Foreign Relations of the United States Diplomatic Papers, 1935, The British Commonwealth; Europe, Volume II

611.6231/621

The German Ambassador (Luther) to the Secretary of State

[Translation]

Washington, May 24, 1935.

Mr. Secretary of State: In the name of and by direction of the German Government I have the honor, in reply to your valued note of the 24th instant [ultimo]—611.6231/529 [594], to advise Your Excellency as follows:

The German Government is prepared to conclude an agreement with the United States of America, in accordance with the proposal communicated in the note of April 24 of the current year—611.6231/429 [594], whereby Paragraphs 2, 3, 4, 6 and 7 of Article VII of the Treaty of Friendship, Commerce and Consular Eights between the German Reich and the United States of America of December 8, 1923, are voided as of October 14, 1935. The German Government desires solely to introduce a formal alteration in the proposed text of Paragraphs 2 and 3 of Article II of the draft, which would adapt the text to the wording of Article XXXII of the treaty of December 8, 1923. A draft of the modified text in the German and English languages is annexed hereto.¹⁴

If the two Governments should limit themselves to the conclusion of this agreement, a treaty basis for trade between Germany and the United States would substantially cease to exist from October 14, 1935, on. Such a condition under which each party would be free from any restriction in the treatment of the imports of the other would not necessarily lead to a prejudice to the mutual exchange of goods. Nevertheless the removal of all treaty regulation in the trade between the two countries would introduce a feeling of insecurity, which in view of the importance of the economic interest connected with this trade should be avoided. The German Government in its communication of October 13, 1934,¹⁵ took as a basis the fact that a modification of the provisions of Article VII of the old treaty is necessary. It declared in its note, at once, however, its willingness to enter upon negotiations regarding the future form of German-American trade relations. It was even then of the opinion that the problem could not be solved by the elimination alone of the treaty provisions indicated as needing amendment, but that new and better regulations should be substituted for these obsolete provisions. The German Government is still of this opinion. It therefore repeats its proposal previously made, to initiate immediate negotiations between the two states. These negotiations should be conducted with the aim of putting a stop to the increasing shrinkage of German-American trade, the extent of which can be seen from the enclosed tables,¹⁶ and so far as possible, through a revision of such trade to provide the conditions also for a satisfactory regulation of the German payment obligations to the United States.

The German Government desires to avail itself of this occasion to make a few remarks concerning the principles of the German commercial policy which would serve as a basis also for the proposed negotiations with the American Government. It believes that these principles do not form an insuperable obstacle for the attainment of those aims of commercial policy which the American Government, according to numerous public statements by its leading representatives is now pursuing.

In regard to the most-favored-nation principle, the fact that the German Government in its note of October 13, 1934, referred to the provisions of Article VII as in need of modification by no means signifies that it does not desire to resume the most-favored-nation principle in a new treaty with the United States. In the negotiations, however, it must be made clear to what fields this principle shall extend and what it covers in individual cases.

The revival of trade relations between the two countries is not primarily dependent, however, in the opinion of the German Government on agreement concerning theoretical questions of trade policy. Rather have the contentious questions of trade policy (those regarding most-favored-nation treatment, the customs tariff level, import and tariff quotas, and government monopolies, among others) in Germany’s relations to other countries, including the United States, yielded for a considerable time to the practical difficulties in the field of financial settlements.

Furthermore the German Government is compelled to adjust Germany’s imports from abroad to the supply of foreign exchange available for paying for them, and to prevent the accumulation of debts arising from imports. In view of the limited supply of foreign exchange in the Reichsbank, the application of this principle compels Germany to supply her import needs primarily from the countries which, by admitting a sufficiently large volume of German goods, furnish the foreign exchange necessary for the payment of imports from abroad. The fact repeatedly emphasized by Germany and increasingly recognized by the Governments of creditor countries that a debtor country can satisfy her obligations only by goods and services, leads us, in view of the decrease of the total German exports, necessarily to the conclusion that the fulfillment of the financial obligations of Germany also can be accomplished only by a readjustment of her foreign trade.

Responsible spokesmen for the American trade policy have often publicly declared during the past year that the United States must purchase more goods abroad, if it wishes to export more American agricultural and other products. Germany is willing and able to purchase products of the United States in considerably greater quantity than before, if the United States will take more goods from Germany and give Germany the opportunity to pay for her excess imports by an increase in her exports. The development of German-American trade during the last few months has proven that an unfavorable balance of trade with the United States is not unavoidable. A considerable increase in German exports to the United States could be brought about at once if the United States would reduce its import duties on certain groups of goods of interest to German exporters in harmony with the principles which according to the public declarations of the American Government, are to govern the tariff reductions which it plans to make. Such an increase of German exports to the United States would enable the German Government in managing the goods falling under a monopolistic regime, to give greater consideration to the export interests of the United States and in the case of goods subject to quota to increase the quotas allotted to the United States.

Moreover, as indicated above, the question of Germany’s financial obligations to the United States is inseparably connected with such a revision of the bilateral exchange of commodities between the two countries. Not until an understanding concerning the regulation of commodity trade has been reached will it be possible to see whether and to what extent the service of the loan obligations will be possible. The German Government is prepared to include this important question also within the scope of the negotiations.

In order that there may be no disadvantageous temporary interruption to treaty regulation of trade between the two countries, the negotiations here proposed should be opened early enough to make possible their termination by October 13, 1935. The German Government is prepared at any time to send a delegation to Washington for this purpose with the required full powers.

The German Government accordingly takes the liberty of summarizing its position as follows:

1. The German Government accepts the proposal of the Government of the United States to extend the treaty of Friendship, Commerce, and Consular Rights now in effect, with the exception of the provisions governing the application of the most-favored-nation principle in trade.

2. The German Government is prepared to send a delegation to the United States for negotiations as to the adjustment of the provisions concerning trade.

3. The German Government agrees that these negotiations shall be conducted on the basis of the most-favored-nation principle.

4. The aim of the negotiations is to be an increase in the present volume of reciprocal trade. The German Government considers, in particular, as means to this end, tariff reductions to be granted by America, and concessions by Germany in the importation of goods monopolistically controlled and subject to quota.

5. The German Government furthermore considers a revision of commodity trade as the prerequisite for the satisfactory readjustment of German payment obligations and is prepared to negotiate on this question at the same time.

Accept [etc.]

Luther

14. Not printed.
15. Foreign Relations, 1934, vol. ii, p. 453.
16. Not printed.