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

No. 605

Sir: I have the honor to report that upon the request of Dr. Stangler, Assistant Chief of the Economic Section of the Foreign Office, I called upon him at 5:00 o’clock yesterday afternoon in order to continue with him—pursuant to the understanding reached in my conversation with the Minister for Foreign Affairs on November 25th—the representations concerning the unconditional observance of the terms of the Modus Vivendi contained in the note of the Department delivered to the Minister on that date.

In order that there might be no misunderstanding as to the tenor of my conversation with the Minister, I read to Dr. Stangler pages 1 to 6 of my despatch No. 597 of November 25, 1936, in which I reported that conversation. He said that my report coincided with that which the Minister for Foreign Affairs had made of the conversation.

He then referred to that sentence in page 3 of the Department’s note reading, “Nor should the Government of the United States be expected to negotiate for the removal of the existing discriminatory handicaps under which American trade is now obliged to operate”, and observed that perhaps a misunderstanding had arisen with regard to the nature and intent of the discussions which had taken place between Foreign Office officials and myself subsequent to the delivery of the note of the Secretary of State dated April 7, 1936. He then stated that the attitude of his Government during these conversations had not been that of negotiation, but should be considered as an attempt on the part of its representatives to ascertain what were the difficulties of which the Government of the United States complained—adding that they knew only too well that such difficulties existed with regard to automobiles. (It may be observed at this point that this admission is of interest, in view of the fact that during the period preceding these first conversations, as well as during the first portion of the former discussions, the Czechoslovak Government disclaimed any official knowledge whatever of the preferential arrangement in favor of automobiles of French manufacture). He then said that it would have been observed that the quota for several articles of American manufacture had been increased—which he hoped had been recognized as an evidence of the desire of this Government to accord every possible facility to American trade. As will hereinafter be seen, I reserved my comment on this phase of the matter until later.

Dr. Stangler then said that the United States Government was perfectly correct in maintaining that no negotiation is called for, and [Page 59] reiterated that his Government had merely been trying to find out what was satisfactory to the United States. It was for this reason, he said, that the quotas for automobiles and apples had been made as large as possible (voluntarily observing that two and a half million crowns had been earmarked for American apples for consumption during the Christmas Season, and an equal amount for the succeeding period)—adding that instructions had already been given that all applications for import permits and exchange allocation for American apples were to be granted without delay and that the importation of this product will be larger this year than during any previous season: in his words, “American fruit will have preference”. I likewise reserved until later my comment on this statement.

He then said that the Foreign Office had been somewhat embarrassed by the receipt of your note, because it had expected that I would have been able to give evidence to my Government that the treatment of American commerce had been increasingly favorable. I reserved until later my comment on this point also.

He then stated that, as he had previously assured me (see pages 7 and 8 of my despatch No. 597) the Foreign Office had not known that the National Bank had taken, or would take, such action to control the allocation of exchange for American products as had ultimately been discovered to have taken place. At this point I observed that this arbitrary action on the part of the Bank had been as responsible as had any other single factor for the attitude of my Government, had obscured our conversations and bewildered the importers of American articles, and that it was for this reason that the Acting Commercial Attaché had directed specific inquiries of the National Bank. Dr. Stangler continued by saying that upon his return from a vacation in September (at which time the practice of the Bank, of which complaint had been made, was especially aggravated) he had inquired whether the desires of the Foreign Office regarding the allocation of American exchange had been observed; and that upon learning from the Acting Commercial Attaché of the difficulties which had not only persisted but had taken more aggravated form, the Foreign Office had taken action with the Ministry of Finance and the National Bank, with the results which had been made known to us (see page 8 of despatch No. 597). At this point he made the interesting observation that he had been told at that time by the Bank that local importers of American goods were satisfied with allocation of exchange upon condition that it was not to be available until December 1st—which Dr. Stangler said had been very embarrassing both to him and to the Foreign Office, because that was neither the desire nor the policy of the Foreign Office and, furthermore, did not accord with his understanding of American business methods. He said that during the vacation time (which, I may observe at this [Page 60] point, always results in practical paralysis of the Ministries and other institutions) substitutes had been in charge not only in the Ministries of Finance but at the National Bank, who perhaps were not fully acquainted with the matter: but upon learning that permits for import and exchange were being delayed, he had requested the Ministries of Finance and of Commerce to issue prompt instructions that permits of both kinds be issued in accordance with the principle of most-favored-nation treatment.

He then reverted to the aforementioned statement in the note of the Secretary of State, to the effect that no negotiations are to be undertaken in this matter, and observed that such accords with Czech practice: therefore, if we are now aware, or should in future be aware, of any case of failure to accord most-favored-nation treatment, he trusted that the appropriate officials of the Czech Government would be immediately notified.

Continuing a conversation which was apparently not too palatable for him and which was characterized by increasing frankness, Dr. Stangler then observed that it would be recalled that upon my representations concerning such arbitrary procedure, the practices complained of had been discussed with the appropriate Ministries and the officials concerned either transferred or dismissed. He said that sometimes these minor officials acted through ignorance of policy; sometimes their immediate chiefs had failed appropriately to instruct such officials; sometimes honest mistakes had been made through lack of knowledge; sometimes acts of undeniable dishonesty had taken place; and occasionally the authorities who had instructed such officials were themselves under the direct or indirect influence of producers of articles competing with those of foreign manufacture!

I said that despite certain misapprehensions which appeared to have arisen and which I hoped would be clarified in the course of our succeeding discussions, I thought that the frankness of his explanation of the point of view of his Government and of the difficulties which the Foreign Office was experiencing in inducing other Ministries and institutions of the Government to take the same view, carried the assurance that the apparent differences which had at one time seemed so great might immediately be put on the road toward early and mutually satisfactory conclusion. I said, further, that I believed that such ends could be achieved only by frank discussion of the few points which appeared to remain, to wit:—

The temporary or seasonal increase of the quotas for certain of the American products which had been under discussion between us—notably automobiles and apples. On this point I stated that while the increase in such quotas was gratifying as far as the increased sales of [Page 61] the specific products were concerned, he would recall that I had consistently taken the position—now reaffirmed by my Government—that such gestures arising from seasonal requirements, or failure of competitors to provide similar articles, or any other reason whatever, did not appear to meet the point at issue, which was that assurances should be forthcoming that American products would receive equal treatment with that accorded to products from other countries: no more, no less. I observed that he would recall that in our previous conversations there had been discussed the possibility that American quotas might sometimes be in excess of those enjoyed by other countries; which, however, would in no way affect the principle for which we were contending. Therefore, increased quotas of certain products at certain times did not satisfactorily assure the treatment which we expected.

As to the hope expressed that I might have been able to convey to my Government assurances that the Czech Government was endeavoring to accord satisfactory treatment to American products, I said that I had not only transmitted to my Government the texts of the aides-mémoire exchanged regarding each commodity, but that I had also reported at some length the tenor of our several conversations, from which my Government could draw its own conclusions and in view of which I was of course in accord with the attitude of my Government that the treatment which had been promised regarding certain articles did accord with the principles of the Modus Vivendi. It was therefore in a last effort to clear up this misunderstanding that I was not only ready to discuss—although in no way to negotiate—concerning these points, but that I had also been equipped by my Government with material for such discussions. This led me to my third point of “discussion” versus “negotiation”.

In this connection I stated that it would be observed from the second paragraph of the Department’s note of November 25th, that our conversations had been recognized by my Government as “discussions”, and that due attention had been given to the assurances and proposals made by the Czechoslovak Government in the course of these discussions. I was therefore of the opinion that, in referring to the regret or embarrassment caused to his Government by our unwillingness to “negotiate” regarding these matters, there may have been some misunderstanding as to the employment of these terms. Therefore, as a proof of good faith in the matter and as of a genuine desire to bring this vexatious question to a close as soon as possible, I informed him of my possession of the résumés of the views of the interested Departments of my Government regarding the respective commodities, upon which basis I was prepared at once to discuss—not to negotiate—the points which had not yet been made clear regarding them.

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Dr. Stangler then showed me certain memoranda which he said had been prepared regarding each specific commodity under discussion, and observed that, although he would in no way expect or consider such replies as we might care to make as tantamount to “negotiation”, some of the allegations of discriminatory or preferential treatment which had been made by us were not clear to his Government which would welcome an opportunity for their clarification. With regard to tare allowances, for example, all the appropriate Ministries had been consulted but did not yet clearly understand what we desired. I replied that it was apparently with such intent that the resumes with which I had now been furnished had been prepared. He then observed that the case of apples might be considered as characteristic of the whole discussion—adding that our representations had affected all the Ministries concerned and that even a port inspection had taken place—as a result of which it had been seen that the method of packing had been improved and made lighter. (In other words, they had really looked into all phases of the importation of this product—a thing which they had never done before). I replied that it was just this object of examination and definitive determination that we were endeavoring to achieve while, at the same time, proving of such assistance to his Government as might be proper.

With regard to the statement on page 3 of the Department’s note that our Government does not consider that it should be obliged to call to the attention of his Government each case of discrimination against American commerce, I said that this statement was clearly related to the other matters under discussion: i. e. that if equality of treatment in all cases was accorded, the necessity for complaints regarding specific instances should entirely disappear. Dr. Stangler said that his Government had never expected that we should call attention to each case: in fact, that he did not consider that such would be the function of a Legation, but that nevertheless until the situation had been completely clarified, the Foreign Office would consider the additional material apparently in hand as of great assistance and would duly appreciate it. I replied that the conversation appeared increasingly to show that we were talking to much the same end and that such additional material as I now possessed would be offered in the spirit which actuated our policy in such matters and in the hope that it might prove of assistance to the Czechoslovak Government and achieve an immediate and definitive solution of the matter. As to complaints regarding specific cases that might arise thereafter, I said that while the Legation was at all times prepared to discuss such principles as those now under consideration and to cooperate in every way properly possible, I of course agreed with him that specific complaints [Page 63] of alleged infractions could, and would, not be continued after the principle involved had been confirmed. Such attention as might have to be given to those details would be conducted either through the appropriate channels of the Commercial Attaché or by representations to appropriate officials of the Czech Government by importers of American goods.

Dr. Stangler then stated that he wished to apologize for any wrong impression as to his Government’s attitude that might have been created: it was not the intention of his Government to create such an impression and it is his Government’s desire hereafter to maintain full control over such matters.

I then inquired whether my impression was correct that the representations which had been made by the Legation had assisted the Foreign Office in detecting and correcting the abuses and irregularities to which he had referred so frankly to me: he replied that they had been of such assistance and that his Government desired to express appreciation therefor.

As the time available for this portion of the discussion had then drawn to a close, I asked whether I might inform my Government that I would soon receive written assurances in reply to the two notes of the Department that the unconditional most-favored-nation treatment would govern in any and all instances, and that all that now remained was the clarification of certain specific cases. He replied that I might do so.

I then said that I was ready to clarify with him the remaining points concerning the respective commodities to which the résumés transmitted in the Department’s instruction referred: he replied that such an opportunity would be given me at an early moment and the conversation terminated with that understanding.

It will be observed from the foregoing that this Government has, at long last, apparently abandoned the argumentative and circuitous methods to which they have hitherto resorted in these matters, and has orally and unconditionally undertaken to accord to American trade the treatment for which we have contended. The attitude and practice of the Foreign Office as set forth in its memoranda concerning the specific commodities—while undoubtedly intended at the time of their submission to form the basis of further negotiation (or whatever simile for that word this Government may have desired to employ)—are now described as having been expressions of a policy intended to elicit replies from our Government: these replies have now been forthcoming in the résumés prepared for my use, which will be utilized in accordance with the instructions accompanying them.

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It will also be observed that, as I have repeatedly reported, the Foreign Office has undoubtedly experienced great difficulty in obtaining even the semblance of cooperation from a stubborn and almost recalcitrant Ministry of Finance; furthermore, the irregularities and obliquity of certain officials in the Finance Ministry, the Customs Administration and the National Bank have now been officially admitted.

To all these considerations should be added the fact that the Czechoslovak Government now realizes that the situation has become much more clearly defined on account of the re-election of President Roosevelt: in fact, one official inadvertently blurted the observation to me that “at last we know what your policy is going to be for the next four years.” That this has been a most important factor is indisputable, and I trust that the exposition of our policy in this matter in my recent speech at the Industrial Club may have proven opportune.

That all difficulties regarding the automobile situation have not as yet been cleared away is evident from a remark which the Minister for Foreign Affairs made to me last evening at the Legation. I referred to my conversation with Dr. Stangler and expressed my satisfaction that we now appeared to be seeing much more nearly eye to eye—in which he acquiesced but informed me with no little exasperation that the French were proving “increasingly difficult” in the matter of the importation of automobiles. Of course, the time has come when this Government will have to choose between the alleged advantages of any arrangement of that nature and those afforded by a continuation of the Modus Vivendi with us. I believe that while we may shortly obtain confirmation of the unconditional acceptance of the principle for which we are contending, and while the discussion of the remaining points concerning the respective commodities will aid in the clarification of the situation and serve as proof of our desire to be as helpful as possible in the establishment of this principle, such delay as may persist will be principally due to the attitude of the French manufacturers (and Government) with regard to automobiles.

Respectfully yours,

J. Butler Wright