The Chargé in Estonia (Carlson) to the Secretary of State

No. 527 (Diplomatic)


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On October 8, 1935, during a visit to Tallinn of Mr. Robert F. Kelley, the Chief of the Division of Eastern European Affairs at the Department of State, the latter had a conversation with Mr. E. Wirgo, the Chief of the Foreign Trade Bureau of the Estonian Ministry for Foreign Affairs, on the subject of Estonia’s desire to modify its commercial treaty with the United States. During this conversation it became apparent that it was the wish of the Estonian Government not to modify the above treaty, but to negotiate a reciprocal trade treaty with the United States of the kind with [which?] the latter is now concluding with other countries. There is attached hereto a memorandum36 covering the most important points touched upon in the above-mentioned conversation.

While in Tallinn, Mr. Kelley was given to understand that the Estonian reply to the Legation’s note of September 27, 1935, on the above subject would be forthcoming almost at once. This did not, however, prove to be the case, and it was not until today that the Foreign Office in Tallinn delivered to the Legation the note setting forth the wishes of the Estonian Government in respect to a new commercial treaty with the United States.

There is attached hereto a copy of the foregoing note, of which the original is in the files of the Legation. After having studied this note the Legation requested from the Foreign Office further information concerning the following statement which is made in paragraph (4) of the note:

“(4) As far as the trade between Estonia and the U. S. A. is concerned, it is known that during the past ten years (1925–1934) Estonia has paid on the average over ten million Est. crowns annually more for the goods imported from the U. S. A. than it has been able to sell to the latter.”

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Inasmuch as the above average seemed to be rather high, the Foreign Office was requested to explain the manner in which the sum in question had been reached. As a result the material which is contained in enclosure No. 437 to the present despatch was handed to the Legation.

In conclusion it may be pointed out that in accepting the above note, the writer made the remark that in view of the fairly large number of treaty proposals which were now under consideration by the Government of the United States and of the time which would be required to make the necessary study in Washington of the Estonian proposal, a response thereto would probably not be forthcoming for some months. The writer was thereupon advised informally that, should it not be found possible to come to an understanding on the subject of the new treaty before May 26, 1936, the date on which the present treaty is to expire, Estonia might possibly be willing to give consideration to a proposal foreseeing the prolongation for the period of one year of the treaty which is now in existence if made to it by the United States.

Respectfully yours,

H. E. Carlson

The Chief of the Foreign Trade Department of the Estonian Ministry of Foreign Affairs (Wirgo) to the American Chargé (Carlson)


Sir: The Estonian Government has carefully studied the memorandum and documents attached thereto, presented by the American Legation to the Estonian Foreign Office on September 27, 1935. Highly appreciating the wish of the United States to see the normalization of international trade relations, and desiring to contribute as far as possible to the obtaining of this end, the Estonian Government can, nevertheless, not be a pioneer in this matter. Estonia would be prepared to adhere to the principle of equality of opportunity and treatment, so well expressed in the U. S. A. memorandum, but unfortunately it would be able to follow this principle to a full extent in the forming of its policies only in case the principle is also accepted, if not by all of Europe, then at least by the countries which hitherto have been the best customers for Estonia’s produce.…

It is clear that Estonia, whose foreign trade in 1934 formed 0.08% of the total foreign trade of the world, cannot ignore the wishes of such countries, as are the best buyers of its products, even though these demands, from the point of view of the “do ut des” principle, [Page 200] sometimes violate the most-favored-nation principle. If, however, the U. S. A. would provide greater facilities for Estonia’s exports and would contribute to a considerable increase in the purchases of the U. S. A. in Estonia, the problems of the Estonian–U. S. A. trade would be solved automatically without Estonia being compelled to give full consideration to the “do ut des” principle.

2. However, the principle of “equality of opportunity and treatment” has been of practical importance only in cases where the customs barriers of the country offering such treatment are not kept at heights which render the exports to that country entirely impossible. Should it become evident that Estonia’s principal export commodities would be subject to prohibitive tariff rates upon importation into the U. S. A., this kind of “equality” could not provide a normal basis for the development of the exchange of commodities. For this reason Estonia can not leave the question of individual tariff rates out of consideration in the forthcoming negotiations.

3. With regard to the principle of balanced foreign trade accounts between two countries, Estonia also deems it advisable that the principle of bilateral treatment be replaced by that of a multilateral treatment. The latter principle implies, however, that it be recognized not only within the limits of relations between any two countries, but by all countries. Estonia has at present fairly considerable so-called “frozen sums” tied up in several countries which unfortunately can not be liquidated in any other manner, but by artificial directing of imports to such countries. Before the world crisis, Estonia made use at its own discretion of all funds credited to it in other countries. It has now been deprived of this possibility and is compelled to reckon with the principle of bilateral balancing of trade.

This question is in logical relation with the question of restrictions in the foreign exchange transactions. Recently it seemed possible to predict, if not a complete removal, then at least a considerable alleviation of these restrictions in Europe. Also in Estonia the restrictions on the foreign exchange transactions are actually applied far more leniently than was the case, for example, a year ago. Unfortunately, however, the general position now obtaining in Europe is different. Several European countries have this year enforced restrictions, which reach beyond the requirements of balanced foreign trade accounts between two countries, by permitting imports from a country only to the extent of 60% of the exports to that country, while others which throughout the crisis years and up to the present have been able to manage without exchange restrictions, have recently introduced a control over foreign exchange transactions. This fact further curtails Estonia’s freedom of action and compels it to consider not theoretical maxims but the requirements of practical life. All of these circumstances compel the European countries and at [Page 201] times also Estonia to act in its foreign trade in a manner which, from the point of view of the purely most-favored-nation principle, may in certain cases be interpreted as discrimination. Since, however, this kind of foreign trade system in Europe has totally deprived Estonia of freedom of action, it also cannot follow a different policy if it does not want to completely ruin its economics, and particularly its export trade. For this reason it is unable to accept to their full extent any references to discrimination.

4. As far as the trade between Estonia and the U. S. A. is concerned, it is known that during the past ten years (1925–1934) Estonia has paid on the average over ten million Est. crowns annually more for the goods imported from the U. S. A. than it has been able to sell to the latter. During the period from 1925 to 1934, Estonia’s total exports reached the highest point in 1928, having amounted to Ekr. 127,109,000, and the lowest point in 1932, having totaled Ekr. 42,571,000. The annual exports during the ten year period averaged Ekr. 86,784,000, while the annual imports during this period averaged Ekr. 83,363,000, the annual favorable balance thus having amounted to Ekr. 3,421,000. These figures are the best proof of what proportion the favorable balance of U. S. A. trade with Estonia constitutes with the general totals of the latter’s foreign trade.

It must be mentioned at this point that, as long as Estonia had full freedom to make use of the surpluses which had accrued from the trade with other countries, it had no unsurmountable difficulties in overcoming the unfavorable balance of its trade with the U. S. A. At present, where this freedom no longer exists, it is able to purchase U. S. A. products only when it knows which source it is able to use for making payments for these purchases. Such source may only be created from the money obtained from the U. S. A. against Estonia’s exports, since otherwise, should Estonia, for instance, desire to use another source, it may happen that the latter has been blocked for other purposes. If, however, Estonia continues its purchases in the U. S. A. without giving consideration to the possibilities of effecting payments therefor, “frozen” funds may accumulate in Estonia to the credit of the U. S. A., which hardly would be desirable to either country.

5. From the foregoing, it must be concluded that the question of the facilities Estonia may promise to the U. S. A. in the new agreement, is entirely dependent on what the U. S. A. itself is prepared to offer to Estonia.…

Consequently, Estonia must, first of all know whether the U. S. A. is prepared to guarantee the admission of its products to the United States, and if so, in what quantities. Before this question is settled, Estonia will not be able to assume and declare its definite attitude towards the proposals made by the U. S. A.

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In order to facilitate action on the part of the U. S. A., suggestions are made below not only regarding the tariff reductions to be offered, but also concerning quotas for which such reductions are to be allowed, with regard to some of the products already mentioned by Estonia as well as those which Estonia believes not to be able to leave out of consideration during the negotiations opened. This would enable the U. S. A. to grant to third countries the tariff reductions only to the extent of the quotas provided for in the agreement signed with Estonia. For a further alleviation of the position of the U. S. A. it might also be provided that in case it appears, after the lapse of one year, that most of the tariff quotas obtained by Estonia have not been made use of by the latter, the parties may come to an agreement regarding the reduction of this quota, raising at the same time the quota allotments for other lines where the allotments provided for in the agreement have not proved to be sufficient. This matter might be discussed in detail after an agreement had been reached regarding the principles that are being set up.

[The remainder of this note comments on details of tariff schedules on particular products, and in regard to items for inclusion in a draft agreement.]

I avail myself [etc.]

E. Wirgo
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