865.4061 Motion Pictures/69

The Ambassador in Italy (Phillips) to the Secretary of State

No. 14

Sir: I have the honor to inform the Department that the Memorandum contained in its instruction No. 736 of August 31, 1936, regarding certain regulations affecting the transfer abroad of proceeds from the rental of films in Italy was presented to Prof. Felice Guarneri, Undersecretary of State for Trade and Foreign Exchange, who directs the release of funds in Italy for transfer abroad, by the Commercial Attaché to this Embassy,31 who has been in communication with the Italian authorities on this subject, and to submit herewith the following report of the conversation between Mr. Livengood and Professor Guarneri:

“I handed to Prof. Felice Guarneri, Undersecretary of State for Trade and Foreign Exchange, Ministry of Finance, the State Department’s Memorandum of August 31st relating to the Italian regulations affecting the importation of foreign films as announced on August 5th by the Italian Theater Federation to the representatives of foreign film distributors in Italy.

(By these regulations, as the Memorandum sets forth, the transfer abroad of proceeds from the rental of films in Italy would be limited to the global sum of ten million lire annually and any remittances above this amount would have to be deposited in Italy in blocked accounts to be drawn upon only under official authorization and for investment in Italian film products. Moreover, of the ten million lire only eight million lire would be allotted to established film importers roughly in proportion to their business for 1934–1935, and they would be allotted a global import quota of 250 pictures. ‘Sporadic importers’ would have allotted to them two million lire for transfer abroad and 50 films.

In addition, as a prerequisite to continue the importation of foreign films, the distributors were asked to obtain from the foreign parent companies signed acquiescence to the new regulations and an agreement to continue the supply of films to Italy in normal amounts, based on the average of 1934–1935).

In the conversation which followed, I pointed out that the effect of these regulations, if applied, would be to render virtually impossible the continued export of American films to Italy, thereby causing [Page 363] grave prejudice to an important American group doing business with Italy and constituting a serious setback in the trade relations between Italy and the United States.

Prof. Guarneri who reads English although he does not use it in conversation, read the Memorandum very carefully. His first remark was that the latter presented a more ‘dramatic’ picture than the situation justified, but in the ensuing conversation he pointed out no detail in which the regulations as set forth by the Memorandum were inaccurately described.

‘When I limited to ten million lire the funds which could be exported in connection with the foreign film industry,’ he said, ‘this meant that the excess of exports over imports must be limited to this amount. Thus, for purposes of example, if the exports should amount to 90 million lire, imports for which funds could be transferred could reach 100 million lire.’

He said he was aware of the contention that Italy could not become an important exporter of films. He believed, however, that this contention was unwarranted. ‘Formerly’, he said, ‘similar predictions were made about various classes of machinery, of which we have subsequently developed a highly efficient production.’ He said that attractive opportunities existed for American film companies to collaborate in the production of films in Italy.

It was not Italy’s desire to deprive American film companies of the Italian market. He considered that through the simultaneous development of Italian film exports the takings of American films by Italy could in time even be increased. As to the desired financial collaboration of American companies in Italian production, this would not mean the permanent locking-up in Italy of the said companies’ funds, since the earnings from their participation would be exportable.

He said that in dealing with the film question he had had to consider the desires of more than one Ministry, since films in Italy have a political as well as an economic importance.

From his own point of view, films, however desirable to a country’s life they may be, are not an absolute essential as is wheat, for instance. His major task was to effect as nearly as possible an equilibrium in Italy’s balance of payments, and rather than defeat this objective he was personally disposed to allow the country to go entirely without films. ‘I am unwilling to incur debts which we cannot meet,’ he said.

With regard to the Memorandum, he would give it careful consideration. The film program was not a cut-and-dried matter, and he hoped that a satisfactory arrangement would be reached within the general frame-work of Italo-American trade relations. These he trusted would be taken up after the arrival of Ambassador Phillips, with a view to formulating a trade agreement between the two countries. In this connection, he stated that Italy’s exports to the United States in the first seven months of this year were valued at 224 million lire; imports from the United States 459 million lire; resulting in a balance adverse to Italy of 235 million lire. Apart from the trade balance, he referred to service charges on Italian dollar bonds (the Morgan loan, etc.) which he said required transfers of exchange amounting to 250 million lire annually. He had no illusion, he stated, that an equilibrium could be expected in trade between these two particular countries, but he believed that the United States could [Page 364] make possible the taking of a greater amount of Italian goods than is the case at present. Incidentally, he said that word had been received recently that American duties on conserved tomatoes from Italy had been raised 30 per cent because of alleged dumping. This action he deplored as adding to Italy’s difficulties in the task of curtailing the trade deficit.

I again pointed out that the film regulations which virtually required that 3 lire of American film earnings be retained in Italy for each lira sent to the United States had a significance quite apart from considerations of balance of payments. To this he gave no answer further than to repeat that the procedure was not a cut-and-dried matter, that he hoped a solution could be reached in a general arrangement of Italo-American trade relations, and that he would give careful study to the Memorandum.

From the foregoing it will be seen that he made no definite commitments in the matter; nor was it probably to be expected that he would do so impromptu. He showed throughout a desire for friendly commercial relations with the United States and my observation was that he was impressed with the Memorandum.

It may be pertinent to add the reminder that Prof. Guarneri, as Undersecretary of State for Trade and Foreign Exchange, has almost dictatorial powers as regards the release of funds for transfer abroad. The limitation to ten million lire of funds which could be exported to foreign motion picture companies out of earnings in Italy for the coming year originated with him.”

I shall not fail to transmit to the Department any further information on this matter which may be received.

Respectfully yours,

William Phillips
  1. Charles A. Livengood.