Memorandum by the Assistant Economic Adviser (Livesey)

Conversation: Doctors Brinkmann, Imhoff and Baer, with Messrs. Feis,43 Livesey, Deimel,44 Fowler45 and Schoenfeld.

Dr. Brinkmann said that the delegation was to discuss the countervailing duty matter with the Treasury but desired first to have a conversation with State Department officials. After the first sentence or two, Dr. Baer took up the role of spokesman and thereafter Doctors Brinkmann and Imhoff played practically silent parts.

Dr. Baer started to explain a little about German currency practices and, assisted by a few questions, developed an argument that even under the Attorney General’s opinion the Treasury should not apply countervailing duties against German products. He fastened on the Attorney General’s expression that the difference between the amount a German exporter would receive at the official rate of exchange and the amount that a German exporter actually receives under the German mark practices constitutes a bounty or grant under Section 303 of the Tariff Act. Dr. Baer said that there are really two currencies in Germany, one the free Reichsmark comprising only two percent of the total. For the rest it was incorrect to apply the official rate of exchange and the only basis for computation was the purchasing power parity as determined by bid and offer in each case. If a German exporter selling a bill of goods in the United States for $600 received 3,000 Reichsmarks instead of the $2,400 he would receive at the free Reichsmark rate of exchange, the difference did not constitute a bounty or grant since the 3,000 Reichsmarks could not be reconverted into $600 American money should the German exporter desire to convert it. If the German Government would allow him to convert the 3,000 Reichsmarks into dollars at the free Reichsmark rate, this would constitute [Page 244] a bounty or grant, but the German Government does not allow this. Dr. Baer referred to a case which had been discussed ten years ago when he was in the Embassy here in which the Secretary of the Treasury had finally decided that it was impossible to apply countervailing duties because it was a material impossibility to determine the amount of any export assistance which the German exporter might have received.

It was at first understood that Dr. Baer meant that only two percent of Germany’s exports was paid in free exchange. Under questioning, however, he explained that he was referring to the monetary system rather than to international trade and that the two percent was the percentage of the total currency which could be classed as free Reichsmarks which the holder within Germany could send abroad at will and which the Reichsbank was prepared, if necessary, to redeem in gold. Dr. Baer said that, for example, an American having $100,000 and desiring to reside in Germany might decline to do so if he must conform to the requirement that residents in Germany must surrender their holdings of foreign exchange to the Reichsbank. The Keichsbank might then give him a dispensation from this requirement. If then he moved to Germany and took his money with him, converting it into Reichsmarks, those would be free Reichsmarks. Reichsmarks received by a German exporter for his exportations would not be free Reichsmarks and their value could not be ascertained by converting them into foreign currencies at the free Reichsmark rate of exchange.

Dr. Baer further argued that Section 303 was enacted to prevent unfair trade. The German mark practices are not unfair trade. They do no more than offset the 40 percent depreciation of the dollar voluntarily enacted by the United States Government. The Congress in enacting the Tariff Act of 1930, established the amount of protection which American producers should receive and also enacted Section 303 for the purpose of preventing evasion of this protection. The German practices did not evade the protection and in no case granted the exporter any assistance in excess of that needed to offset the devaluation of the dollar since the Tariff Act of 1930.

No attempt was made to reply to these arguments on their merits. The discussion was limited to elucidating them except that general inquiries brought out statements from Dr. Baer that the Germans do not like this system of government-conditioned trade as contrasted with liberty to trade, but see no prospect of ending it until it is possible again to obtain credits to offset unfavorable trade balances—a thing which is now impossible. He said that, for example, if the standstill agreement were now abrogated and foreign creditors were free to withdraw their short-term credits, they would immediately do so with a rash that would violently depreciate the Reichsmarks.

  1. Herbert Feis, Economic Adviser.
  2. Henry L. Deimel, Jr., Assistant Chief of the Division of Trade Agreements.
  3. William A. Fowler of the Division of Trade Agreements.