611.6231/721
Memorandum by Mr. R. E. Schoenfeld of the Division of Western European Affairs
Dr. Ritter and Dr. Davidsen called on Mr. Sayre at 3:00 p.m. this afternoon for the purpose of saying goodbye.
Dr. Ritter said that since his call on Secretary Hull he had seen Secretary of Commerce Roper and Secretary of Agriculture Wallace. He had found the same misconception in their minds respecting Germany’s attitude toward the most-favored-nation principle as he had encountered in the State Department. He had tried to dissipate that impression.
As a result of his conversations here, Dr. Ritter said he was clear on the whole as to the general American viewpoint regarding commercial policy. In the conversation with Mr. Hull, however, there was one point on which he would like further information. Mr. Hull had said that he recognized that the recent arrangements for servicing the Dawes and Young loans were an encouraging first step toward removing discriminations in the financial field, and that when evidence of removal of discriminations in the commercial field had been given we should then be justified in entering upon trade negotiations. Dr. Ritter wished to inquire as to the proofs of German good faith that we should require.
Mr. Sayre reiterated that in general we desired most-favored-nation treatment and that in Germany the test of that treatment seemed to be the proportional allocation of foreign exchange. A substantial concession on that point would seem to be necessary to meet the American point of view.
Dr. Ritter stated that he was afraid that at present this represented the impossible. At this time Germany simply did not have the necessary foreign exchange. He was afraid that it would be a long time before it could meet this requirement. Meanwhile he feared that trade between the two countries would decline further.
Dr. Davidsen inquired whether it would be necessary for Germany to discontinue its clearing agreements before the United States would find it possible to enter upon negotiations.
Mr. Sayre said that he felt that our program of liberalizing trade policies could not be sacrificed to an individual agreement. We were eager, however, as soon as Germany felt that it could substantially meet our viewpoint to enter upon trade negotiations. The most-favored-nation principle must, however, remain the cornerstone of our policy.
Dr. Ritter reiterated that Germany’s notice last October of intention to modify Article VII of the Treaty of 1923 had not signified [Page 469] an intention to abandon the most-favored-nation principle. Germany had wished to bring about an agreement as to just what such treatment implied. Germany had had occasion to complain of certain of our practices which it considered violated the most-favored-nation clause. Examples were the taxation and customs policies pursued by this Government with regard to German boats,27 coal,28 steel and cement. The German viewpoint had in general been sustained by the United States courts, but it had usually taken years to accomplish this.
As regards coal, duty was collectible if the trade balance on this particular commodity was not in favor of the United States. In the case of Canadian coal, duties had been remitted because the trade balance on this commodity was in favor of the United States. Duties had been levied on German coal because German exports of that article to the United States exceeded the import of that article from the United States. The courts upheld the German contention that this was a violation of the most-favored-nation commitment.
In the case of cement, a court in Los Angeles recently handed down a decision upholding the German viewpoint. The matter, however, had required seven years as the original decision of our customs authorities had been made in 1928.
In the boat case, a tax was imposed on the “use of” boats imported from Germany. When the German authorities decided to levy a tax on the “use” of taxicabs imported from abroad the American authorities saw the danger in this system and the American legislation complained of was repealed.
The mere decisions themselves, however, did not meet the situation. If the duties were refunded or remitted in particular instances, these refunds did not offset the losses in business which had been caused by the uncertainty as to whether German products should have to pay the duties or taxes in question.
These cases had arisen before our complaints regarding inequitable quotas on prunes, lard, et cetera. Germany had in fact been giving the United States unconditional most-favored-nation treatment over a long period. The United States had had the advantage of the lower rates of the German tariff. The United States on the other hand had only given Germany its normal tariff rates. It had also indulged in the discriminations cited. Germany had consequently given notice last October in the hope of being able to enter into negotiations to obtain lower tariff rates on goods of special interest to it under the Reciprocal Trade Agreements program and of defining more accurately its most-favored-nation rights so that situations such as those cited could be avoided.
[Page 470]It was pointed out to Dr. Ritter that the division of powers in this Government made it possible for a conflict of interpretation to arise between the legislative and the executive branches of the Government, or even between different administrative offices. Thus in the cases cited, the Department of State had taken the view that under the treaty Germany’s contentions were legitimate. If it had not been possible to prevail upon the customs authorities to accept its point of view, the aggrieved German interests had always had the possibility of resorting to the courts. Serious delay might unfortunately be encountered in sustaining one’s rights, but there was, at least, the possibility of doing so. On the other hand, no recourse to the courts was available to American interests with respect to the quota restrictions imposed by Germany.
When leaving Dr. Ritter expressed regret that it would probably be a long time before conditions would be such as to enable him to return for negotiations.