The Secretary of State to the Chargé in Estonia (Leonard)
Sir: Reference is made to the Legation’s despatches Nos. 179 and 180 of May 27, 1937, and No. 236 of August 19, 1937,23 and to previous correspondence relative to the possible negotiation of a trade agreement between the United States and Estonia.
The proposals submitted by the Estonian Government and transmitted to the Department with the despatches referred to above have been given careful study by the interdepartmental trade-agreement [Page 272] organization. These studies have revealed that the commodity trade between the two countries is such as to make a trade agreement between the two countries feasible. However, it appears that the position thus far taken by the Estonian Government on certain aspects of the general treatment to be accorded to American commerce (particularly with reference to quotas and exchange control) does not assure us that on its part that Government is willing to grant us substantially nondiscriminatory treatment, an essential condition to the conclusion of a trade agreement. The interdepartmental Committee on Trade Agreements has, therefore, approved the continuation of discussions with the Estonian Government looking toward the initiation of formal negotiations, provided that a satisfactory understanding can be reached with Estonia on the basis for the negotiations. As has been indicated in previous instructions to you, such an understanding would necessarily be based upon the principle of non-discriminatory treatment.
There are enclosed for your information and guidance two copies of a report24 submitted to, and approved by, the Committee on Trade Agreements with reference to the possible negotiation of a trade agreement with Estonia. The conclusions and recommendations expressed in the report are only of a preliminary character, since the final form and content of a trade agreement would have to be determined by the extent to which Estonia is willing to meet our viewpoint and by any relevant facts which may be brought out in briefs and oral statements submitted by interested parties to the interdepartmental trade-agreements organization prior to the initiation of formal negotiations. It is believed, however, that the report will be useful to you as an indication of what, in general outline, would be considered as a satisfactory agreement by this Government. You will, of course, wish to use some of the material contained in the report in your discussions with the Estonian officials. However, you should bear in mind that, in this preliminary stage of discussions, our objective is primarily to work out an understanding on fundamentals and that matters of detail should, in general, be left to be worked out in the formal negotiations.
In taking up the subject of a trade agreement with the Estonian authorities, you should say that the Government of the United States has given the most careful consideration to the Estonian proposals and that an exhaustive study has been made of Estonian-American commercial relations. You should express the Department’s appreciation of the courtesy of the Estonian Government in deferring its notice of intention to modify the present commercial treaty in order [Page 273] to permit the completion of these studies, and the Department’s regret that it has not been possible to reply to the Estonian proposals at an earlier date. The delay in making a reply has been occasioned by the fact that the Department has been concurrently studying the possibility of undertaking negotiations with a considerable number of other countries.
The Department desires that you convey the following observations to the Estonian authorities with specific reference to the proposals made by the Estonian Government.
The Government of the United States shares the desire of the Estonian Government that the trade between the two countries be expanded as much as possible. To that end, it would be willing to enter into negotiations with Estonia for the reciprocal exchange of commercial concessions in a trade agreement, provided that an understanding can be reached prior to the initiation of formal negotiations as to the general treatment which will be accorded in each country to the commerce of the other. The Department has, therefore, authorized you to conduct the necessary discussions with a view to arriving at such an understanding.
From the viewpoint of the United States, the most important aspects of the general treatment to be provided for in a trade agreement would be those concerned with unconditional most-favored-nation treatment in customs matters and with the application of the principle of equality of treatment to quotas, and exchange control. While the Government of the United States does not consider it necessary that the exact text of provisions regarding these matters be agreed upon during preliminary conversations, it does desire that an understanding be reached as to the general basis upon which the negotiations will proceed and believes that the Estonian Government is probably of the same view.
By way of introduction to a discussion of these subjects, you should point out that the United States at present accords to Estonia all of the advantages given to the most-favored-nation, the Republic of Cuba excepted, and that it is the policy of the United States to continue extending these advantages to Estonia, regardless of whether the present treaty continues in force, provided that Estonia accords non-discriminatory treatment to the commerce of the United States. The rates of duty specified in the fifteen trade agreements, the benefits of which are extended to Estonia, apply to goods accounting for approximately 20 percent of total dutiable imports into the United States. These benefits, coupled with the fact that the United States imposes no quantitative restrictions upon the admission of Estonian goods nor [Page 274] restrictions upon the transfer of payments therefor, provide a broad basis for the development of a market in this country for Estonian goods.
The Government of the United States appreciates that the Estonian Government is not now in a position to permit unrestricted imports and it desires, in general, only a guarantee that such restrictions and regulations as the Estonian Government may see fit to impose upon imports will not operate to the disadvantage of this country as compared with third countries.
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It is, of course, highly desirable that an agreement be concluded, if possible, prior to May 22, 1938. Therefore, if it appears at all possible that a satisfactory understanding on basic principles can be reached with the Estonian Government as a result of your preliminary discussions, you should consult the Department by telegraph with reference to the details of any counter-proposals made by the Estonian authorities. If, on the other hand, the Estonian Government displays little willingness to meet the Department’s views on the points which have been indicated as essential, it may be preferable for you to transmit to the Department by mail any counter-proposals which are made to you. In determining which procedure to follow, you should bear in mind that a complete understanding with regard to possible concessions is not essential to the issuance of a preliminary announcement that negotiations are under contemplation. However, the Department would not wish to make such an announcement unless discussions with Estonia had progressed sufficiently to indicate substantial possibility of successful negotiations.
Very truly yours,