The Minister in Czechoslovakia (Wright) to the Secretary of State
[Received February 6.]
Sir: I have the honor to report that Dr. Veverka, Czech Minister to the United States now on leave in Prague, called upon me on the 16th instant upon his own initiative and volunteered the information that he wished to inform me of the developments to date with regard to the negotiations which had taken place in Washington concerning trade relations between Czechoslovakia and the United States.
With the request that our conversation be considered confidential until he should have had the opportunity to discuss the situation in detail with Messrs. Friedmann and Stangler (Chief and Assistant Chief of the Economic Section of the Foreign Office) on the 17th—after which he would again call upon me in order to discuss the matter in greater detail in the light of such developments as might take place—he handed me for perusal a copy of the Aide-Mémoire dated November 27th2 (or 24th I am not sure which) which had been given him in Washington by Mr. Grady3 with regard to the matter. I was, of course, only able to read it hurriedly but it appears that the present attitude of the Department—as set forth in conversations with him and as substantiated by the Aide-Mémoire— is that Czechoslovakia cannot now offer such trade inducements to the United States as would justify the conclusion of a trade agreement at this time. Furthermore, that the preferential facilities specifically mentioned in the present Modus Vivendi4 relating to Czechoslovakia’s freedom of trade with her Danubian neighbors are not sufficiently specific, and the discrimination in favor of certain interests—now tacitly known to and admitted by both parties to the Agreement—is [Page 25] not specifically prohibited by the Agreement and is therefore contrary to the spirit of the understanding.
As I had no previous knowledge of the existence of this Aide-Mémoire, I was not able immediately to discuss it with the freedom with which I might otherwise have done. It is clear, however, that the Department is in accord with the observations which have been made for many months by this Legation and by the Commercial Attaché5 to the effect that the preferential treatment enjoyed by Czechoslovakia in dealing with its immediate neighbors in such commodities as lard, prunes, et cetera places our trade in such commodities at a distinct disadvantage and, further, that the matter of discrimination in favor of French automobiles in [is] now squarely in the open.
With regard to the first point, Dr. Veverka observed that he was aware that the commerce in American lard was seriously affected: I replied that I had long been aware of this fact and that it had been a matter of irritation for the parties particularly concerned—notwithstanding the fact that the provisions and interpretation of the present Modus Vivendi permitted continuation of the present practice with the neighbors of this country. He apparently considered lard more important than prunes and other products, and I did not argue this point with him. Referring, in passing, to the provision of the Modus Vivendi concerning Cuba, I asked him whether Czechoslovakia was thereby prevented from enjoying a large market in Cuba: he replied that such wks undoubtedly the case as Cuba (to which he was also accredited) would, under other conditions, be an excellent market for Czech textiles, linen, glass and porcelain. He added, however, that in view of the situation, his Government can only acquiesce as far as possible in the position upon which the United States insisted in its relations with Cuba.
The subject of the discrimination in favor of French automobiles having arisen, I then referred to it without any reservation whatsoever, to which Dr. Veverka replied that everyone knew of its existence, that it was an extremely stupid and short-sighted policy of his Government—because the material gain to Czechoslovakia was very insignificant, both in material value and especially the sacrifice of trade ethics which had thereby been created—and that the practice should be at once discontinued. He amplified his statement by observing that he had spoken to Ringhoffer and many other persons in the automobile industry here and that they were all of the opinion that the present practice had subjected Czechoslovakia to a just criticism of its business morality in such matters.[Page 26]
I then said that I could not but agree in his point of view and that the matter had been continually brought to my attention in varying manner and from various sources, ever since I had been in Czechoslovakia. I added that of course it was unnecessary for me to assure him that there was no desire on the part of American interests to interfere with the Czechoslovak automobile industry, as such—especially as I was well aware that it played so large a part in the program of national defense in view of the necessity of being able to assure immediate motor transport for the armed forces of the country in case of necessity. Dr. Veverka said that such was, of course, the case. I said that I was continually receiving comments from automobile owners and drivers, as well as dealers, complaining bitterly of the protective duties which rendered American automobiles prohibitively expensive and made possible the exorbitant prices of cars of Czech manufacture—but that this phase of the matter was one of tariff only and entirely distinct from the discrimination in favor of automobiles from a certain country.
Dr. Veverka, with some amusement, then produced (but did not suggest that I read) a copy of a letter which he said had been given him by Secretary of State Hull from the Automobile Manufacturers Association and which contained as appendices detailed allegations and proofs of the discrimination in favor of automobiles of French origin. I observed that this caused me no surprise whatever and, furthermore, that I was reasonably sure that the files of this Legation and of the Commercial Attaché would disclose many similar documents—perhaps identical ones—in support of the allegation of discrimination.
I then inquired as to the importance to Czechoslovakia of some arrangement whereby metals might be imported in such a way as to obviate the necessity of their transshipment through German free ports and the information as to quantity, nature and price which the Germans thus demanded. Dr. Veverka said that this was, of course, one of the most important considerations contained in the Czech-German clearing agreement and that he believed that both countries would welcome a more direct arrangement, but that the question of exchange was the most difficult one and that it could not be solved as long as certain important participants in that industry failed to cooperate.
I referred to the favorable trade balance which Czechoslovakia had enjoyed with the United States for the first nine months of the present year. He observed that, of course, such was the fact but that if present favorable treatment was not to be indefinitely enjoyed, the situation would radically change and I inferred that this was an argument which he was preparing to use to combat the opposition which he seems to have incurred in his Government.[Page 27]
I also told him that Mr. Novák, former Czech Consul General in New York and now a Section Chief in the Foreign Office, was to give a lecture in Prague on the 20th instant with regard to the means by which the United States had successfully combatted the economic crisis, and that Dr. Novák had asked me for certain figures of the import and export trade of the United States in general and with Czechoslovakia in particular—from which it became at once apparent that although the imports by Czechoslovakia from the United States appeared to be only $2,000,000, the figures of the invisible commerce with the United States (i. e. through Hamburg and Bremen) brought the total up to approximately $20,000,000.
This first conversation on this subject during Dr. Veverka’s present visit to Czechoslovakia, closed with the understanding that he would inform me further and in detail when he should have concluded his conversations with the Economic Section of the Foreign Office. In this connection he said that he feared that much time would be lost if negotiations with our Government were carried on solely through the Czech Chargé d’Affaires in Washington, who, he said, while intelligent and capable was not aware of all the details of the matter; and he inquired as to the degree to which I would be willing to cooperate: I replied that I would be glad to collaborate in every way possible short of assuming undue responsibility or expense in the transmission of information to my Government—particularly in view of the fact that I knew it was the desire of the Administration to concentrate such negotiations in Washington and, as was apparent from his recent conversation with Mr. Grady, to conduct them through the channels of the Czech Legation in Washington rather than through this Mission. I said, however, that I had no objection to his informing his Foreign Office of our conversation and assuring them—if assurance be necessary—of my continued interest in the subject, as well as of my readiness to converse with him in detail at any time and to take such action as might be properly appropriate.
As the mail for Washington leaves to-morrow morning and as I have heard nothing further from Dr. Veverka in the matter, it seems expedient that this report concerning recent developments in the subject should go forward. In this connection two additional factors will be of interest to the Department:
In a statement made by Dr. Benes as Foreign Minister on November 27, 1935, during the debate in the Budget committee of the Chamber of Deputies on the budget of the Ministry for Foreign Affairs, he said, in part, as follows:
“We have entered into negotiations for commercial treaties with a number of overseas States, and with others we will open negotiations at an early date. Our trade policy is based on the principle of [Page 28] most-favored-nation treatment. This principle is still the best system for such a country as we are because, were it not so, we would otherwise be compelled to compete in an unequal struggle principally with stronger countries”.
This official pronouncement of the Government’s policy is of considerable importance and we may very properly refer to it in case of necessity.
I have for sometime been aware of the fact that the British Government—as expressed through its Legation here—has been similarly annoyed at the persistent but intangible allegations of preferential treatment in favor of automobiles of French manufacture....
This despatch has been shown to the Commercial Attaché of the Legation and a copy of it will be furnished for his files as soon as Dr. Veverka informs me of the result of his discussion with the appropriate officials of the Foreign Office.