Memorandum by the Assistant Secretary of State (Sayre)

Dr. Němeček, accompanied by Mr. Kabeláč, called today. Dr. Němeček explained that he had heard reports to the effect that this Government was preparing to denounce the modus vivendi of March 29, 1935, and to impose countervailing duties. He referred to the representations made by our Minister in Prague with respect to the trade difficulties experienced by importers of American goods in Czechoslovakia. Dr. Němeček explained that these difficulties were caused in part by Czechoslovakia’s armament program and the resultant shortage of exchange, and in part by the trade barriers erected by other nations. He hoped that we would not find it necessary to alter the basis of our trade relations with Czechoslovakia until the problems occasioned by devaluation and by currency shortage could be solved.

Mr. Sayre replied that in all fairness he must not conceal from the Czechoslovak Chargé that in fact we were considering notifying the Czechoslovak Government that, unless it could see its way clear to giving equality of treatment to American trade, we would have to give most serious consideration to denouncing the modus vivendi. Mr. Sayre explained that a fundamental principle of our trade agreements program was the absence of discrimination and preferences reciprocally; we could not continue to give trade equality when Czechoslovakia did not grant us trade equality; for if we made one exception our whole foreign commercial policy, which is based on [Page 48] the most-favored-nation principle, must break down. Mr. Sayre, therefore, hoped most sincerely that the Czechoslovak Government would be able to remove the discriminations under which our trade with Czechoslovakia was laboring, because otherwise we could not continue to grant that country minimum rates. Mr. Sayre made it clear that such diplomatic action as we might take would be taken in Prague.

The conference ended upon the statement of the Czechoslovak Chargé that he would try to explain our point of view to the Czechoslovak Government.