The Ambassador in Germany (Dodd) to the Secretary of State

No. 3777

Sir: I have the honor to submit an account of the negotiations which have been in progress during recent weeks between the German subsidiaries of certain American oil companies and the competent German officials relative to the extension of the system of special inland accounts for cotton barter with the United States to include importation of American oil. Through various despatches from the Consulate in Bremen, the Consulate General in Berlin, and the Embassy, the Department has been informed of this procedure as well as of the German Government’s position in refusing to apply it to imports of commodities other than cotton on the ground that if such treatment were permitted on a large scale it could not be sufficiently controlled to eliminate the possible occurrence of practices which might violate the specifications laid down in the Treasury Department’s ruling of December 23, 1936. It was feared that in the event of such an occurrence the entire procedure for the importation of cotton might be disrupted.

It now appears, however, that as a result of the reasonably smooth operation of the arrangement as applied to cotton, the German authorities [Page 344] are ready to open it to other goods—at the present juncture, oil—provided they receive assurance that the procedure contemplated would meet with the approval of the competent American officials.

The companies concerned in the project under reference are the Deutsch-Amerikanische Petroleum Gesellschaft, the Deutsche Vacuum Öl A. G., and the Atlantic Refining Company of Germany, G. m. b. H., subsidiaries respectively of the Standard Oil Company of New Jersey, the Socony Oil Company of New York, and the Atlantic Refining Company of Philadelphia, which are the principal American companies now doing business in Germany. The actual conversations with the German authorities have been carried on in the main by Mr. Archdeacon, European representative of The Bankers Trust Company of New York, and by Mr. Rohdewald, a director of the Reichskredit-Gesellschaft, of which banks the oil companies are clients.

In broaching the question of extending the system of cotton barter to oil, the companies appear to have been motivated by the liquidation as of the end of this year of their Aski accounts over which they had hitherto been importing oil. This has been possible since the contracts had been concluded, it is understood, prior to July 11, 1936, the date after which all Aski contracts and/or compensation business was prohibited. Unless some other method were devised of transferring their accounts receivable created by oil importation, the companies were faced by the alternative, according to their own statements, of withdrawing completely from Germany, thus sacrificing in large part their considerable investments here and also relinquishing the market to their English, Dutch, and other foreign competitors, who through the clearing or payment agreements between Germany and their respective governments are able to continue to obtain payment for oil imports.

The background and terms of the proposal advanced by the oil companies as well as the conditions stipulated by the German authorities upon which their acceptance is made contingent are set forth in the four enclosures to this despatch.33 The first enclosure is an excerpt from a letter written by Mr. Archdeacon to the Embassy, explaining the interest of the oil companies in adopting an arrangement for oil imports similar to that established for cotton. The second is a copy of a memorandum, prepared by Mr. May, the Treasury Attaché, for his department and forwarded by the Embassy with his approval, describing in concise language the essential practical nature of the plan in contrast to that in effect for cotton. The third is a translation (prepared by Mr. Archdeacon) of the formal written proposal submitted by The Bankers Trust Company and the Reichskredit-Gesellschaft to the appropriate officials of the Ministry of Economics for [Page 345] their consideration and reply. The final enclosure is the German text and translation (made by the Embassy) of the Ministry of Economics’ response signed by Dr. Landwehr, the chief of that section of the Reichsstelle für Devisenbewirtschaftung having to do with foreign exchange in so far as it concerns trade.

In view of the self-explanatory character of these communications and inasmuch as their perusal seems in any event necessary in order to obtain a full understanding of the negotiations to date, it is not considered desirable to enter into a detailed outline of their contents. For purposes of convenience, however, it may be stated in brief summary that the German authorities have expressed their willingness to permit the importation of oil by the companies named above in accordance with a procedure corresponding closely to that laid down for cotton barter, provided that the American authorities give assurances that such transactions would not lead to the invocation of the anti-dumping clauses of the Tariff Act. It is understood in principle that the same treatment would also be extended subsequently to such other oil companies as might wish to participate in this business.

It will be observed that the proposed oil barter plan differs from the cotton arrangement in three principal respects. First, unlike cotton, there is no world market price for oil. In the opinion of the interested oil companies and also apparently of the German Government, a uniform price basis can nevertheless be established through utilization of the German price control mechanism on the one side and on the other through submission of export price lists by the American Oil companies to the Bureau of Customs in Washington accompanied by the guarantee that these prices will be strictly adhered to.

Secondly, although it is proposed to render the same discount of about 25% in the reichsmark, the method contemplated of arriving at the amount to be paid over the price at which the American seller disposes of the oil in Germany varies somewhat from that followed for cotton, according to which a uniform increase of 33⅓% is added to the world market price.

Finally, contrary to the circumstances surrounding cotton, the American oil producers would sell oil to the American merchants desiring to import German goods on the express condition that it be resold only to the respective German subsidiaries of the oil companies. It will be noted that Mr. May has raised the question in his memorandum whether or not such transactions would constitute valid sales to American importers of German goods rather than simply the purchase by them of blocked credits in Germany.

Comparing the reply of the German authorities with the companies’ proposal, it will be noted that the principal change in the suggested procedure is to be found in connection with the measures to be adopted [Page 346] to prevent any infringement of the opportunities for bartering German goods against cotton which might arise from admitting another commodity to this special treatment. The oil companies suggested that no American importers already participating in cotton barter deals be permitted to establish special oil inland accounts, a measure which it was thought would preclude all possibility of diverting business from cotton to oil. The German authorities, however, elected to impose limitations on the basis of the commodities against which oil may be imported. They are of the opinion, it is understood, that if importers who had engaged in cotton transactions were excluded, the number eligible for the oil accounts would be reduced to such an extent as to make oil barter unnecessarily difficult, if not quite impracticable. They therefore decided to prohibit exchange of oil for certain types of goods which were being exported against cotton, and to put this into effect stated that two clearly defined lists of commodities would be compiled for cotton and oil barter respectively. This appears to have the additional advantage of broadening the base of German exports to the United States.

The oil companies welcome, of course, this alteration of their plan, seeing in it the possibility of widening their scope of business. They attached particular importance to the third to last paragraph of Dr. Landwehr’s letter (enclosure 4) in which, following the principle common in Germany’s system of economic control, he says that when after careful investigation circumstances seem to warrant it, he would be prepared to make exceptions to the rule regarding commodity lists and to permit in specified cases the export of goods on the cotton commodity list through the use of oil inland accounts, or vice versa. The oil companies’ representatives maintain that opportunities for export of a number of items on the list of goods for which it has hitherto been permitted to barter cotton have been exploited either insufficiently or not at all. They state further that they have been given to understand that Dr. Landwehr is ready to exercise his discretionary power in their favor in such instances.

During the course of these negotiations, Mr. Archdeacon has several times called to talk over the matter with Mr. May and with various members of the Embassy. He was assured that the Embassy is, of course, ready to render him every possible assistance by way of informal discussion of the different aspects of his project. At the same time occasion was more than once taken to point out that whereas, in so far as the Embassy is aware, the Treasury Department’s ruling of December 23, 1936, was not restricted to any one commodity but was general in application, the decision as to whether or not the suggested oil barter arrangements complied with the terms of that ruling appeared to rest with the appropriate officials of the Treasury [Page 347] Department. It seemed, therefore, that the matter should be placed before these officials by representatives of the American oil companies in Washington. Mr. Archdeacon showed full understanding of these circumstances and said that the oil companies would approach the Treasury Department probably during the month of January. He expressed the view, however, that it might be helpful if the appropriate authorities in Washington were informed through the Department of State of the background of the proposed plan for oil barter and were familiar with the position of the German Government in this regard.

With this purpose in mind, Mr. Archdeacon arranged a luncheon several weeks ago at which in addition to the Counselor of Embassy and one of the secretaries, the following were present:

  • Director Brinkmann, of the Reichsbank.
  • Ministerialrat Dr. Landwehr, of the Reichsstelle für Devisen bewirtschaftung within the Ministry of Economics.
  • Dr. Davidsen, of the Commercial-Political Section of the Foreign Office.
  • Herr Raab, Head of the Control Board for Mineral Oil (Mineralölüberwachungsstelle).
  • Director Engelbrecht and Herr von Puttkammer, of the Deutsche Vacuum Oel A. G., Hamburg. Director Spangenberg, of the Deutsch-Amerikanische Petroleum Gesellschaft, Hamburg.
  • Mr. Frysinger, of the Atlantic Refining Company of Germany G. m. b. H., Hamburg.
  • Director Rohdewald, of the Reichs-Kredit-Gesellschaft, Berlin.

The main points touched upon during the course of the discussion between the guests at the luncheon are embodied in the different enclosures to this despatch. It is of interest to note, however, that in contrast to the more optimistic outlook voiced by the oil companies’ representatives, the German officials seemed to be of the opinion that by far the major proportion of exports to be made against oil would consist of products for the own requirements of the oil companies—such as drums, special types of machinery, etc.—which it appear have been imported regularly by the oil companies in the past and which are said to represent considerable business. They were quite candid, however, in indicating their impression that under present conditions the American market was not ready to absorb German goods to any appreciable extent beyond the current level of exports. They nevertheless expressed approval of the proposed oil barter arrangement as the only method by which imports of American oil could be maintained at all.

In general, those present seemed confident that the arrangement under consideration would not conflict with the Treasury Department’s ruling. At the same time, the German officials were explicit [Page 348] in their declaration that under no circumstances would they take definite action until they were presented with definite confirmation of this belief from the appropriate authorities in Washington. Mr. Gilbert once again took the opportunity to make the Embassy’s position clear, repeating the observations already consistently conveyed to Mr. Archdeacon. While they expressed recognition of this attitude, the German officials said that it would be appreciated if the Embassy would transmit to the Department for background purposes a description of the negotiations thus far undertaken and of the German Government’s position which they had thus informally explained. At their suggestion, a copy of Dr. Landwehr’s reply to Mr. Archdeacon’s memorandum was given by him to the Embassy.

It is hoped that the Department will agree with the line followed by the Embassy in this matter. In view of the circumstances outlined above, any information concerning the course of developments in Washington would be most helpful and it would be appreciated if the Department should find it feasible to give the Embassy the benefit of its reaction.

Respectfully yours,

William E. Dodd
  1. None printed.