The German Embassy to the Department of State28



I. The German Government shares the opinion expressed in the Aide-Mémoire of the Department of State of July 21 of this year that the most favored nation treatment is the best and safest foundation of international trade. The German Government has advocated and adhered [Page 339] to this opinion for decades. The application of the principle of most favored nation treatment, however, finds its limitation in the necessity of self-preservation of the nation. If Germany to-day, in her international trade practice, does not put this principle into effect fully it is not because she desires to replace it by a better, so-called “bilateral system”; it is because the German Government against its desire, has been compelled to take recourse to emergency measures the drawbacks of which it fully realizes and the detrimental effects of which have repeatedly and clearly been pointed out by Reichsbankpräsident Dr. Schacht, the author of the so-called “New Plan”. Moreover, a fundamental conflict between the “bilateral system” supposedly pursued by Germany and the system of most favored nation treatment does not exist. There can be no such conflict if for no other reason than that Germany has not abandoned the system of most favored nation treatment with tariff stipulations applied also by the United States by virtue of the Act of June 12, 1934.29 In trade agreements with more than fifty countries Germany, even to-day, is still bound to the principle of unconditional most favored nation treatment, and this is true also in the case of those States with which Germany has concluded clearing and compensation agreements. It need not be discussed whether the opinion according to which the most favored nation treatment extends also to the allotment of foreign exchange—if only within a percentage of a so-called “representative period”—is or is not in conformity with the concept of unconditional most favored nation treatment as it presents itself to-day according to its historical development in science and practice. In fact, the United States itself, in all of the trade agreements concluded since June 1934, has not insisted upon an unrestricted application of most favored nation treatment, within this meaning. In her present economic emergency Germany also, notwithstanding her recognition of the principle of a representative period, could not make contractual promises concerning foreign exchange certificates without restricting this principle.

The causes of the present emergency are known to the Government of the United States. They lie, first of all, in the disastrous consequences of the Versailles Treaty forced upon Germany, which deprived Germany of important bases of her raw material supplies and at the same time imposed upon her unbearable financial obligations. To these political payments was added the pressure of those governments of other countries which were willing to open their markets for German goods only under special conditions. This was the case principally with countries with which Germany had a favorable trade balance [Page 340] and which now exercised pressure for the purpose of satisfying their capital demands out of the German export surplus. It was under this pressure that the clearing agreements originated which resulted in binding those amounts which Germany had formerly been able to use for making purchases in countries with which it had an unfavorable trade balance, as for instance the United States. The systems of quotas, which are to-day universally applied, of clearings, compensation etc. were not invented by Germany but were forced upon her. The German Government is entirely willing to adjust its trade policy to the principle of free exchange of goods as soon as the necessary pre-requisites have been established in the other parts of the world, namely, within the field of general currency stabilization, solution of the debt problem, and equal access to raw materials. The pre-requisites cannot be produced by Germany in her present financial and economic situation. They must be brought about by those States that have disturbed the equilibrium within the other spheres.

II. The German Government regrets that the United States up to now has not seen its way to co-operate in finding an interim solution which would have furnished a practical contribution to the realization of its repeatedly-declared intention of increasing international exchange of goods.

With regard to the statement in the Aide-Mémoire that equal opportunity is granted in the United States to the trade of other countries, provided these countries, on their part, do not discriminate against the United States, the German Government calls attention to the fact that Germany does not discriminate against the United States. Germany is ready and willing to accord to the United States the same favorable treatment as it does to any other country. Moreover, with respect to the allotment of free foreign exchange Germany, even now, and almost throughout, accords to the United States more favorable treatment than to other countries.

On the other hand, however, Germany considers itself discriminated against by the United States. The United States grants most favored nation treatment to certain other countries which likewise impose restrictions upon their imports and payments abroad; and these countries, on their part, have not been obliged to bind themselves to an unlimited application of the principle of most favored nation treatment insofar as it refers to the allotment of foreign exchange within a percentage of a representative period. The German Government cannot comprehend why the United States, only in its relation to Germany, makes the granting of most favored nation treatment dependent upon Germany’s putting this principle into effect at once and without restriction.

[Page 341]

The German Government which has expressed far-reaching acknowledgment of the principles of American trade policy, has repeatedly endeavored to place the trade relations between Germany and the United States upon a new foundation guaranteeing the extension of their mutual exchange of goods. Following its suggestions of March 1936,30 and lastly of May 31, 1936,31 the German Government in its reply32 to a questionnaire32 submitted by the American Government made constructive proposals to which it has up to now received no reply. These proposals are still being considered by the German Government as a basis for negotiations.

III. With regard to the statement in the Aide-Mémoire that a system to further exports such as the German one interferes with normal competition it should not be forgotten that international competition primarily was disturbed by the devaluation of currencies undertaken by several governments. If, however, it is said in the Aide-Mémoire that the German Government is in a position to place any merchandise on markets of third countries on a competitive basis by discriminate, direct subsidies and thereby to disturb the business of other countries on these markets, attention is again called to the following facts: The means which are raised through the voluntary self-aid action of German industry and commerce serve the purpose of equalizing partially the currency advantage; an advantage which from the very viewpoint of equality of competitive conditions is unjustified. It was from this point of view that the self-aid action came into existence, and in this sense it is applied in practice. In individual cases the seller of German merchandise may have utilized the self-aid method, and at the same time the buyer of the merchandise may have taken an advantage which, for instance, he obtained by paying with Aski-Marks, upon the quotation of which the German Government unfortunately has no influence. Through the combination of these two factors a reduction of the price of the German merchandise may have been brought about which exceeded the currency advantage of the country of the buyer or that of a third country competing with the German merchandise. The German Government, however, has endeavored to follow these cases—which unquestionably are difficult to control—and to take appropriate steps for their immediate discontinuance. In any case, it is the German Government’s earnest concern that the self-aid action of German commerce and industry retain the character of a contribution to overcome the currency [Page 342] advantages of other countries brought about by devaluation, and that it does not go beyond that scope.

IV. With respect to the statistics concerning the exports of the United States, Germany and other countries to Brazil, the following observations are to be made:

The exports of the United States to Brazil, as a whole, have increased since 1934, even if the percentage share of the United States in the total imports of Brazil has become somewhat smaller. If in the case of individual goods imports from the United States have decreased, this decrease was not caused by an increase of German imports into Brazil but rather by an increased import of these goods on the part of other countries with which, it may be mentioned, the United States has most favored nation agreements. This, for instance, is the case with sewing machines from Canada, railroad equipment, locomotive engines and railroad cars from Great Britain and Belgium. Moreover, more than half of the total imports of Brazil from the United States consists of goods which Germany does not export to South America at all or, at most, only in comparatively limited quantities. While the United States exports to Brazil automobiles, gasoline, petroleum, mineral oils, rubber materials, radio sets, tin plates, fruits, fruit and vegetable juices, tar, wheat, etc., German exports to Brazil comprise quite different categories of goods, as coal, pharmaceutical preparations, oats, hops, skins, leather, aniline dyes, etc.

The figures quoted in the Aide-Mémoire with respect to the percentage share of the German Reich and the United States in Brazilian imports, alone, do not present a correct picture, inasmuch as they start only with the imports since 1934. In order to determine the question whether German competition, in fact, has forced back American imports to Brazil it is important to consider also the import figures of Brazil during the years preceding the World War. They present the following picture:

Shake of Germany and the United States in Brazilian Imports in Percentages of Total Imports:

Germany U. S. A.
1907 15,3 12,8
1908 14,9 12,1
1909 15,6 12,4
1910 15,9 12,8
1911 16,8 13,3
1912 17,2 15,6
1913 17,5 15,7.

Within the seven years before the World War Germany’s share in Brazilian imports therefore was always larger than that of the United [Page 343] States. Only as the result of the World War and the conditions existing during the post-War period were German imports forced back, and it was only gradually that they again increased. Contrasting the German-Brazilian exchange of goods during 1913, when they amounted to approximately 447 Million Marks with that of 1936 amounting to approximately 265 Million Reichsmarks, it is readily seen that there can be no mention of an inappropriate increase of German foreign trade with Brazil.

V. The German Government has noted with regret that German economic activity in Latin-American countries is constantly subjected to attacks and insinuations both in the American Press and by private economic organizations which attacks have no foundation in fact. The German Government believes to be in accord with the Government of the United States that a just balance of the economic interests of Germany and the United States on the markets of third countries must be counted among those factors which can serve international economic development and the establishment of universal peace, and that this balance will be achieved if the economic competition of the two peoples is guided by fairness and mutual respect.

  1. Handed to the Under Secretary of State by the German Ambassador on October 21, 1937.
  2. 48 Stat. 943.
  3. See memorandum from the German Embassy, March 30, 1936, Foreign Relations, 1936, vol. ii, p. 222.
  4. Not found in Department files.
  5. See memorandum from the German Embassy, June 24, 1936, Foreign Relations, 1936, vol. ii, p. 236.
  6. See memorandum from the German Embassy, June 24, 1936, Foreign Relations, 1936, vol. ii, p. 236.