such proposals. The crisis brought about by the exchange situation in the Dutch East Indies is a serious one and the Netherlands Government is fully aware of the enormous value of the American market in such a situation. It is not at all unlikely therefore that such proposals will contain a sound basis for negotiation, since the problem in all its aspects is a more urgent one for Holland than it is for the United States.

Respectfully yours,

Grenville T. Emmet
  1. M. P. L. Steenberghe, Netherland Minister for Economic Affairs.
  2. Not printed.
  3. 48 Stat. 195.
  4. President of the Council of Ministers and Minister of the Colonies.