611.6231/714
Memorandum by Mr. R. E. Schoenfeld, of the Division of Western European Affairs, of a Conversation Between Dr. Karl Ritter, of the German Ministry for Foreign Affairs, and the Assistant Secretary of State (Sayre)
Dr. Ritter, who called by appointment at three this afternoon, said he felt he should preface his remarks by indicating his status. He was in the United States on a private visit, but while here he wished to discuss possible improvement of trade relations between the United States and Germany. In Germany the task of elaborating economic policy, he said, lay with a committee of four members, consisting of representatives of the Ministries of Finance, Economics, Agriculture and Foreign Affairs. He represented the Ministry for Foreign Affairs on the committee and was its chairman. He was accordingly competent to speak for his Government in these matters and, in fact, was authorized to do so.
One of the things that he was interested in accomplishing was to convince the State Department that the policies which have been pursued by the German Government in the last two years had not been inspired by any intention to discriminate. If the appearance of discrimination had at times existed, this was not intentional on the part of the German Government. It desired to extend to American commerce fair and equitable treatment.
Mr. Sayre explained briefly this Government’s viewpoint, pointing out that it felt that it could not subscribe to the system of bilateral balancing of trade; that it felt that settlements should be made on a triangular or multiangular basis; that it considered exclusive preferences as inherently discriminatory; and that it was convinced that the only possible basis for a return to healthy world trade conditions was through the most-favored-nation system. This Government would welcome any concrete proposal from Germany that was compatible with these principles.
The German Government, Dr. Ritter said, was in agreement with us on the most-favored-nation principle. It had consistently championed that policy at Geneva as a member of the League and he personally had urged it upon the British and the French in negotiations with those countries.
[Page 462]Deviations had not been voluntary on the part of Germany. Germany had clearing agreements with some thirty countries. It had not entered into them by preference, but because it had been forced into them. Germany normally had a heavy favorable balance of trade with the countries of Europe and a negative balance of trade with overseas countries. The original impetus to the clearing system was given by the countries of southeastern Europe. When embarrassed by serious exchange difficulties several years ago, they determined to reduce their negative balances of trade. Germany, as one of their principal sources of supply, in order to safeguard its trade position there had been obliged to enter into clearing agreements with them.
As Germany’s own payment difficulties grew and it became necessary to cut down its transfers on debt payments, it was threatened by a second group of countries with the institution of forced clearings. Dr. Stucki of Switzerland had been the first to advocate this policy. The example set by the Swiss was followed by the French, the Dutch, and others. The German Government was simply obliged to accept these arrangements since they would have otherwise been enforced unilaterally with even worse results. All of these arrangements, except a payments agreement with the British, had had an adverse effect on Germany’s foreign exchange income.
As a result, Germany was forced progressively to curtail its purchases where free foreign exchange was necessary. It had no desire, for instance, to buy its cotton in Brazil, Turkey, Egypt and elsewhere, in preference to the United States. Non-American cotton was more expensive. It was unequal in quality. German looms were adjusted to American cotton. German cotton import houses had for years had the friendliest relations with American export houses. They would like nothing better than to continue their normal business relations.
He was afraid that the United States could not fully realize the exchange difficulties of Germany. More than 75 percent of Germany’s total trade was carried on through clearings which yielded no foreign exchange. Of the remaining 25 percent a large proportion was accounted for by barter, register marks and similar transactions with the result that only 6 to 7 percent of Germany’s total trade yielded free foreign exchange.
Germany had, in fact, allocated to its trade with the United States a greater proportion of dollar exchange than it had received from that source. In the first seven months of 1935 Germany had imported from the United States goods valued at 130 million marks and had exported to the United States goods valued at 90 million marks. The yield from this trade in actual dollars had amounted to the equivalent of 20 million marks. The expenditures by Germany in the [Page 463] United States in actual dollars during this period had amounted to the equivalent of 60 million marks, that is to say, 40 million marks over and above what Germany had received.
Dr. Ritter said he had studied very carefully our note of June 28 regarding possible commercial negotiations. That note outlined four major requirements: (1) proportional participation in quotas; (2) proportional participation in purchases by monopolies and similar agencies; (3) most-favored-nation treatment in customs matters; and (4) proportional allocation of foreign exchange.
The German Government was in entire agreement with us on the first three points. With regard to the fourth it agreed in principle. It could not, however, commit itself to provide the suggested proportional share of foreign exchange at this time. This was not a question of willingness; it was simply a physical impossibility. Germany was willing to allocate a proportional share of foreign exchange within the limits of the amounts available. It was not, however, in a position to indicate a specific figure. If the improvement in Germany’s trade balance noted in the last two months continued, and he expressed optimism on this point, Germany could probably do a great deal in this matter. If a short term agreement could be made for three months or six months, it would be possible to see how matters went, and if unsatisfactory, the agreement could, of course, be terminated.
Dr. Ritter suggested that as Germany in the past ten years had imported 15 billion marks of merchandise from the United States and had exported only from 5 to 6 billion marks to the United States, thus leaving an excess of 9 to 10 billion marks in favor of the United States, he felt Germany might legitimately look to the United States for an understanding attitude.
Germany, he said, was most interested in the situation that would exist after October 15, next, when the most-favored-nation clause in the existing treaty expired. If the United States withheld from Germany the reductions embodied in the reciprocal trade treaties with Sweden23 and Belgium,24 German exports to the United States would be reduced still further and the German supply of dollars for the purchase of American goods would be correspondingly reduced.
Mr. Sayre inquired how long Dr. Ritter would be in Washington. Dr. Ritter said that if there were a chance of coming to an arrangement, he would stay as long as necessary and that otherwise he would return to Long Island in the near future for a fortnight of golf before returning to Germany. Mr. Sayre said that he would like to [Page 464] discuss the problem with his associates and then to have a further conversation with him, perhaps toward the middle of the coming week.
Dr. Ritter said he would be happy to discuss matters further and that he could be reached at the Shoreham Hotel or through the German Embassy. He also expressed a desire to be permitted to call on the Secretary. Mr. Sayre told him that he would endeavor to arrange this.
- See pp. 739 ff. For text of Reciprocal Trade Agreement signed May 25, 1935, see Department of State Executive Agreement Series No. 79, or 49 Stat. 3755.↩
- See pp. 102 ff. For text of Reciprocal Trade Agreement signed February 27, 1935, see Department of State Executive Agreement Series No. 75, or 49 Stat. 3680.↩