611.623/122: Telegram

The Ambassador in Germany ( Dodd ) to the Secretary of State

92. My 91, March 23, 3 p.m. The following is translation of the statement annexed to the note:22

“The Foreign Exchange Clearing Methods Used in Commerce With the United States

1. Blocked Marks.

Blocked marks arise from claims of foreign creditors from capital transactions which cannot be transferred when due, as a result of the German foreign exchange regulation. Through their use in partial payment of commodity exports, the creditors are given the possibility of realizing on their [frozen] holdings.

The creditors themselves decide whether they desire to relinquish these holdings with or without discount; the Reich Government exercises no influence hereon. The form of blocked mark predominantly employed in these transactions is the registered mark.

[Page 218]

A. Registered marks. Registered marks arise in that a foreign creditor, on the basis of the Standstill Agreements,23 recalls in Reich marks his claim payable in foreign currency and has the Reich mark sum credited to him on a special registered account. Registered holdings are employed, in addition to travel purposes, also for the partial payment of [German] commodity deliveries to the United States. The employment is usually permitted for [warehouse] articles. The sub-annex24 contains a list of the groups of commodities at present included in the registered account procedure. The goods must be produced in Germany. In addition to these commodities investment deliveries, e. g. the erection of complete machinery plants, ship construction, et cetera, may also be paid for in registered mark.

Applications for the granting of permits for the employment of registered marks may only be made by that foreign creditor which arranged the transaction and which is prepared to make available its registered credit account for this purpose. It is a premise for the approval that the German supplier firms be granted satisfactory prices. Hereby the use of registered marks is restricted to the payment of net commodity prices. Additional costs, such as freight, insurance charges, consular fees, commission for purchasing agents and such like are to be paid in full by the American purchaser in foreign exchange or free Reich marks.

On the basis of the experience gathered since the existence of the registered holdings settlement, 30 to 95 percent (previous to March 1, 1936, up to 100 percent) of the export price are released from registered holdings for the payment of the goods admitted to the procedure. In the most important groups the following release percentages are applied: toys and Christmas decorations up to 95 percent; iron and metal ware such as cutlery, tools, notions, up to 60 percent; musical instruments up to 70 percent; ceramic products except porcelain tableware up to 90 percent; leather gloves up to 80 percent; wooden goods up to 50 percent; glassware up to 50 percent; textile goods up to 50 percent; cloth and knit gloves up to 70 percent; fine mechanical and optical goods 30 to 50 percent; printing and paper products except books up to 50 percent.

In 1935 about one-tenth of German exports to the United States was transacted with the partial use of registered marks.

B. Credit and Amortization Blocked Marks. In addition to the registered marks, occasionally other forms of blocked marks are also used in commodity traffic with the United States, as for example credit and amortization blocked marks. Their use is subject to the following regulations:

In accordance with the foreign exchange regulations issued by the German Government, permission may be granted for the payment of a maximum of 25 per cent of the invoice sum of new commodity deliveries for the own account of the original holder of a blocked account, insofar as the rest of the amount of the invoice accrues in foreign exchange [Page 219] or free Reich marks. A release of more than 25 percent takes place only in special cases insofar as it is required by the personal affairs of the applicant, e. g. when private persons desire to pay for occasional purchases of books, modern art objects, souvenirs, et cetera, from their blocked accounts or if it can be proven to be for the payment of an export transaction for which the granting of a higher release percentage seems justified in view of the individual case. The extent of the German export business transacted with the United States with the aid of credit and amortization blocked marks is comparatively slight.

2. Aski Mark.

The remarks in the note of the American Embassy concerning the opening of Aski accounts are correct.

From the annexes Nos. 2 and 3 of the attached Decree of the Reich Office for Devisenbewirtschaftung—RE. 237—of December 27, 1935, (designated as sub-annex 2),25 it may be seen for what goods deliveries to the United States payment from Aski accounts is at present impossible. In the main these are goods in the case of which Germany must in part herself resort to imports to meet domestic requirements or raw material goods or commodities which require a larger proportion of foreign raw materials.

Whether, and to what extent, the goods not mentioned in annexes Nos. 2 and 3 when exported to the United States, are actually paid for from Aski accounts depends on the free decision of the parties to the transaction in the individual case.

In the case of imports from the United States settled for via Aski accounts, the purchase price of the goods exported in exchange to the United States can be paid in full via Aski.

Concerning the discount of the Aski mark mentioned in the note of the Embassy, the following may be said: Since within a given period of time the value of the goods imported into Germany via Aski is higher than the value of the German Aski exports to the United States, and since, moreover, the terms of payment for imports from the United States are, in general, shorter than for German export transactions to the United States, there arises an excessive supply of Aski marks and a corresponding discount insofar as, and to the extent that, the American Aski holder[s are prepared] to relinquish their accounts with a rebate. On the German side everything was done to prevent the arising of such a discount. As may be seen from the above-mentioned attached circular [of] December 27, 1935, the offices entrusted with the supervision of imports are instructed to make a point of not granting higher prices for goods imported to Germany by clearance via Aski and merely to permit the prices usual in regular international commercial traffic.

The amount of Aski funds available for the German export [trade] to the United States depends on the amount of the value of the goods imported from the United States under the Aski arrangement.

As is known, the Aski arrangement, in part, only got under way in the second half of 1935. This explains why, [according to data] hitherto available, the German exportation settled via Aski account with the United States has not yet reached one tenth of the German exportation to the United States. Its development, however, shows an upward trend.

[Page 220]

3. Bond and Scrip Procedure.

Concerning [the] scrip procedure, the German Embassy [in] Washington presented a note verbale to the State Department on November 18, 1933,26 in the name of the German Government, in which the nature of scrip, the scrip procedure, and the premises of the approval of scrip transactions were explained. Here also the reasons were expounded why in the opinion of the German Government the regulations of section 303 of the Tariff Law of 1930 and of sections 201/202 of the Emergency Tariff Act of 1921 cannot be applied to the German export business transacted with the aid of the bond and scrip procedure. In this respect reference may be made to the information given at the time, especially as the essential viewpoints are correctly reproduced in the note of the American Embassy of January 28.

Since November 1933, no basic change has occurred in the scrip procedure described—nor in the bondage procedure transacted in the same manner. These procedures have merely been concentrated from a banking point of view in the German Gold Discount Bank—for general reasons of foreign exchange control—insofar as the Gold Discount Bank both purchases for the exporter the obligation in question (bonds, scrip, conversion accounts) and gays out to the exporter the corresponding margins in accordance with the viewpoint sketched below. Hereby it may be remarked that the predominance has shifted from the scrip procedure to the bonds procedure, as the German Discount Bank has meanwhile given notice of termination of its [original offer] to purchase the scrip [from the] foreign creditors at a fixed quotation, and now only purchases the obligations (bonds, scrip, conversion accounts) at the current quotations.

The bonds and scrip procedure is used in a considerable part of German export business to the United States, namely when exporting goods wnich are offered in considerable quantity, in a quality equal to that of German production, on the American market [oy such] countries, competing with Germany, as can make particularly favorable prices as a result of the devaluation of their currency. Conversely, all promotion by the scrip and bonds procedure is out of the question in the case of such goods as encounter no—or no essential—competition from other supplying countries on the American market.

The examination offices instituted for this purpose [rule] on applications for approval of a scrip transaction. They examine and decide whether in the individual case the premises for the use of the procedure are given and whether the selling prices billed are correct. In order to obtain permission for the execution of a bond or scrip transaction the exporter must clearly show that:

(a)
as a result of depreciated currency competition the order cannot be obtained for Germany if the bond and scrip procedure is not applied and that therefore in this sense, it is a case of supplementary exports;
(b)
the selling price of the export goods is under no circumstances lower than the price at which the goods is generally offered in the open market in the United States;
(c)
price slashing and mutual underbidding in foreign markets are refrained from and suitable prices are achieved for German quality production;
(d)
the export value declared in the consular invoice plus foreign exchange adjustment is in no case higher than the German domestic value.

4. Promotion of Exports Through the Self-Help Action of German Business.

The declaration made by the German Embassy at Washington under date of December 6, 1935, and referred to in the American note of January 28, is confirmed, namely:

With the change in the German procedure for export promotion which took place July 1, 1935, no change took place in the procedure [obtaining] hitherto for the promotion of German exports to the United States. As in the past, bonds, scrip, or conversion accounts are purchased to the necessary extent. In particular no sums from the revenue from the voluntary self-help action of German business, in accordance with the law of June 28, 1935, concerning the collection of levies on industrial business, are employed for exports to the United States.[”]

The printed material in two sub-annexes consists of (1) a long list of goods admitted and excluded from registered mark procedure and (2) Foreign Exchange Control Board circular of December 27, 1935, already furnished in copy and translation with Berlin Consul General’s voluntary report No. 409, January 10.27 Texts by Bremen, leaving March 25.

Dodd
  1. Corrected on the basis of copy transmitted by the Ambassador in Germany in his despatch No. 2727, March 25; received April 2.
  2. For correspondence relative to the 1931 agreement, see Foreign Relations, 1931, vol. i, pp. 323357 passim; text printed in The Financial Netcs, London, September 15, 1931. For correspondence concerning the 1933 agreement, see Foreign Relations, 1933, vol. ii, pp. 439 ff.; for text, see The German Credit Agreement of 1933 (Druckerei der Reichsbank, Berlin).
  3. Not printed.
  4. Not printed.
  5. Not printed.
  6. Not printed.