611.6231/597
Memorandum by the Chief of the Division of Western European, Affairs (Moffat)
Dr. Leitner, the Counselor of the German Embassy, called this morning by appointment on Assistant Secretary of State Sayre. Mr. Moffat, Chief of the Division of Western European Affairs, was present.
Dr. Leitner began the conversation by saying that his Government accepted in principle the proposal we had made to retain the clauses of the present German-American Treaty of Commerce other than those tied up with the most favored nation principle, which must drop after the denunciation by Germany of Article 7. He hoped to have explicit instructions within a few days in order that it might be possible to complete the drafting in time to submit the new instrument to the Senate during the present session.
Dr. Leitner then referred to a recent conversation between Mr. Sayre and Ambassador Luther with regard to the possibilities of now proceeding with negotiations for a reciprocal trade agreement. Mr. Sayre replied that carrying out his promise to the Ambassador, we had made a new study of the trade situation between our two countries; we had discarded old conclusions and old preconceptions; we had consulted not only representatives of the interested Departments in Washington but even officers in the field. Our conclusions, however, had not altered. Our whole program was built on the basis of the most favored nation—that is complete equality of treatment—whereas the present German system was built on a system of preferential treatment to individual countries on a bargaining basis. We had examined this from every angle but were unable to see a way of reconciling these two fundamentally different concepts. It might be that Germany had been driven to its present policy through pressure from other sources but the fact none the less remained that it was in conflict with our basic ideas. We had recently concluded a modus vivendi with Czechoslovakia,11 which Dr. Leitner knew, and of course we stood ready to conclude a similar modus vivendi with Germany. This would, of course, provide for equality of treatment in tariffs, in the allocation of exchange, in quotas, and would undoubtedly have to contain some provision covering governmental monopolies in Germany.
Dr. Leitner was obviously disappointed as he said that his Ambassador had anticipated that we would present him in writing certain specific changes in policy which we suggested that Germany [Page 445] make. Mr. Sayre replied that the changes were so fundamental that he felt the next step would be for Germany to see if she could find a way of reconciling our commercial philosophies, but that he did not mean trying to find a halfway compromise. He really meant a fundamental acceptance by Germany of our trade philosophy and a thorough-going partnership with us along the road of equality of treatment and the reduction of trade barriers. The Ambassador had suggested sending a trade mission to this country but we felt that it was important first to reach a meeting of minds on the basic principles involved and only later to call in the experts. Mr. Sayre then outlined briefly the history of our conversations with the French during the past four months12 and how gradually the two Governments had reached an understanding on the bases within which negotiations would be carried on.
Dr. Leitner said that he fully understood the situation and would inform his Ambassador of Mr. Sayre’s exposition.