Memorandum by the Chief of the Division of Near Eastern Affairs (Murray)

On October 23, Mr. Fotitch, the Yugoslav Minister, called by request on Mr. Murray to discuss the problem of American-Yugoslav trade relations as raised by the Yugoslav import control measures of June 25, 1936. Mr. Wilson, our Minister to Yugoslavia, Mr. Hawkins8 and Mr. Barnes9 participated in the conversation with the Minister.

It may be stated by way of explanation that prior to Mr. Fotitch’s departure from Washington on home leave in July the Minister was given to understand in informal conversations with officers of the Department that we considered the Yugoslav import control measures of June 25, 1936, to be in contravention of certain provisions of the Treaty of 1881 with Yugoslavia,10 and particularly in disregard of Article 5 of that Treaty. It was also made known to the Minister that the Department was considering what steps should be taken by it under the circumstances. The Minister had tacitly agreed with our interpretation of the Yugoslav measures and had explained that one of the principal reasons why he was going to Belgrade was to seek to dissuade his Government from any policy that might have disastrous effects upon its trade with the United States.

In an informal discussion between the Minister and a member of the Near Eastern Division several days after the Minister had returned [Page 823] to Washington on October 13, the problem presented to the Department by the Yugoslav import control measures was reviewed. As the Minister had returned empty handed from Belgrade he appeared, during this informal discussion, to anticipate that the Government of the United States would soon take drastic action with respect to Yugoslav imports. When it was suggested that perhaps the situation could be met by a friendly agreement between the two Governments which would permit the Government of the United States to withhold from Yugoslav imports the benefits of our trade agreements through suspension of certain articles of our Treaty of 1881 in exchange for tacit recognition by us of the fact that at least for the present Yugoslavia must follow the policy of controlled imports, the Minister seemed most relieved.

The meeting on October 23 was held for the purpose of sounding out the Minister more definitely with respect to the possibility of an agreement between the two Governments whereby the most-favored-nation provisions with respect to trade of the Treaty of 1881 would be set aside without the necessity of denunciation of the Treaty and of a consequent delay of one year, during which time the Yugoslav Government would find itself in the unpleasant situation of failing to live up to its treaty obligations and at the same time the United States would not be free to withhold trade benefits from Yugoslav commerce.

The Minister agreed that it would be desirable for his Government to regularize its position with respect to the Treaty of 1881, and he admitted the force of our argument that it is of importance to the Government of the United States for reasons of principle to adhere to its announced policy of withholding generalization of trade agreement benefits in the event of discrimination against American trade. In fact, the Minister appeared persuaded during the whole of the conference that the Department was trying to meet the situation brought about by the import control measures of his Government in a most friendly manner by suggesting an agreement whereby both parties would regularize their respective positions with regard to the 1881 Treaty and at the same time would safeguard policy in a manner calculated to cause the minimum of disturbance to the trade relations between the two states.

The Minister’s only request was that the formula adopted to set aside the most-favored-nation provisions with respect to trade of the 1881 Treaty should be of such a nature as to accomplish automatic reentry into force of these provisions upon the return of Yugoslavia to a trade policy compatible therewith.

The Minister left the conference with the understanding that the Department would soon hand him a draft of an agreement setting aside certain articles of the Treaty of 1881 which he could submit to his Government for its consideration.

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A suggested draft of such an agreement, together with a draft declaration in favor of an early return to the most-favored-nation principle in the trade relations between the two states, is submitted herewith.11

In informal conversations during the past ten days with the Yugoslav Minister, officers of the Department have gained the impression that the Minister has, since the conference of October 23, become more than ever persuaded that his Government is making a mistake by following a policy incompatible with our trade policy. In fact, he appears to have been giving considerable attention during the past few weeks to the possibility of increased markets for Yugoslav products in the United States by virtue of the benefits conferred by our trade agreements, and to have come to the conclusion that those benefits may soon be of very real value to his country. Under these circumstances it is suggested that we hand the Yugoslav Minister, along with the draft agreement setting aside certain provisions of the 1881 Treaty, the draft modus vivendi also attached to this memorandum.11 We could tell the Minister that we wished to do everything in our power to protect the mutual trade relations of the two states and that with this end in view we are offering his Government the two alternatives possible in the light of the trade policy of his Government.

It is suggested that the drafts be communicated to the Minister with a covering note embodying the greater part of the statement of our trade policy as set forth in the memorandum which the Trade Agreements Division proposed early this summer to send to various of our missions in connection with the Secretary’s desire to obtain declarations on the part of other governments favoring the principles embodied in our trade agreement policy. Such a note would have the merit of providing the Yugoslav Government with a clear and comprehensive statement of the factors underlying our proposal either to conclude a modus vivendi in harmony with our trade policy or an agreement setting aside certain provisions of the 1881 Treaty.

Mr. Frangeš, Secretary of the Yugoslav Legation at Washington, is returning to Belgrade to take up a position in that section of the Foreign Office which deals with American questions. He will leave Washington on Wednesday, December 9th, and the Minister believes that it would prove most helpful if he could have our proposal in time for Mr. Frangeš to carry it to Belgrade. It is earnestly hoped that we can meet the Minister’s wishes in this respect. Mr. Frangeš is in complete sympathy with our trade policy. It would, therefore, be to our interest to have him actually deliver the documents to Belgrade.

Wallace Murray
  1. Harry C. Hawkins, Chief of the Division of Trade Agreements.
  2. Maynard B. Barnes, Assistant Chief of the Division of Near Eastern Affairs.
  3. Treaty of Commerce and Navigation, signed at Belgrade, October 2/14, 1881; for text, see William M. Malloy (ed.), Treaties, Conventions, etc., Between the United States of America and Other Powers, 1776–1909 (Washington, Government Printing Office, 1910), vol. ii, p. 1613.
  4. Not found in Department files.
  5. Not found in Department files.