The Minister in Austria (Messersmith) to the Secretary of State

No. 1001

Sir: I have the honor to refer to my confidential despatches Nos. 949, of November 6,6 and 995, of December 17, 1936, reporting on the interest of the Austrian Government in a trade agreement with the United States and on the status of the negotiations in progress for a new trade treaty between Austria and Germany. Although these despatches bring this position to date, I have to transmit the following further information which may be of interest to the Department.

In the foregoing and previous despatches I have indicated that it was quite probable that during the course of the Austro-German negotiations for a trade treaty the large favorable balance which we have in our trade with Austria would be brought up by the German negotiators. The negotiations with Germany were resumed, as I have already reported, on December 14. Shortly afterwards I was informed on good authority that the head of the German Delegation, Dr. Clodius, was proposing indirectly, if not directly, that as the Austrians did not wish to take armaments material from Germany in the quantity Germany desired to export, and were unable to take coal from Germany in any quantity on account of existing agreements with Czechoslovakia and Poland which Austria did not wish to denounce, that Austria should import the raw materials, which she is now getting directly from the United States, through Germany. Germany, Dr. Clodius is said to have proposed, would undertake the responsibility of supplying the Austrian industries with these raw [Page 8] materials, and Austria would be reducing her large unfavorable balance of trade with the United States, and instead of paying in dollars to the United States for these materials, would pay Germany in agricultural products which Germany was prepared to accept and which Austria was eager to export.

Although the proposal seemed fantastic and I doubted whether the German negotiators would actually propose it, the information came to me from such a good source that I deemed it advisable to call at the Foreign Office on December 21, and I also had conversations with the President of the National Bank and with my Italian colleague. I have been able to determine that the proposition was not formally made by the German Delegation during the conversations, and I have been assured by the Secretary of State for Foreign Affairs that if the Germans made such a proposal it would not be accepted. In my conversations at the Foreign Office and with the President of the National Bank I again went into the underlying principles of our trade agreements program, calling attention to the favorably developing trade between Austria and the United States, and expressed the hope that Austria would not make any arrangements with any country which would tie her hands so as to interfere later with the negotiation of a trade agreement with us.

I have reason to believe that these conversations proved to be helpful to the Austrian authorities who, while expressing the opinion, as I have already reported, that the time was not yet ripe for conversations with us on a trade agreement, stated that Austria would certainly not bind her hands in any way which would interfere with the possibilities of agreements with other states or with her favorably developing trade relations with other states.

The Austro-German negotiations were interrupted on December 22, on account of the Christmas holidays and it is officially announced that they will not begin again until January 4. The possibilities are that they will not begin until later in January. No official announcement has been made concerning the progress of the negotiations, but I am informed that the conversations so far have been confined largely to an exchange of views and have served principally to show the great difficulties in the way of a trade agreement. The German proposals are such that they are unacceptable to the Austrians. The pressure of the agricultural interests in Austria remains strong for they see in Germany their only present market for surplus agricultural products. There is every indication, however, that the Austrian attitude has much stiffened and unless there is a very material change in the situation the negotiations, when resumed, will be as difficult as they have been up to this point and there is little promise of any worth while results. So far as can be seen now, there will be some further arrangements [Page 9] covering German tourist traffic to Austria, and increased agricultural exports from Austria to Germany of probably a maximum of Schillings 20,000,000 a year. The results therefore promise to be disappointing to both Germany and Austria, and the most interesting feature of them which has developed is the stiffened Austrian attitude and the apparent determination not to finance increased Austrian exports to Germany at the expense of the Austrian treasury.

Any further information which may develop which may be of interest to the Department will be transmitted without delay.

Respectfully yours,

George S. Messersmith
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