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

No. 597

Sir: In confirmation of my telegram No. 59 of today’s date,26 I have the honor to report that I today delivered to the Czechoslovak Minister for Foreign Affairs in person the note transmitted for that purpose in the Department’s instruction No. 156 of November 10, 1936, accompanied by a note of transmission a copy of which is enclosed herewith.27 Pursuant to my interpretation of the instruction, I dated the Department’s note as of today and it will be observed that in my note I employed phraseology contained in the Department’s note of April 7, 1936, upon the same subject, and in the second paragraph of the Department’s instruction under acknowledgment.

I began my conversation with the Minister by calling his attention to your previous note, the tenor of which the Minister informed me he clearly recalled: he also proved to be well informed as to the conversations which I had had with the Chief and Assistant Chief of the Economic Section of the Foreign Office.

I deemed it not only advisable but of value to refer to the speech which I had made before the Industrialists Club on the 18th instant, as reported in my despatch No. 594 of November 23, 1936,26 and I informed the Minister that although the address in question had been prepared some weeks in advance of the date of its delivery and, of course, in preparation for such further representations as I might be instructed to make in the matter, the Department’s most recent instruction directing me to hand him the note of today’s date had not been received when the speech was made. In fact, to demonstrate my good faith in the matter I allowed him to note the date of the instruction and the date of its receipt (November 19th). Dr. Krofta at once recalled the conversation which we had had on that date and to which I have referred in my despatch upon that subject, and expressed his appreciation of my explanation of the chronology of events.

I then stated that he would observe from your note that, although the statements and explanations made by the officials of the Economic Section of the Foreign Office had been examined with the close attention which they merited, the position of my Government was based upon but one consideration: i. e. that there be insured to our commerce the unconditional equality of treatment provided by the Modus Vivendi of March 29, 1935 and the confidential note of the same date. [Page 54] I said, further, that examination of the question in the light of all the information which has been exchanged, as well as of subsequent developments, appeared to indicate that, although by no means the sole difficulty, the main obstacle had hitherto been conditional and restricted allocation of exchange for the purchase of American products, together with the method which was still followed by which quotas were determined and the exceptions which had been made in favor of non Modus Vivendi countries in discrimination against, and to the detriment of, American trade. I continued by observing that if—as I had been orally assured by competent authorities of the Foreign Office and of the National Bank—there would henceforth be no difficulties in the allocation of exchange for such purposes, and if I might receive official confirmation that such was now the settled policy of the Government, a large portion of the difficulties hitherto encountered might be considered to have been removed. With regard to the other two points, I stated that while I was prepared to explain the position of my Government to him or to the same officials as those with whom I had previously dealt, I must make it clear, however, that, as stated in your note, I was not empowered to enter into negotiations concerning these restrictions, and I reiterated that our position was based solely upon our expectation of unconditional most-favored-nation equality of treatment as the only possible interpretation of the Modus Vivendi.

The Minister, much to my interest, then broached not only the matter of the discriminatory preferences which automobiles of French manufacture had enjoyed before my first representations with regard to the matter, but also the uncertain and unsatisfactory provisions of the present substitute arrangement between the French and Czechoslovak automobile interests. After requesting me for obvious reasons to regard this information as confidential for the time being, he said that the day after my speech had been delivered and upon the insistence of the Chief of the Economic Section (to whom, as I have already reported, I had previously submitted a copy of the German text of my speech and of the English translation) a meeting had been held at the Foreign Office of the appropriate officials of the Ministries of Foreign Affairs, Commerce, and Finance, to whom it had been made clear that the Foreign Office was of the opinion that something definite must be done regarding the French arrangement, because the United States not only believed it to be in contravention of the terms of the Modus Vivendi but also because it was certain that a protest would soon be made with regard thereto. He added that the difficulty lay principally with the other Ministries concerned, but that there was also the disagreeable obstacle of French insistence together with the complications arising from political affiliations, as well as the commercial complexion of the agreements made between the motor interests of [Page 55] the two countries. I improved the opportunity thus presented to state that in the opinion of my Government the arrangement was unsatisfactory and that it should be corrected if the Czechoslovak Government desired to continue to enjoy the advantages envisaged by the Modus Vivendi.

The Minister then observed that, as he understood it, what we desired was a “guarantee” of such equality of treatment. I replied that such was the case, adding that I felt sure that he would agree with me that no other interpretation of the Modus Vivendi and its accompanying confidential note was possible. The Minister then informed me that, as soon as your note had been brought to the attention of the experts of the Economic Section—which would immediately be done—he would discuss the matter with the Ministers of Finance and Commerce, the Prime Minister and the President of the Republic, immediately after which I would be informed. He observed that if I wished to discuss the matter with him alone, he would be very glad to do so, but inquired whether the same method of discussion with the Chief of the Economic Section as had previously been employed would be satisfactory—as he was not in possession of all the details. I replied that, although your note had now made it clear that the subject was not one for negotiation, I would of course be glad to discuss it with the officials with whom I had previously consulted, but that I would of course expect to discuss with him, if necessary, the major policy involved.

At this point in the conversation I deemed it expedient to reiterate my previous statement to the effect that if the important question of the allocation of exchange could be definitely and permanently settled, the balance of the points at issue appeared much more easily susceptible of immediate and mutually satisfactory solution. I went further in observing that, if I might speak with the frankness by which his remarks to me had been characterized, I was of the opinion that the momentary advantages obtained by temporary agreements with non Modus-Vivendi countries would in the long run prove far less than those assured by permanent and increasing commerce with the United States—especially as the present Administration of my country was to continue in office during the next four years, as well as the fact that all statistics showed that Czechoslovak commerce with the United States was increasing. He replied that he had already noticed that fact and, without actually committing himself, intimated acquiescence in this point of view.

The conversation closed upon the understanding aforementioned.

In connection with this subject it will not be without interest to the Department to learn that in a conversation, on the day following the United States Presidential elections, with Dr. Zdeněk Fierlinger, formerly Czechoslovak Minister to the United States and now Chief [Page 56] of the Political Section of the Foreign Office, Dr. Fierlinger voluntarily observed that the moment was now ripe for united action between his country and the United States with regard to commercial policy: I replied that I unhesitatingly agreed. He then inquired whether I was fully aware of the situation regarding the automobile industry in this country: I replied that if he were referring to the possibility of the admission of more cars of American manufacture into Czechoslovakia, I believed this to be a matter which depended entirely upon equality of treatment under the Modus Vivendi, the allocation of necessary exchange, such local demand as might arise, and the absolute assurance that no discrimination in the importation of foreign cars should be permitted to arise to the detriment of automobiles of American manufacture. I said, further, that if he were referring to the importance of the local automobile industry to the defense of the country, I understood perfectly and had repeatedly explained to my Government that the assurance of domestic manufacture was of paramount importance to the mobility and motor transportation of Czechoslovak military forces, and that I trusted that he fully appreciated that it was not the desire of my Government to insist upon or to advocate the increased introduction of American cars at the expense of local industry, but merely to receive adequate guarantees that no preferential treatment should be accorded foreign cars which were not enjoyed by those of American origin.

As of further interest—especially with regard to the exchange situation which now appears to be on the way toward a satisfactory solution—the Assistant Chief of the Economic Section confidentially informed me on the date on which I reported by cable (No. 58, November 20, 12 noon29) concerning the increased quota allotted for American cars, that a short time previous thereto a meeting of the principal officials of the National Bank was held, at which the question was put to each official present as to who had empowered any representative of the Bank to state that exchange permits for American products would be withheld. After a discussion which was apparently prolonged and occasionally bitter, it transpired that a very rigid official of the Bank (whose name was not mentioned but of whose identity I believe I am aware) was responsible for this statement. It was, in fact, the repeated statements and uncompromising attitude of this official which had given rise to the repeated complaints of the importers of American goods and to the protest which the Acting Commercial Attaché had very properly addressed to the Bank. My informant continued by stating that these difficulties were not known at that time to the Foreign Office which Ministry, however, upon learning of this incident, informed the National Bank and the Ministry of Finance that they [Page 57] must be blind to the consequences which would inevitably arise from such an attitude and were instructed to desist. This undoubtedly explains why the General Manager of the National Bank had gone to some pains to inform me that the question of exchange had been satisfactorily settled; it is also another indication of the difficulties which continually arise in matters of international commercial policy between the Foreign Office, which has given evidence of a desire to regularize commercial relations with us and to employ more elasticity in international negotiations of this nature, and a particularly rigid Ministry of Finance, which has interposed obstacles not only in matters of exchange but also in such questions as the negotiation of a consular convention, etc., etc. In this connection it will be recalled from the memoranda of previous conversations which I have had with Foreign Office officials, that one of the chief difficulties which that Ministry now is experiencing is the narrowness of view of the officials of the Ministry of Finance.

Such conversations as I may have with the Foreign Office upon the question of the Modus Vivendi will probably take place within a few days and I shall not fail to keep the Department informed thereof—by telegraph if necessary.

Respectfully yours,

J. Butler Wright
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