662.9131/19
The Minister in Iran (Hornibrook) to the Secretary of State
[Received April 2.]
Sir: I have the honor to invite the Department’s attention to the apparent discrimination against American trade which arises principally from the terms of Article XVII of the Convention for the Regulation of Payments between Germany and Iran which was signed [Page 396] on October 30, 1935.37 A copy of this agreement, in French, was transmitted to the Department with the Legation’s despatch No. 664 of December 27, 1935,38 but for the purpose of presenting the matter fully and clearly, there are enclosed herewith a suggested translation38 of the Convention, and of the Regulations which have been issued by the Iranian Government to give effect to the agreement in this country.
Article XVII reads as follows:
“Export certificates shall not be granted with respect to Iranian merchandise exported to Germany. Permits for the entry of German merchandise into Iran shall be granted without presentation, in counterpart, of export certificates.”
For the system of export certificates and import permits which applies to the foreign trade of Iran with the generality of countries, including the United States, there is substituted, with respect to the trade with Germany, a system of certificates of origin and import compensation permits. No discrimination of importance would arise in case the system last-mentioned operated in the same manner as the export certificate-import permit system which applies to the United States and to other countries except Germany.
The following differences, however, appear to exist:
- 1.
- American exports are admitted to Iran subject to the production of import permits; these permits are based upon export certificates showing the prior export of Iranian products of at least equivalent value. German exports to Iran are not subject to these requirements.
- 2.
- For import permits covering American exports to Iran a percentage, now 15%, of the value of the invoices must be paid, whereas it does not appear that an equivalent charge is exacted for “import compensation permits” issued under the terms of the Irano-German convention.
- 3.
- Import permits for American exports to Iran are issued only up to 85% of the value of the export certificates produced, whereas no such limitation is imposed on German exports to Iran.
From press accounts of the Irano-German Convention which have come to the attention of the Legation, there is a strong likelihood that an undivulged subsidiary agreement has been reached between the Iranian and German Governments by which the trade of these two countries is to proceed by barter. In consequence, it is believed that this trade is intended to balance, although the Convention contains no specific provision that it should do so.
The actual handicap under which American trade and the trade of other countries suffers as compared with German trade is probably [Page 397] not serious, an opinion which is supported by the fact that no American exporters to Iran, or Iranian importers of American goods, have thus far indicated to the Legation any sign of displeasure at the terms of the Convention. The reason for their lack of interest may perhaps be found in the circumstances that a large proportion of the imports from Germany into Iran is not commercial imports in the ordinary sense, but consists of machinery and equipment for the Government and for the establishment of Iranian industries.
A question of principle, however, is involved, and the Legation is informed that on this basis the Belgian, British, Czechoslovak and French Legations in Teheran have been instructed by their respective Governments to make representations to the Iranian Government. A copy of the British note to the Iranian Minister of Foreign Affairs is enclosed herewith.39
It may be noted that Article XVII of the Convention is easily terminable under the terms of Article XVIII. There is attached a suggested draft39 of a note to the Iranian Foreign Minister which is respectfully submitted for the Department’s approval. It is more specific than the British note, which may be thought to err on the side of over-simplicity.
Before the present despatch was typed, the Legation sent the draft to Vice Consul Crain for his comments.
Mr. Crain questioned whether there is not a possibility that importers of German goods may have to pay for “import compensation permits” a sum corresponding to the 15% charge for import permits, which does not appear in the regulations. The Legation agrees that undisclosed stipulations may exist which either compensate for or narrow the field of the discrimination, but it seems to have no choice but to base its conclusions and recommendations upon the known terms of agreement.
Mr. Crain adds:
“The Iranian defense, if any is offered, for not charging 15% of the invoice value in the case of importers of German goods may be that exporters of Iranian goods to Germany do not receive the bounty which exporters receive in the case of exports to other countries.”
This point appears to be well taken. The Iranian Government might say: “We do not have to charge 15% of the invoice value of imports because we do not have to pay 10% of the value of exports.” It might even go so far as to add: “We do not have to operate this system with respect to our trade with Germany because that trade is in balance.” The answer to the first statement would seem to be that notwithstanding any principle of compensation involved, i. e., if we pay a bounty [Page 398] on our exports the money must come from somewhere, and it might as well come from imports, the system places a handicap upon American exports to Iran to which German exports are not subject. The second statement would amount to an absurdity so far as the trade with the United States is concerned because the balance of that trade is favorable to Iran.
Mr. Crain agrees that as a matter of principle we should present our views to the Foreign Office.
Respectfully yours,