The enclosed memorandum carefully analyzes the several basic and
temporary factors at present affecting Latvian-American trade. The
conclusions reached are that the immediate prospect is for an increase
in the volume of such trade, particularly with respect to Latvian
exports to the United States; and that it is impracticable to state what
may be the permanent effects of the devaluation upon such trade. What
those effects may be would seem to depend upon the extent to which a
revision may ensue in Latvian foreign trade policy, which is at present
based upon bilateral balancing of trade with each individual country.
There have already been certain tariff reductions and a very limited
relaxation of the quota and foreign exchange regulations, and some
further moderation of trade control measures is possible, but it is
believed that Latvia cannot return to an unrestricted foreign trade
unless its two main customers, Great Britain and Germany, do so.
[Enclosure—Extract]
Memorandum by the Third Secretary of Legation in
Latvia (Abbott)
. . . . . . . . . . . . . .
VI. Effect of the Devaluation on
Latvian-American Trade
(a) General
Situation
The remarks made in the previous section15 regarding the general
effect of the devaluation of the lat on Latvian foreign trade
applies in large part to Latvian-American trade. There are, however,
certain special factors which must be taken into consideration.
Practically all Latvian exports to the United States since the end of
1934, have been indirectly subsidized through the “export valuta”
system. Moreover, with respect to the marketing of butter and rye,
two of the most important export items to the United States in
recent times, Government monopolies exist which export surplus
supplies regardless of the price received. It is therefore believed
that the stimulation of Latvian exports to the United States which
might normally be expected to result from the devaluation of the lat
will be largely neutralized by these special factors.
With regard to imports from the United States, these have already
been so controlled and restricted that it is not thought that the
devaluation of the lat in itself will have much effect on the volume
of Latvian purchases from the United States.
(b) Possibility of Change in Latvian Foreign Trade Policy
Since in ordinary circumstances, the balance of trade between the
United States and Latvia will be considerably in favor of the United
States, it is believed that the all-important question to be
considered in analyzing the effects of the devaluation of the lat on
Latvian-American trade is whether or not the devaluation will be
followed by a change in the present Latvian foreign trade policy
which is based on the principle of bilaterally balanced trade. This
policy is being effected through clearing agreements where possible,
and otherwise through a system of import licenses, import quotas and
foreign exchange restrictions which give the Government complete
control over the importer, the goods to be imported, the country of
origin and the method of payment. The Government moreover directly
controls a considerable share of the country’s foreign trade through
the export and import monopolies held by Government organizations.
For a more complete description of Latvian trade policy and the
effect it has had on American trade see the Legation’s despatch No.
645 of March 14, 1935, “American Trade in Latvia”,16 and
subsequent despatches on the same subject.
[Page 387]
There are many indications that the Latvian Government would like to
seize the present opportunity to adopt a more liberal policy and
some steps have already been taken in this direction.
Minister of Finance Ekis, in his radio speech of September 28, 1936
(see enclosure No. 1 to this memorandum),17 expressed the hope that
the stabilization of the foreign exchange situation as a result of
the agreement between France, the United States and Great Britain,
would be followed by a return to freer world trade conditions. In
his conversation with Mr. Cole on the same day,18
Mr. Ekis expressed the hope that certain of the Government measures
for the control of foreign trade and foreign exchange could be
gradually eliminated. President Ulmanis expressed himself even more
freely in his conversation with Minister Lane on October 5,
1936.18 The President said that he, Mr. Ekis and the
other members of the Cabinet, were entirely in sympathy with the
policy of abolishing trade restrictions and that he hoped within a
few weeks it would be possible gradually to relax the present
restrictions.
The tariff reductions effected since the devaluation of the lat will
of course further imports, or rather partially counterbalance the
unfavorable effect of the devaluation of the lat, but it must be
kept in mind that these tariff reductions were made not for the
purpose of encouraging imports or for removing obstructions to
foreign trade, but to prevent an increase in price of certain
essential commodities. This was frankly admitted by Foreign Minister
Munters in a conversation with Minister Lane on October 23,
1936,18 and by Finance Minister Ekis in his official
press statement on October 20,17 following the first tariff reduction.
In connection with the tariff reductions on October 21, the Latvian
Government also removed certain commodities from the quota and
foreign exchange restrictions, and certain others from foreign
exchange restrictions only. The commodities affected, however, are
of relatively little importance, and it is believed that this
measure was taken mainly as a gesture and an indication of Latvia’s
willingness to cooperate with the great commercial powers in efforts
to remove trade barriers.
In spite of these indications of a desire to remove trade
restrictions, it is doubtful if any worthwhile steps in this
direction on the part of the Latvian Government can be expected in
the near future.
In his official statement on October 20, 1936, Minister of Finance
Ekis, in referring to the removal of the quota and foreign exchange
restrictions on certain articles, pointed out that any further
steps, in
[Page 388]
this direction
would depend on the action of other countries in removing
restrictions on the import of Lavian products.
The Legation has heard from two well informed sources* that a difference
of opinion exists within the Latvian Government regarding its future
trade policy. One group, which is believed to include President
Ulmanis and Mr. A. Berzins, President of the Latvian Chamber of
Commerce and Industry and of the Latvian Credit Bank, is understood
to be in favor of immediate relaxation in trade restrictions,
especially the import license requirements, foreign exchange
restrictions, and clearing agreements. The other group, led by
Minister of Finance Ekis, wishes to maintain in operation the system
of laws and regulations whereby the Government is in a position to
control absolutely the movement of foreign trade, and believes that
Latvian trade restrictions can only be removed after the leading
commercial powers, primarily Great Britain, have returned to a
policy of unrestricted trade. Minister Ekis’ views appear to be in
the ascendant at the present time. This is indicated by the fact
that Latvia has not taken the opportunity to let its various
clearing agreements lapse, but has just concluded special
arrangements to adapt the Swedish and Lithuanian agreements to the
new conditions and is negotiating with Germany and Estonia.
It is not believed that Latvia will make any decision regarding its
future foreign trade policy until the conclusion of the negotiation
with Great Britain regarding the revision of the British-Latvian
trade agreement of 1934,19 which expires
December 31, 1936. It may be pointed out that it was largely Great
Britain’s insistence that Latvia take steps to increase its imports
from Great Britain which was instrumental in causing Latvia to adopt
the policy of bilaterally balanced trade with consequent restriction
of American imports.
(c) Immediate Prospects for Latvian-American Trade
Although any permanent change in the status of Latvian-American trade
can only follow a change in Latvian foreign trade policy, which in
turn, as explained above, is believed to be largely dependent on a
change in British policy, the immediate prospects for American trade
are likely to be affected by a number of temporary conditions partly
connected with the devaluation of the lat but partly entirely
independent therefrom.
During the first nine months of 1936, Latvia had a favorable balance
of trade for the first time in any period of such length in any
year, except 1932, since the establishment of the country. This
caused
[Page 389]
the reserves of
foreign exchange held by the Bank of Latvia to increase rapidly and
as a result the Foreign Exchange Commission has in recent months
been more lenient in granting import permits. Moreover, the stoppage
of imports from Germany will undoubtedly result in a temporary
diversion of a certain amount of business to American exporters.
Thus the immediate prospect is for an increase in imports from the
United States.
Latvian exports to the United States have been relatively large in
the last year and a half, and may well increase still more during
the next six months. It is not believed, however, that this is a
permanent development, since the chief commodities involved—grain,
butter, and, more recently, clover seed—are items which in ordinary
circumstances would not be imported by the United States in any
considerable quantity, but for which a demand exists at the present
time because of the drought during the past summer. Moreover, the
large Latvian exports of rye were only possible because of an
extraordinarily good crop here in 1935 and shipments have already
stopped, following the subnormal crop this year.
. . . . . . . . . . . . . .
[There was no change in the general status of trade relations
between the United States and Latvia prior to the outbreak of
war in Europe in 1939. No further representations were made with
respect to alleged trade discriminations except such efforts as
the American Legation could exert locally to facilitate American
exports.]
