The Minister in Sweden ( Steinhardt ) to the Secretary of State
[Received August 23.]
Sir: I have the honor to refer to the Department’s telegraphic instruction No. 23 of July 16, 7 p.m. and to my despatches No. 204 of July 18, 1934, and No. 215 of August 7, 1934,8 dealing with the proposed negotiations looking to the drafting of a reciprocal commercial treaty between the United States and Sweden.
I have discussed the substance of the Department’s telegraphic instructions with the Foreign Office and have made the request that the commencement of these negotiations be kept confidential. Mr. Sandler, the Minister for Foreign Affairs, has assured me that he entertains the same wish and will do everything within his power to respect the Department’s view. He has also assured me that the Swedish Government will complete at the earliest possible moment the necessary studies with relation to the aide-mémoire of the American Government and that in any event these studies will have been concluded before Mr. Boström’s return to Washington in September.
Mr. Sandler expressed himself as entirely agreeable to proceeding along the lines outlined by the Department and as such expression is stated by the Department to be a prerequisite to the setting up of a special committee to prepare for the Swedish negotiations it would now seem quite appropriate to pursue this intention.
In response to the Department’s invitation to express my views concerning the conduct of the negotiations I have the honor to invite consideration of the following.
I have little doubt that one or more special representatives will be designated by the Foreign Office to proceed to Washington to take part in the negotiations. The appointment of special representatives will not be a mere formality.
[Here follows comments concerning probable Swedish negotiators and recommendations regarding concessions on a number of items of American export to Sweden.]
I have every reason to believe that the concessions or commitments by the United States to which the Swedish Foreign Office will attach the greatest importance are as follows.[Page 714]
(a) The retention by the United States of mechanical woodpulp and chemical woodpulp (specifically known as sulphite and sulphate woodpulp) on the free list.
In spite of the fact that the Senate amended the proposed reciprocal treaty bill so as to prevent the imposition of a tariff on items now on the free list the Foreign Office will undoubtedly insist that their principal export to the United States be bound on the free list. They have great respect for the President’s ability to obtain any reasonable action from the Congress and will not care to rely upon the provisions of a statute which they recognize is subject to change as early as next January.
(b) The Swedish Government will most certainly ask for concessions or commitments in respect of what is known as brown paper and Kraft paper.
(c) They will undoubtedly request a reduction in the rates on iron and steel in general, with particular reference to high grade steel (sometimes called charcoal steel used for razor blades and the like).
(d) A request for concessions or commitments in respect of matches is to be anticipated.
(e) I am reliably informed that the Swedish negotiators will be instructed to request rate reductions on paving blocks (used for paving streets) and on so-called hard bread. The latter item is really not bread but a hard brown cracker rarely seen in the United States which is a universal dietary item all over Sweden served at every meal.
(f) It is also probable that concessions or commitments may be asked in respect of porcelain, china and art glass, ball bearings, calves’ skins, iron ore, concentrates and wire, but I have reason to believe that the Foreign Office does not regard the items enumerated in this paragraph as of primary importance.
(g) I understand that the Swedish negotiators will bring up the question of increased costs in the United States that have or may result from the operation of the National Recovery Act. I am told that in raising this question they will recognize the difficulty of anticipating the ultimate effects of so fundamental and general an economic policy.
The following is a brief summarization of Sweden’s trade policies and commercial treaties, either concluded or under negotiation with countries other than the United States.
Before the comparatively recent industrialization of Sweden the country pursued a free trade policy similar to that of many European countries. A tariff for protection was first adopted in 1892.
The Swedish tariff policy has at all times been highly consistent,—favoring the lowest possible rates deemed necessary to protect essential industries and requisite for revenue. Sweden has invariably favored and practiced the most favored nation system. The relatively large and profitable export trade coupled with the country’s dependence upon the maintenance of its exports has resulted in a policy of moderate import duties and generous treatment of foreign merchandise. Sweden is today one of the few countries in the world where [Page 715] there are no quotas, embargoes, licenses, or currency exchange restrictions in effect—with the exception of certain reasonable restrictions against grain importations.
In 1906 a treaty was negotiated with Germany under which the Swedish tariff was brought up to date, various rates being raised, partly to provide increased revenues and partly to protect growing domestic industries. The German treaty was amended and revised in 1911 but without substantial change.
As the result of disturbed trade and economic conditions during and after the World War and as increased revenues had become imperative the tariff was revised and many rates were raised.
The first important commercial treaty concluded by Sweden after the war was with Spain in 1925,9 under the terms of which Sweden reduced rates on a number of typical Spanish exports in return for reductions by Spain of duties on timber, iron and steel, machinery and other items of manufacture. This treaty was revised in 1926 after notice of termination was given by Spain.
As the result of Germany’s desire to build up her exports to Sweden a new commercial treaty was concluded in 1926.10 Mutual tariff concessions were made, Sweden reducing rates on manufactured goods and Germany on agricultural products, timber and paper.
In 1926 Sweden also negotiated a commercial treaty with Greece11 involving lower duties on a few Greek export items and reductions by Greece on the principal Swedish exports.
Between 1926 and 1930 the only important change in the Swedish tariff policy was the adoption of the recommendations of the League of Nations whereby nomenclature changes reduced the number of items in the Swedish tariff schedules from 1387 to 1153.
Subsequent to 1930 political expediency has brought about a change in Sweden’s tariff policies in the direction of greater protection for agricultural products. As a result the Swedish Government in order to protect Swedish agriculture adopted the export debenture plan for wheat and rye and subsequently a regulation requiring the mixing of a high percentage of domestic wheat and rye with imported grain in the production of flour.
An increasingly large import surplus in a world of fluctuating currencies brought about the necessity of reducing the unfavorable trade balance and caused Sweden on January 31, 1932, to adopt a number of supplementary import duties covering about seventy commodities. The Government has steadfastly refused to admit that these increases are permanent and continues to label them as “supplementary”.[Page 716]
Effective as of February 15, 1933, Germany gave notice of the cancellation of the Swedish treaty. Efforts to negotiate a new treaty with Germany since that time have been unsuccessful. The relations between Sweden and Germany are at present so complicated and fraught with such tension as the result of financial disputes and political considerations that a new commercial treaty appears to be remote.
It has always been the policy of the Swedish Government to be prepared for any eventuality and to have placed in its hands by the Riksdag adequate authority to meet any sudden change in world conditions. Consistent with this policy the Government requested and received from the Riksdag in 1933 power to increase without notice all duties to three times those named in the existing tariff schedules and to place a maximum duty of 25 per cent ad valorem on imports now on the free list,—subject to confirmation by the succeeding Riksdag.
After the termination of the German treaty a number of tariff rate changes were effected restoring in part certain items to the levels existing before the treaty of 1926 was entered into, and to a lesser extent adding new supplementary rates. Although these increases were generally assumed to be reprisals against Germany many of them affected American exports. As American exports are competitive with German exports in many categories, the supplementary duties effective as of March 22, 1933, and which were again directed against Germany have adversely affected American exports.
One of the principal benefits to be gained by the negotiation of a commercial treaty with Sweden is the removal of the disadvantages under which American exports to Sweden are laboring as the result of the recognized desire of the present Swedish Government to strike at Germany whenever possible. For the past two years the German commercial policy towards Sweden has been inexplicably ruthless and inconsiderate, having regard to the fact that the balance of trade is highly favorable to Germany,—in the relation of three and a half to one. The very large immobilized Swedish capital investment in Germany coupled with the German commercial attitude has been the source of great irritation to all of the important Swedish financial interests and to the Swedish Government.
The most important recent development in Sweden’s trade relations was the negotiation of a reciprocal trade treaty with Great Britain which became effective on July 7, 1933.12 The outward appearance of this treaty adheres to the most-favored-nation principle. An exception was made, however, in the agreement by Sweden to purchase 47 per cent of all of her coal import requirements from Great Britain. The Swedish Government was able to give this assurance by reason of its ability to induce the Federation of Swedish Industries under a [Page 717] gentlemen’s agreement to agree to the purchase of increased quantities of British coal. The large amounts of coal consumed by the Swedish State Railways and by other Government agencies fortified the Swedish Government’s ability to give this assurance. Prior to the negotiation of this treaty a substantial part of Sweden’s coal requirements was furnished by Poland. Since the British treaty has been in effect there has been quite some complaint by Swedish consumers of coal as Polish coal is now being offered in Sweden substantially below the British prices. In return for this very substantial concession Great Britain agreed to give Sweden equal treatment with all other countries excepting the British Dominions in respect of Swedish exports of agricultural products with particular reference to bacon, butter and eggs.
The British treaty also involved the reduction of certain import duties by both countries and the binding of other rates during the life of the treaty, the period of which is for three years subject to termination in the event of the failure of Sweden to purchase the requisite quantity of coal, or on six months’ notice by either nation after the expiration of the three year period.
A provisional agreement was entered into between Sweden and Poland early this year, effective until May 1, 1934, and subject to one month’s notice of cancellation. Under the terms of this agreement Sweden was granted the lowest rates on the Polish tariff schedules in respect of many industrial articles and Poland was assured the binding of certain existing Swedish rates.
In November 1933 Sweden and France exchanged notes under the terms of which Sweden reduced her rates on wines and a few other products in return for the withdrawal by France of the 15 per cent currency depreciation tax on Swedish exports, principally lumber and pulp. The Swedish Government also agreed to issue a decree to the effect that all beverages sold in Sweden under the designation of “wine” must be made of the juice of grapes.
Reference should also be made to the so-called Oslo Convention of 1930 between Sweden, Norway, Denmark, Holland, Belgium and Luxembourg13 under the terms of which the signatory nations agreed to notify one another before taking action to raise tariff rates. Thus far this convention has been of little practical value. It is a mere declaratory instrument in the nature of a preliminary notice of intention.
Exchange clearing agreements have been entered into with Turkey14 and Chile,15 the object of which has been primarily to settle balances with these countries arising out of their exchange restrictions.[Page 718]
Sweden has comparatively recently entered into so-called barter trade agreements with Persia and Greece.
In the case of Persia a group of Swedish manufacturers has arranged to accept Persian rugs, dried fruits, etc. in payment for Swedish industrial products. The sale of the Persian exports so received is not limited to Sweden but has in some instances been effected in the world market through the facilities of the Swedish Cooperative Union.
The arrangement with Greece is handled exclusively by the Swedish Tobacco Monoply which is the Government controlled corporation having the sole right to manufacture tobacco products in Sweden. The agreement involves the barter of Greek tobacco for Swedish industrial products, in addition to which a part of the Greek tobacco deliveries is being applied to the gradual liquidation of outstanding Swedish claims in Greece.
In conclusion it may be said that of recent years Swedish commercial policy has endeavored to break away from the former alliance with the Central European tariff system and to create a closer cooperation with Great Britain and the British Dominions coupled with a desire to increase trade with the United States. This trend has received a sharp and favorable impetus since the treaty of 1933 with Great Britain.
The British have been astute in following up the advantages of their new treaty with Sweden and with the exception of the dissatisfaction over the price of British coal the treaty may be said to have operated thus far to the great advantage of Great Britain with some benefit to Sweden. During the past year the British have been engaged in active propaganda to increase their sales in Sweden. Their efforts thus far have been extraordinarily successful. American merchandise has suffered the most as the result of this campaign. The British propaganda in some respects has been subject to criticism as being at time unscrupulous. American manufacturers and exporters have had no means of defending themselves against the methods practiced by the British. The non existence of a treaty between the United States and Sweden giving our manufacturers the same treatment as is accorded the British has operated to our great disadvantage.
The hostility towards Germany as the result of ever increasing restrictions against Swedish agricultural exports; the German system of subsidizing exports to Sweden through the medium of blocked marks, the very large sequestered Swedish investment in Germany, antagonism towards and fear of the German political situation and the irritation at the high price of British coal make the present a most appropriate time for a reciprocal trade treaty between the United States and Sweden. The increased purchasing power of the Swedish crown in terms of the dollar, a high regard for the quality of American [Page 719] merchandise, respect for American ingenuity, the generally friendly attitude towards all things American, disgust with the incessant turmoil in Europe and a strong desire in Sweden to reorient towards the West appears to constitute a most opportune foundation for a new treaty, particularly if American manufacturers and exporters will take advantage of the provisions thereof and enter the Swedish market with the same degree of vigor that the British have.
In closing I desire to emphasize an observation contained in one of my earlier despatches to the effect that whereas the population of Sweden is but 6,500,000 the potential market for typical American products is equivalent to an average population of 20,000,000 by reason of the extraordinarily high standard of living that prevails here. Many articles deemed luxuries throughout the world are regarded in Sweden by the masses as household necessities—exactly as they are looked upon by the American public.