The Chargé in Latvia (Cole) to the Secretary of State

No. 1126 (Diplomatic)

Sir: I have the honor to refer to my despatch No. 870 of September 13, 1935,2 transmitting the text of a note concerning the treatment accorded by Latvia to American trade delivered to the Latvian Minister for Foreign Affairs. There is transmitted herewith a copy of the Latvian Government’s reply to this note, dated March 30, 1936 and signed by Mr. Vilhelms Munters, Secretary-General of the Ministry for Foreign Affairs.

An analysis of this note and of the statistics annexed thereto is being prepared and will be forwarded in the next pouch.3

Respectfully yours,

Felix Cole

The Latvian Secretary General of the Ministry for Foreign Affairs (Munters) to the American Chargé (Cole)

R. 610.63/35. 9902

I have the honour to acknowledge receipt of your Note No. 168 of September 11th last, explaining to me the general foreign trade policy of the Government of the United States and especially their principles regarding the application of most-favoured-nation treatment, in accordance with the Trade Agreement Act of June 12th, 1934,4 and the instructions issued by the President of the United States to the Treasury Department.

In reply, I have much satisfaction in stating that, in principle, the Latvian Government fully concur with the American Government in [Page 380] esteeming that an unrestricted application of most-favoured-nation treatment would contribute considerably to the revival of world trade and prosperity. Nearly all countries having, however, introduced various restrictions seriously affecting imports and the free circulation of foreign currency, the Latvian Government have, unfortunately, been compelled to adopt a similar policy.

I note with satisfaction that, according to the statement you were good enough to make in the above-mentioned Note, the United States Government do not refuse generalization of minimum duties and equality of treatment to a foreign country, irrespective of the degree to which that country is restricting trade, as long as American commerce is offered equality of opportunity and accorded its fair and equitable share of the permitted importations and the means of payment therefor. I cannot, however, agree to the views you go on to express in your Note, namely that such “equality of opportunity” and “equitable share of the permitted importations” have been withheld from American commerce, and that there has been occasion to speak of the “intervention of the Latvian authorities into the field of American-Latvian trade, resulting in the restriction of imports from the United States and the direction to other countries of the importation of commodities formerly obtained from the United States”. That this is by no means the case can be seen clearly from the enclosed statistical data regarding the trade returns between our two countries (see Annex 1).5 Although since 1928, when the Treaty of Friendship, Commerce, and Consular Rights was concluded,6 the balance of trade has been adverse to Latvia, the total volume of American imports has, after the decline which it suffered in consequence of the catastrophic shrinkage of world trade during the acute crisis of 1931, steadily been increasing. Indeed, since 1932, when various import restrictions were introduced in Latvia, the value of American imports has even, according to the annexed table, reached double the amount recorded for that year, instead of shrinking still further like the imports from other countries during that period, so that the administrative measures of the Latvian Government in this respect, far from being a deterrent, have proved beneficial to American goods in the Latvian market.

I should also like to draw your attention to Annex 2,5 where the chief United States imports have been arranged in groups. From these figures, it is self-evident that there can be no question of a compulsory diversion of exports from the United States to other countries on the part of the Latvian authorities. A close study of the different [Page 381] groups of commodities imported from the United States during the last years will, on the contrary, show you that, according to our statistics, articles formerly imported from the United States continue to be purchased there. The importation of American fruit, cotton, cars and their spare parts, etc. has even increased in the current year, and only a very few commodities can be said to have been subject to seasonal and other fluctuations. These can in no way alter the main characteristics of the exchange of goods between our two countries.

It follows from the above that no discriminatory measures are or have been applied to the importation of American goods. This is finally proved likewise by the figures regarding supplies of foreign currency in payment for such goods. The sums allotted by the Currency Commission for payment in cash for American goods have remained practically unchanged, 5, 3% of the total allocations having been set aside for this purpose in 1934, and 4, 0% during 1935.

Further, you state in your Note that “a policy of effecting a balance of the merchandise trade between the United States and Latvia through a system of compensation trade, the administration of foreign exchange controls or other administrative devices is, in the opinion of the American Government, in conflict with the most-favoured-nation treatment specified in the Treaty of Friendship, Commerce, and Consular Eights between the United States and Latvia”.

As I had the honour to point out to you in the beginning of the present Note, the Latvian Government agree in principle with the United States Government in regarding most-favoured-nation treatment as the most effective means of giving elasticity to trade arrangements and of increasing international trade throughout the world, but they find it impossible to carry this policy into effect while the majority of those countries with whom Latvia maintains trade relations follow a policy of a different character. The fact that the very countries, trade relations with whom are particularly developed, insist on the trade balance being redressed in their favour, compels the Latvian Government to attach the greatest importance to the state of their commercial balance with other countries, since, in order to pay for imported and consumed goods, they must obviously have an opportunity for exporting Latvian goods of about the same value.

You will recollect that the State Department, in its Statement of April 1st, 1935, (“Policy of the United States concerning the Generalisation of Tariff Concessions under Trade Agreements”)7 on the generalisation or withholding of concessions, states, among other considerations, [Page 382] that “to such (foreign) countries, a standing offer is extended to accord to them the benefit of our minimum rates … if they agree not to discriminate or, in fact, cease to discriminate against American trade in respect of all forms of trade-control measures, including exchange control and other measures not specifically dealt with in existing treaties or agreements in force with such countries”.

This declaration would seem to me to imply that, on principle, the-State Department has no objections against “all forms of trade-control measures, including exchange control and other measures not specifically dealt with in existing treaties,” so long as the respective countries agree not to discriminate against American trade. As already stated in a preceding paragraph of the present Note, no such discrimination against American trade is practised in Latvia. In the opinion of the Latvian Government there would, therefore, be no apparent reason for the United States Government for considering the withdrawal from Latvia of the minimum duties she has enjoyed until now.

As regards, in particular, the system of compensation, of which the so-called export clause—i. e. the stipulation that imports from a certain country should be paid for by the proceeds from exports, preferably to that same country,—may be said to form part, I can only assure you once more that it is the commercial policy of numerous other countries which is compelling Latvia to make use of this expedient in her dealings with all the countries with whom her trade balance is unfavourable. I may add at the same time that, far from discriminating against American imports, Latvia has on the contrary accorded them special advantages. Notwithstanding the existence-of a continually passive balance with the United States, the system of compensation is applied to American goods in so restricted a form that very few of such goods only are affected by its stipulations. It would, therefore, appear to the Latvian Government that their policy in this respect gives evidence of a certain favouring of American imports rather than the reverse.

My above explanations would seem to prove sufficiently clearly that most-favoured-nation treatment continues to be applied by Latvia to goods of American origin, and there can, to my mind, be no question of any infringement, on the part of the Latvian Government, of the Treaty of Friendship, Commerce and Consular Eights concluded between Latvia and the United States.

With reference, lastly to the desire of the United States Government to be informed regarding the general Latvian restrictions on foreign imports from all countries and the special measures regarding United States products as well as the sale of means of payment for the latter, I have the honour to inform you that the Latvian law [Page 383] on foreign exchange and foreign trade (Valdibas Vestnesis No. 60, 1935), and the supplementary instructions to this law (Valdibas Vestnesis No. 109, 1935) contain all the provisions governing this side of the economic life of the country. These provisions, as pointed out to you before, are applied without distinction to all imported products irrespective of their origin, and also to payments for imported goods or transfers of foreign exchange. I must, therefore, stress the fact once more that no separate provisions exist in Latvia concerning American trade or payments for imports from America, these being subject to the above-mentioned general regulations on the subject.

Taking into account that the condition that Latvia treat American commerce no less favourably than she treats the commerce of third countries is faithfully being complied with,—concerning which circumstance the Latvian Government are willing to give assurances also regarding the future—there would seem to be no reason why the United States Government should in any way modify the treatment at present extended to Latvian products imported into the United States, and I feel confident that your Government will continue to accord to such Latvian imports the minimum duties specified in their agreements with other foreign countries, as well as unconditional most-favoured-nation treatment.

It must, however, be mentioned in this connection that the measures recently applied by the United States authorities to Latvian butter and tinned sprats do not appear to the Latvian authorities to be illustrative of the principle of equality of opportunity and treatment, to which you were kind enough to draw to my attention in your Note. The duties applied to such Latvian imports have, on the contrary, created the unfortunate impression that discriminative measures are enforced solely where goods of Latvian origin are concerned. In referring to the Notes transmitted to the United States authorities by the Latvian Consulate General in New York and to the Finance Minister’s9 conversation on the subject with Mr. Kelley of the State Department,10 I take this opportunity to express the earnest hope that the United States authorities will see their way to remove the obstacles that are at present impeding the export of Latvian goods to the United States, an export which had assumed regrettably insignificant proportions even apart from those obstacles.

I avail myself [etc.]

W. Munters
  1. Ibid., p. 559. The text of the note as delivered on September 11, 1935, is printed as the enclosure to instruction No. 160, August 16, 1935, ibid., p. 554.
  2. Not printed.
  3. 48 Stat. 943.
  4. Not printed.
  5. Signed on April 20, 1928, Foreign Relations, 1928, vol. iii, p. 208.
  6. Not printed.
  7. Foreign Relations, 1935, vol. i, p. 536.
  8. Ludwig Ekis.
  9. Robert F. Kelley, Chief of the Division of Eastern European Affairs.