611.6231/621
The Secretary of State to the German Ambassador (Luther)
Excellency: I have the honor to acknowledge the receipt of Your Excellency’s note of May 24, 1935, in which you inform me of the desire of your Government to negotiate a trade agreement between the United States and Germany.
The Government of the United States and the Government of Germany are in complete accord upon the earnest desire of each to increase its external trade. This Government has completed negotiations with five countries and is in negotiation with thirteen other countries looking toward reciprocal trade agreements. It is its expressed desire to formulate similar agreements with every country. This trade agreements program, and the policies underlying it, afford conclusive evidence of the attitude of this Government toward an expansion of foreign trade.
This Government is well aware of the serious difficulties which the current international complications present to various governments, including the German Government. It is not unmindful of the fact that under the stress of these present conditions many governments have deemed it necessary to take special steps to control their balance of payments with the outside world. This Government is, however, extremely regretful that, in these circumstances, the German Government has adopted methods which go far beyond the end indicated, and which have resulted in serious discrimination against many countries, particularly against the United States. The policies pursued by the German Government have had the effect of seriously diverting trade and forcing it into wholly uneconomic channels. These policies, carried to extreme limits during the last year, have had a disastrous effect upon German-American trade. American trade has suffered from exchange restrictions and trade controls on the part of the German Government. During the first four months of 1935, American exports to Germany amounted to only $21,741,000, as compared with $55,764,000 during the same period in 1934, while, on the other side, the general level of German imports into the United States remained approximately stable. The continuance of this policy would appear to be foreshadowed in your Government’s statement that, in view of the limited supply of foreign exchange, Germany must supply its import needs primarily from countries which, by admitting a sufficiently large volume of German goods, furnish the necessary foreign exchange with which to pay for German imports. Neither in the note under reference nor in any earlier communication has the German Government made any specific proposal which does not flow from its present restrictive and preferential commercial system.
[Page 453]The great objective of the American Government, in its trade agreements program, is to bring about a healthy expansion of international trade, and to accomplish this result partly by the reciprocal reduction of tariff duties and other obstacles to trade, and partly by the removal, as rapidly as possible, of the numerous trade discriminatory practices which currently operate to prevent countries from having access on equal terms to foreign markets. The reduction of trade barriers by all governments, and the lessening of those trade controls which put trade necessarily on a basis of discrimination and which force and compress it within the limits of bilateral exchange, seem to this Government essential to permit world trade to expand, as simultaneously the foreign exchanges are again stabilized.
The effect of new forms of trade control and interferences practiced by many countries has become increasingly evident. The world is producing and consuming far less than it did prior to the depression. Employment of both labor and capital has suffered and declined. Current trade control measures have even become major factors in international relations and affect world problems of political stability, disarmament, and international understanding.
World trade in quantity has advanced little, if at all, from the low point of 1932 and this fact is not unrelated to the network of discriminations which have characterized the trade policies of many nations during recent years. German trade itself has suffered severely under the actual functioning of this artificial structure designed to give temporary relief.
It was amidst the increasingly difficult international conditions above referred to that the United States first offered its trade agreements program based on the principle of equality of commercial rights and opportunities and upon the policy of fair and friendly trade methods and practices. Encouragement in support of this program has been afforded by the public utterances of responsible statesmen throughout the world.
In this critical juncture in international affairs, the American Government does not believe that it would contribute to the progress of foreign trade, promote the stability of international relations, or stimulate in any constructive way the economic recovery in our two countries, to conclude a pact with Germany along the lines indicated in Your Excellency’s note. This would only tend to strengthen throughout the world the system of discriminatory practices which are inherently involved in artificial arrangements designed to create a bilateral balance of trade or payments between each pair of countries. The recent inquiry into clearing arrangements, made under the auspices of the League of Nations, almost entirely by official representatives of countries which have had experience with these [Page 454] devices, reaches the conclusion that the final result of the system is to reduce the total volume and value of international trade. At a time when the experience with these rigorous mechanisms of trade control, and the considered opinion of statesmen throughout the world, point to the conclusion that these practices contribute to world impoverishment and make more difficult the restoration of a workable international financial and commercial structure, this Government does not desire to contribute in any way toward the strengthening of the tendencies inherent in a discriminatory and restrictive system.
German-American commerce has traditionally grown out of the characteristic structure of the industries of the two countries and out of the broader interrelationships of world trade. A substantial part of German purchases of raw materials from the United States and other overseas countries went into the manufacture of German goods which were exported to other parts of the world. Correspondingly, American purchases in other countries helped to create purchasing power for German goods. The trade of Germany and the United States both thrived under these conditions.
Because of the great desire of this Government to improve the trade relations between the United States and every country, including Germany, I welcome this opportunity to make clear and specific the attitude of this Government toward German-American trade relations. This Government has from the beginning of its trade agreements program stood ready, and is now ready, to negotiate with any country, provided only that its commercial policies and its relations with third countries do not in fact impose to a material extent discriminatory or inequitable conditions upon American commerce, and do not arbitrarily in substantial degree divert its trade from this country to other countries.
In respect to Germany, this means, concretely, that in the regulation or control of foreign exchange, the German Government would allot to the United States exchange (including funds regulated by clearing and compensation or other arrangements with third countries) for the settlement of commercial transactions in an amount which would be based on the share of exchange available for commercial transactions in a representative period prior to the institution of exchange control; that when quantitative restrictions of any kind are imposed, the German Government would allot unconditionally the share of the total permissible imports of any article corresponding in proportion to the share of such imports supplied by American exporters in a previous representative period; that, in order to avoid discrimination in connection with foreign purchases by government monopolies or central control agencies, such purchases would be proportional to the previous relative share enjoyed by American exporters, provided [Page 455] considerations such as price and quality would not justify any substantial deviation from such proportional participation in the market; and, finally, that all facilities and favors in regard to customs duties and related matters which may be granted to other countries would be extended to American products.
In line with these principles, the American Government stands ready to enter into an agreement with Germany under which the German Government, in its allocation of exchange, in its purchases through government monopolies and central control boards, and in its quota assignments, will accord American commerce its proportionate share in the German market as indicated by a previous representative period, and make, in addition, appropriate reductions in tariff duties affecting certain selected products of primary interest to the United States. This Government, on its part, stands ready to make appropriate tariff reductions on certain selected products of primary interest to Germany in the American market, and to extend to German products the benefits of all reductions in duties made under trade agreements of the United States with other countries.
I can further assure Your Excellency that if at any time your Government should propose a concrete plan, in accord with the foregoing, my Government would give it immediate and sympathetic consideration. But unless a preliminary understanding on these general considerations can be attained and measures taken for actually putting them into effect, I cannot help feeling that it would be premature to enter upon negotiations for a reciprocal trade agreement.
While this Government earnestly desires to make an extensive trade agreement with your country along the lines indicated above, it is, in the meantime, not unmindful of the importance of the expansion and improvement of the current volume of German-American trade. In view of the current abnormal exchange situation, some American exporters and importers vitally concerned in German trade are effecting an exchange of goods through private barter arrangements. In the usual case, there is nothing in these arrangements which comes into material conflict with our general policy. It is the hope of this Government that an increase of German-American trade may serve as a bridge to the final conclusion of a broad trade agreement under most-favored-nation arrangements which would secure a place for German-American trade on a high and prosperous level.
Finally, with reference to your statement that only when an understanding has been reached as to the regulation of commodity trade would it be possible to see whether and to what extent the service of loan obligations will be possible, I am dealing with this question in a separate communication.18 In this note I desire merely to reaffirm [Page 456] previous statements of the position of the United States that it cannot assent to any proposal making the discharge of German financial obligations to this Government and to its citizens contingent upon the bilateral state of trade or of payments between the two countries, nor admit that equal treatment of American holders of foreign securities can be made contingent upon action on its part looking to the negotiation of special agreements, commercial or otherwise, as new and additional inducements to the observance of existing obligations.
Accept [etc.]