The Minister in Czechoslovakia (Wright) to the Secretary of State

No. 441

Sir: In continuation of my despatch No. 437 of May 6, 1936, and subsequent telegraphic correspondence, especially my telegram No. 11, May 19, 4 p.m., I have the honor to report as follows regarding the further developments which have taken place here in connection with the discussion of the Modus Vivendi at present governing Czechoslovak-United States trade relations.

The enclosures to this despatch are as follows:14

A copy of the written reply from the Foreign Office to the Aide-Mémoire a copy of which was enclosed in my despatch No. 437.
A copy of a supplemental Aide-Mémoire regarding apparent discriminatory treatment in respect to paints, varnishes, polishes and certain other chemicals falling under Tariff Item 624—evidence of which was brought to my attention subsequent to the preparation of the first Aide-Mémoire.
A self-explanatory memorandum of my conversation with the Chief and Assistant Chief of the Economic Section of the Foreign Office on May 14th.
A supplementary Aide-Mémoire dated May 18th and handed to these officials on that date in partial reply to the aforementioned written reply of the Foreign Office to my first Aide-Mémoire.
A self-explanatory memorandum of my conversation with these officials on the same date (May 18, 1936).

These documents should be read in the order mentioned and while I regret that they may be considered somewhat lengthy, they will be found to give such a clear idea of the nature of the negotiations as well as the apparent inability—I shall not yet say unwillingness—of these officials to submit at once a comprehensive explanation of certain of the more glaring irregularities, that I believe that they will be found worthy of perusal.

It will be found in the memoranda of the conversations which took place that reference is repeatedly made to previous discussions of the manner in which quotas are established in this country and the consistency of the quota accorded to American automobiles: this phase [Page 38] of the subject occupied the greater portion of my first conversation with these officials on April 29th, which it is not necessary to report in detail as it was repeatedly discussed in the later conversations, and it was at this time that the discrepancy arose between the quota accorded us and that stipulated in the Czechoslovak-French Treaty which provides for an importation of 1000 French cars per annum.

Suffice it to say in this connection that Dr. Friedmann, the Chief of the Section, observed that the Treaty in question had been negotiated at a time when optimism was running fairly high, when the world economic crisis had not yet caused prices and products to fall and when every nation was confidently hoping for large trade. “Therefore”, he said, “We did the best we could, but without a very sound basis”. I informed him in reply that I intended to discuss this phase of the matter later and it is this conversation to which reference is made in the enclosed memoranda of ensuing conversations.

After a preliminary discussion of the quota system as practiced in various countries—which was really nothing more than preparatory to the detailed discussions herein reported—the question of exchange difficulties arose. Dr. Friedmann observed with some degree of intensity that in his opinion the American officials in Prague had previously been far from well informed upon such questions, (he was good enough to state that that did not apply to the present incumbents of the Legation, Consulate General and Commercial Attaché’s Office) and added that this lack of information had been seriously enhanced by the attitude of the importers, who were continually complaining about restrictions which they did not understand and who were moreover malicious in intent. At this point I improved the opportunity of stating that I was trying to demonstrate that the competent American officials in Prague were well informed upon these points, and also that the importers in question were in no case American citizens but in all (or practically all) cases were Czech citizens. I then added that he was quite correct in stating that they were continually registering complaints—which was one of the reasons why I was now making every effort to be fully informed upon every point in question, in order that I might not only so inform my Government but that the Legation and the other officers of the United States Government in Prague might be in a position to deal with such complaints of local importers.

Dr. Stangler then observed that he must refute any charge that the Exchange Commission is anything but entirely neutral and completely honest, and he elaborated at some length upon the arrangements which are made in order to assure that no car is admitted into the country unless the payment of duty has been made or is assured. I replied that I trusted that the observation made under item 1 (c) would not be [Page 39] construed as any accusation whatever on the part of this Legation as regards the practices or ethics of the Exchange Commission: in fact it had been very carefully worded so as to place the responsibility for such allegations upon “persons considered competent in the automotive trade”, which were by no means confined to exporters of American nationality but, as I had said before, included importers of non-American nationality. Dr. Stangler then said that the Commission was always subject to such attacks—having been accused of making special arrangements and agreements with American manufacturers and importers. I replied that I regretted this as much as he and hoped that this would prove an additional reason for complete clarification of all points for the benefit of all concerned.

There are also included as accompaniments to this despatch copies of two memoranda prepared by the Office of the Commercial Attaché, dated April 29th and May 18th:15 the first prepared by Mr. Theodore Hadraba, Clerk to the Commercial Attaché, which, during the absence of Mr. Woods on leave of absence which had been granted him, was utilized in the preparation of the first Aide-Mémoire delivered to this Government: the second prepared by Commercial Attaché Woods upon his return which has been, and will continue to be, utilized by both of us in support of our contentions during the conversations—both of which have proven of great value and for which the officials concerned deserve full credit.

It is our opinion that in the determination of any quotas which may hereafter be agreed upon, it is absolutely necessary to take into consideration the factor of indirect shipments (see pages 6, 8, 14, 16, 19, 21, 24 and 26 of the memorandum of the Commercial Attaché dated May 18th).

I would also appreciate an expression of your views not only with regard to the applicability of the unconditional most-favored-nation principle to cartel agreements and whether I shall insist that quotas for these products be equal to those granted the most-favored-nation as requested in my telegram of to-day’s date, but also regarding the respective periods which may be considered as representative and the practice of compensatory agreements.

Conversations are continuing with regard to the remaining points which have not yet been orally discussed on the basis of this Government’s first reply as well as the various phases of the situation regarding which difficulties have arisen as set forth in the enclosed memoranda of conversations. These conversations are proceeding with the utmost friendliness, and Mr. Woods and I agree that we seem to detect in many instances an attitude of distaste and concern on the part of the Foreign Office officials that a situation has been [Page 40] allowed to develop as a result of the practices or policy followed by other departments of this Government.

Respectfully yours,

J. Butler Wright
  1. Enclosures not printed.
  2. Neither printed.