Memorandum by Mr. Rudolf E. Schoenfeld of the Division of Western European Affairs

Dr. Brinkmann, Dr. Imhoff and Dr. Baer called this morning and left with me the attached memorandum46 outlining a procedure which they had proposed to their Government looking to the avoidance of conflict with Section 303 of the Tariff Act of 1930 relating to countervailing duties.

Dr. Brinkmann said that they were now awaiting an indication from their Government as to whether this procedure was practicable in its main outlines. If the German Government said that it could not institute a system along these lines, he and his associates would probably be returning to Germany very soon. If, on the other hand, it indicated that the proposal offered a possible basis, they might stay here somewhat longer. He would keep us informed.

Under the proposed procedure, German exporters to the United States would abandon the present export devices which the Treasury Department in its decision No. 48360 has ruled conflict with Section 303 and require the levying of countervailing duties.

This new procedure, Dr. Brinkmann said, had been outlined to Mr. Johnson, General Counsel of the Customs Bureau, who seemed to feel that it would not conflict with Section 303 of the Tariff Act.

Dr. Baer pointed out that there might be some question about permitting the proceeds of German sales in the United States to be used by German exporters for purchase of raw materials here because the possible later sale of such raw materials in Germany at a premium might be considered a bounty. The German Government, he said, desired to maintain the volume of its purchases in the United States but if the Treasury objected to the suggested procedure, the German Government might have the dollars converted into pounds and transferred to the account of the Reichsbank with the Bank of England and this money could then be used in third countries 1 I suggested that perhaps in that case the German Government would decide to convert the pounds derived from the sale of German goods in England into dollars so that it could make purchases in the United States and to convert the dollars derived from its sales here into pounds to finance its purchases of merchandise in England!

Dr. Baer indicated that they had had one serious disappointment here in that they had been unable to obtain postponement of the application of the countervailing duty decision in regard to contracts [Page 246] entered into before the decision was issued. I explained to Dr. Baer that the Treasury Department had gone into this question with the greatest care and had studied the matter at great length in order to see whether anything could be done to meet their wishes. The Treasury officials, however, had come to the conclusion that under our practice, it would be impossible to do so.

Dr. Baer indicated that this entire matter was of the greatest seriousness with Germany. While it applied to only about 1/7th of the present volume of trade, it might possibly be extended to as much as 50%. A great many American firms which had not believed that the German practices were in conflict with Section 303 of the Tariff Act of 1930 would now apply to have the decision extended to include additional types of German imports which were competitive with American goods.

Consequently, if no way of avoiding the effects of Section 303 could be devised, the German Government would find itself confronted with the impossibility of obtaining the funds necessary to continue the present volume of trade with the United States or of meeting various types of payments which it was now making. This was not a question of good will or ill will. It would be a matter of actual lack of funds.

I asked Dr. Brinkmann whether there was any likelihood of a general devaluation of the German currency which apparently under the Attorney General’s decision would do away with the levying of countervailing duties in so far as existing German export devices were concerned. Dr. Brinkmann said that he saw no prospect of this within the near future. He said that devaluation would only be justified if it meant that Germany was really returning to a free currency. Germany was in no position to do this since its foreign indebtedness was so great that it could not undertake to permit even partial liquidation at this time. Moreover, it did not have the necessary supplies of gold with which in reality to maintain its currency at any fixed gold point.

R. E. Schoenfeld
  1. Not printed. See note of August 12, 1936, from the German Ambassador, p. 249.