The Assistant Secretary of State ( Sayre ) to the Minister in Greece ( MacVeagh )

No. 392

Sir: Upon careful consideration of the facts relating to the present state of our trade relations with Greece, the Department has concluded that an effort should be made to replace the exchange of notes between the United States and Greece, of December 9, 1924,2 which provides for unconditional most-favored-nation treatment in customs [Page 408] matters, with an agreement calculated to assure equitable treatment in respect of all forms of trade control.

Accordingly, there is enclosed the text of a note which it is desired that you address to the Greek Minister for Foreign Affairs at an early date. As you will perceive, the note explains the salient features of the commercial policy of this Government under the Trade Agreements Act of June 12, 1934,3 and proposes that the exchange of notes of December 9, 1924, be replaced by a modus vivendi embodying the liberal principles of this policy.

The draft modus vivendi to be submitted with this note is also enclosed, as are several copies of the publication of the United States Tariff Commission entitled Changes in Import Duties Since the Passage of the Tariff Act of 1930. Copies of this publication should accompany the note to the Minister for Foreign Affairs.

Your attention is drawn to the provision on exchange control which is contained in the paragraph numbered 5 of the modus vivendi and which differs from the provisions on exchange control contained in other agreements relating to trade which this Government has recently made with foreign countries. The new provision is intended to prevent exchange control from being used in such a way as to render the most-favored-nation and quota provisions in our agreements and treaties ineffective. It has recently been decided to include in our trade agreements and commercial treaties, wherever possible, an article which provides, in effect, that the country which establishes or maintains exchange control shall (1) satisfy promptly all applications for exchange to pay for imports admitted into the country and originating in the other country and (2) accord unconditional most-favored-nation treatment in respect of exchange rates and fiscal charges affecting payments for imports from the other country. It has been decided, however, to use a less stringent provision in the proposed modus vivendi. It is believed that the latter provision would be sufficient to use as a basis for protest in case Greece should grant less favorable treatment, with respect to exchange, to payment for importation of any American product than is granted to payment for a similar product of any third country.

It is believed that, apart from the provision on exchange control, both the note and the modus vivendi are self-explanatory and therefore require no comment by the Department at this time. If either document contains passages that are obscure to you, or statements or provisions which in your opinion should be altered, you should withhold action and consult with the Department by telegraph.

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Immediately upon presenting the note to the Minister for Foreign Affairs you should inform the Department of your action by telegraph so that it may transmit a copy of the communication and of its enclosures to the Greek Minister at Washington.

There is also enclosed, for your strictly confidential information, a copy of a preliminary survey4 with respect to the possibility of a reciprocal trade agreement with Greece, in connection with which your attention is called to the implication in the first sentence of the final paragraph of the note that Greece may have proposals of its own to make on this subject. While it is not anticipated that this Government will in the near future take the initiative in the matter of such an agreement, it was recently decided to carry out the recommendation to create a country committee for Greece and Turkey, and such a committee, composed of experts representing the Departments of State, Treasury, Agriculture and Commerce, and the Tariff Commission, has been constituted. This committee will function as a subcommittee of the interdepartmental committee on trade agreements and is charged with the responsibility of doing the technical work in preparation for eventual trade agreement negotiations.

Very truly yours,

Francis B. Sayre
[Enclosure 1]

Note To Be Addressed to the Cheek Minister for Foreign Affairs

Excellency: I have not failed to inform my Government of the contents of the Royal Ministry’s Note Verbale No. A/22175, of November 18, 1936,4 relative to the trade relations between Greece and the United States.

My Government has noted the statement that the Royal Hellenic Government is disposed to accord every facility of a nature to contribute to the development of trade between the two countries to the extent that the financial situation of Greece, from the viewpoint of foreign exchange, will permit. I have been instructed to assure you in reply that it is the earnest desire of the Government of the United States to foster and to extend the mutual trade interests of our two countries.

My Government has, at the same time, instructed me to explain to Your Excellency the salient features of the commercial policy of the Government of the United States and to lay before you a proposal which is in harmony with this policy and with the mutual desire of our two Governments to protect and to extend the trade relations [Page 410] which have helped to unite Greece and the United States in friendship for so many years.

On June 12, 1934, the Congress of the United States enacted legislation authorizing the President to enter into reciprocal trade agreements with other countries. During the intervening period agreements have been made with sixteen countries. Only recently, this legislation was renewed by the Congress.

The commercial policy of the United States Government, which is expressed in the sixteen agreements concluded under the Trade Agreements Act of June 12, 1934, has a twofold objective. On the one hand, it aims to reduce tariff barriers and the many other impediments against which international commerce in recent years has been forced to struggle. On the other hand, it seeks to reduce and progressively to eliminate the maze of discriminatory and arbitrary practices which now distort and strangle trade and to substitute in their stead an order based upon the principle of equality of treatment.

It is now more than seven years since the onset of the world crisis. During this period Governments have piled one trade obstruction on another and have created one discrimination after another until commerce between nations has been reduced to only an insignificant fraction of what man’s productive ability on the one side and his wants on the other would make possible under a different order.

The United States Government has engaged itself in a determined effort to reverse this trend. It is convinced that the commercial policies pursued by nations in recent years can never lead to a workable international system, but only to permanently large unemployment and to a lowered standard of living. It is convinced that in the critical situation in which the world is today enmeshed, peace and the spiritual and material welfare of the nations depend more than on any other development upon a lowering of trade barriers and a return to liberal commercial policies.

The method which the United States Government has adopted in its attack on the restrictions and discriminations choking trade consists in the conclusion of commercial agreements; with individual countries. In each of these agreements the United States grants to the other country reductions in its rates of duty on a selected list of products in which that country is particularly interested in return for a liberalization by that country of its tariff and other restrictions bearing upon a selected list of products of primary interest to the United States. That the reductions which the United States is making in its tariff schedules in connection with these reciprocal trade agreements are by no means merely nominal is evidenced by the fact that many [Page 411] have amounted to 50 percent of the existing rates, the maximum reduction authorized by the Trade Agreements Act.

Moreover, these reductions are not confined to a few products. The products on which the United States has reduced its duties in connection with the sixteen agreements already signed amount to 30 percent of its total dutiable imports. Thus, it should now be evident that the United States, by means of its trade agreements program, is making a contribution to the liberalization of world trade which is really substantial, and is engaged in a sincere attempt to provide leadership in the course which it is advocating not through exhortation alone but through the force of its own example.

A list of the changes in the import duties of the United States since the passage of the Tariff Act of 1930, most of which have come into being by virtue of trade agreements concluded under the act of Congress of June 12, 1934, is enclosed for the information of the Royal Hellenic Government.

In conformity with this policy, reductions in duties proclaimed under trade agreements with foreign countries are extended immediately to the like articles of all countries in return for nondiscriminatory treatment of American commerce. Such proclaimed duties are withheld only from countries which discriminate substantially against American trade. To such countries a standing offer is extended to accord to them the benefits of the duties proclaimed under the trade agreements if they agree not to discriminate or in fact cease to discriminate against American trade in respect of all forms of trade control measures.

The reduction of trade barriers, however, cannot be expected of itself to re-establish conditions in which world trade can again prosper. Of equal importance in the eyes of the United States Government is that the trading nations of the world should cease from the many discriminatory practices which have brought international trade and payments to their present disordered state.

The United States considers that the experience of recent years has demonstrated unmistakably that the granting and seeking of exclusive preferences and the employment of devices to curtail or divert imports or to force exports, whether by agreements or by unilateral, arbitrary action, can never be made into a satisfactory system for the conduct of international trade. Through the discrimination which is their inevitable counterpart, these methods always invite and often compel retaliatory or defensive action, with the result that the expansion of trade which they may serve to obtain in one quarter is frequently offset by the losses which they entail in other quarters. Moreover, even the immediate advantages which they have appeared to hold out in practice have often proven illusory. Thus when the balance [Page 412] is cast, these methods are found to have conferred upon the trade of the nation or nations employing them no benefit whatever, or at best advantages which are meager and transitory, to compensate for the serious disadvantages and dangers which they comport.

In the opinion of the United States Government, the gravity of the dangers inherent in these narrow policies can hardly be exaggerated. Exclusive preferences and special advantages, whether obtained through agreement or by unilateral action, tend to force international commerce in the direction of bilaterally balanced exchanges. Thereby so-called “multiangular” trade, which is a natural result of diversities in the economic resources and structures, the stages of development and the consuming tastes of individual nations, is not only prevented from expanding in response to improved conditions within different countries but is forcibly reduced. An increasing share of the world’s commerce is thus forced to flow in uneconomic channels under the influence of artificial restrictions on the one hand and of artificial stimuli on the other. Uneconomic sources of supply are developed at the expense of sources from which like goods could be obtained more cheaply, the cost of imports is raised, standards of living are lowered and not only is the total volume of world trade diminished but the far-reaching dislocations effected in production and demand make its restoration increasingly difficult.

A striking example of how certain of these policies disturb the established channels of trade is to be found in the recent purchase, at the port of Bremen, of Greek tobacco in the amount of 500,000 pounds by an American firm that has long maintained a purchasing agency in Greece.

Grave as are the economic results of the anarchic conditions now prevailing in international commerce, the effect of current commercial policies on international relations generally is a cause for even greater alarm. Exclusive preferences, special advantages and the host of current discriminatory practices, through the irritating and often ruinous disadvantages at which they place the producers and traders of the nations discriminated against and through the adverse effect which they have upon employment, wage levels and standards of living, constitute one of the most important sources of international resentment and ill-will, progressively undermining the structure of peace.

The commercial policy of the United States Government is founded on the unshakeable conviction that for world trade to be restored, discriminatory practices must give way to equality of opportunity and treatment. The advantages to trade of the right to compete in all markets under conditions of equality were recognized in the formulation of the most-favored-nation clause which for three-quarters of a century has been incorporated in the commercial treaties of almost [Page 413] every nation. Even today, notwithstanding the anarchy into which international trade has fallen, the nations of the world are to be found still clinging to the principle of equality in their international treaties, a fact evidenced by the great number of most-favored-nation treaties now in existence and by the frequency with which the most-favored-nation clause is inserted in new treaties.

Yet the recognition which this great and abiding principle today receives is largely nominal and too often fails to reflect itself in practice. During the course of the depression there have come into use many new devices for restricting and diverting trade, either directly or through the control of the means of payment therefor, with the result that in many countries which formerly based their commercial policy on the most-favored-nation principle and which still employ the most-favored-nation clause, equality of commercial opportunity and treatment does not, in fact, exist. The claim has been advanced by some that since the most-favored-nation clause was developed and many of the existing most-favored-nation obligations were assumed in a time when tariffs were practically the only restriction placed upon trade, it can be considered as applicable in the main only to tariffs. Without seeking here to discuss the historical or legal bases for this view, the Government of the United States cannot help but feel that such a construction, by in fact denying equality of treatment, denies the fundamental purpose for which the most-favored-nation clause was formulated.

While the United States is fully aware of the difficulty of attempting under present conditions to establish for universal acceptance rigid definitions of the treatment which, under the various types of trade control other than customs duties, may properly be considered as constituting equal, or most-favored-nation, treatment, the United States is prepared, as a matter of policy, to accept the following arrangements as a substantial equivalent of non-discriminatory treatment in the application of the more important types of non-duty trade controls:

Quotas. With respect to quantitative restrictions on imports, an allotment to United States trade of a share of the total quantity of any article permitted to be imported equivalent to the proportion of the total importation of the article which the United States supplied during a previous representative period. By the term “representative period” is meant a series of years during which trade in the particular article under consideration was free from quantitative restrictions and discriminations and was not affected by unusual circumstances.

Exchange control. The United States Government believes that any form of control of foreign exchange in connection with commercial transactions should be administered in such a way as not to impair the operation of the principles of most-favored-nation treatment and quota allocation set forth above.

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Payments, Clearing and Compensation Arrangements. The Government of the United States feels that arrangements of this nature are essentially inimical to the principle of equality of treatment and to the spirit of the most-favored-nation clause, and it hopes that nations, being agreed upon the adverse effects of such arrangements upon world trade as a whole, will make every effort to eliminate them as quickly as possible when the compelling motives which may have caused resort to them shall have disappeared. In the meantime, the United States believes that the nations participating in these arrangements should apply their provisions in such a manner that they will disturb as little as possible the natural flow of international commerce.

Monopolies. If a government establishes or maintains a monopoly for the importation or sale of a particular commodity or grants exclusive privileges to an agency to import or sell a particular commodity, the United States believes that this monopoly or agency should not discriminate against the commerce of any nation but that it should accord to every nation a fair and equitable share of the market, as nearly as may be determined by consideration of price, quality, et cetera.

The application of this policy to existing conditions of trade between Greece and the United States suggests the desirability of a new agreement between the two States which would replace the exchange of notes of December 9, 1924. My Government therefore has the honor to propose the conclusion at this time of a modus vivendi embodying the liberal principles in support of which the commercial policy of the United States under the Act of Congress of June 12, 1934, was formulated.

Such an agreement, a draft of which is submitted herewith for consideration by the Royal Hellenic Government, would assure equitable treatment to the commerce of each State in the territory of the other, and thus would facilitate the presentation of any further proposals looking to the expansion of the trade between our two countries that either State might wish to suggest. For these reasons, and also because of considerations of broader import, which have been outlined above, it is the earnest hope of the Government of the United States that this proposal will prove acceptable to your Government and that it may be possible for our two countries to enter into a new commercial accord at an early date.

Accept [etc.]

[Enclosure 2]

Draft Modus Vivendi Between the United States and Greece

Sir: I have the honor to make the following statement of my understanding of the agreement reached through recent conversations [Page 415] held at Athens by representatives of the Government of the United States of America and the Government of the Kingdom of Greece with reference to the treatment which the United States of America shall accord to the commerce of the Kingdom of Greece and which the Kingdom of Greece shall accord to the commerce of the United States of America.

These conversations have disclosed a mutual understanding between the two Governments which is that:

In respect of import, export and other duties and charges affecting commerce, as well as in respect of transit, warehousing and other facilities, the United States of America will accord to the Kingdom of Greece and the Kingdom of Greece will accord to the United States of America, its territories and possessions, unconditional most-favored-nation treatment.
Accordingly, it is understood that with respect to customs duties or charges of any kind imposed on or in connection with importation or exportation, and with respect to the method of levying such duties or charges, and with respect to all rules and formalities in connection with importation or exportation, and with respect to all laws or regulations affecting the sale or use of imported goods within the country, any advantage, favor, privilege or immunity which has been or may hereafter be granted by the United States of America or the Kingdom of Greece to any article originating in or destined for any third country, shall be accorded immediately and unconditionally to the like article originating in or destined for the Kingdom of Greece or the United States of America, respectively.
In the event either country establishes or maintains import or customs quotas, or other quantitative restrictions, the share of the total permissible importation of any product of the other country shall be not less than the share in the trade in such product which such other country enjoyed in a previous representative period.
Neither the United States of America nor the Kingdom of Greece shall regulate the total quantity of importations into its territory or sales therein of any article in which the other country has an interest, by import licenses or permits issued to individuals or organizations, unless the total quantity of such article permitted to be imported or sold, during a quota period of not less than three [six]6 months, shall have been established, and unless the regulations covering the issuance of such licenses or permits shall have been made public [at least one month]6 before such regulations are put into force.
If either country establishes or maintains any form of control of the means of international payment, such control shall be administered so as not to influence to the disadvantage of the other country the competitive relationships between articles originating in such other country and similar articles originating in third countries, and so as not to impair the operation of any other provision of this Agreement.
The advantages now accorded or which may hereafter be accorded by the United States of America or the Kingdom of Greece to adjacent countries in order to facilitate frontier traffic, and advantages resulting from a customs union to which either the United States of America or the Kingdom of Greece may become a party, shall be excepted from the operation of this Agreement.
It is understood that the advantages now accorded or which may hereafter be accorded by the United States of America, its territories or possessions, the Philippine Islands, or the Panama Canal Zone to one another or to the Republic of Cuba shall be excepted from the operation of this Agreement.
Nothing in this Agreement shall be construed as a limitation of the right of either country to impose on such terms as it may see fit prohibitions or restrictions (1) imposed on moral or humanitarian grounds; (2) designed to protect human, animal or plant life; (3) relating to prison-made goods; (4) relating to the enforcement of police or revenue laws; or (5) relating to the control of the export or sale for export of arms, ammunition, or implements of war, and, in exceptional circumstances, all other commodities.
The present agreement shall replace the exchange of notes between the Government of the United States of America and the Government of the Kingdom of Greece of December 9, 1924, and shall become operative on this day of. . . . . . . , . . . . . , and shall continue in force until superseded by a more comprehensive commercial agreement or by a definitive treaty of commerce and navigation, or until denounced by either country by advance written notice of not less than thirty days.

Accept [etc.]

  1. Foreign Relations, 1924, vol. ii, pp. 279281.
  2. 48 Stat. 943.
  3. Not printed.
  4. Not printed.
  5. Change recommended by the Minister in Greece in telegram No. 49, June 22, noon, and approved in Department’s reply No. 32, July 7, 3 p.m.
  6. Change recommended by the Minister in Greece in telegram No. 49, June 22, noon, and approved in Department’s reply No. 32, July 7, 3 p.m.