711.652/82
The Secretary of
State to the Ambassador in Italy (Phillips)
No. 56
Washington, March 17, 1937.
Sir: Reference is made to the Italian draft
of the proposed new Treaty of Friendship, Commerce and Navigation
enclosed with your despatch No. 126 of December 18, 1936, and to
your despatch No. 129 of December 21, 1936,9 enclosing a draft of
proposed trade agreement.
We concur with your view that apparently one of Italy’s principal
interests in treaty negotiations is in laying the foundation for a
trade agreement to which it attaches more immediate importance than
to the commercial treaty; and we are pleased to note that,
nevertheless, the Italian delegation has agreed to the principle
that commercial treaty negotiations shall precede trade agreement
negotiations and be conducted apart therefrom. In view of this and
the fact that the fundamental principles upon which we hope to base
our commercial relations with Italy are those expressed in Article
VIII of the proposed commercial treaty, we deem it of first
importance, as indicated in my telegram No. 16 of February 17, 1937,
to reach a satisfactory agreement in respect of that article.
Accordingly, a redraft of Article VIII, with the exception of the
paragraph relating to exchange which will be forwarded to you as
soon as possible, has been prepared and is enclosed herewith for
presentation to the Italian Government.
In presenting the draft you may say that study is being given to the
other articles of the Italian proposal, but that because of the
importance
[Page 438]
of Article VIII
to future trade relations we are hopeful that it may have first
consideration.
There is also enclosed a memorandum which analyzes in detail the
differences between our original draft and the Italian draft of
Article VIII and explains the treatment accorded those differences
in our counter proposal. In several instances, specific suggestions
are made in the memorandum with respect to action to be taken by the
Embassy. You are requested to consider such suggestions as if they
were part of this instruction. Otherwise, the Embassy may make such
use of the memorandum as it may deem appropriate and expedient.
Our proposal in respect of Article VIII is the result of diligent
effort to find a way whereby the foreign trade policies of the two
countries can be reconciled and we are hopeful that it may be
acceptable to Italy.
Very truly yours,
For the Secretary of State:
Francis B. Sayre
[Enclosure 1]
Redraft of Article VIII
With respect to (1) the amount and collection of customs duties
or charges of any kind, including any accessory or additional
duties or charges, coefficients or increases imposed on or in
connection with importation, exportation, temporary importation,
temporary exportation, or warehousing or transit; (2) the method
of levying or collecting such duties, charges, coefficients or
increases; (3) all rules and formalities in connection with
importation or exportation; and (4) all laws or regulations
affecting the sale, taxation, or use of imported goods within
the country; any advantage, favor, privilege or immunity which
has been or may hereafter be granted by either High Contracting
Party 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 territory of
the other High Contracting Party.
Neither of the High Contracting Parties shall establish or
maintain any import or export prohibition or restriction on any
article originating in or destined for the territory of the
other High Contracting Party, which is not applied to the like
article originating in or destined for any third country. Any
abolition of an import or export prohibition or restriction
which may be granted by either High Contracting Party in favor
of an article originating in or destined for a third country
shall be applied immediately and unconditionally to the like
article originating in or destined for the territory of the
other High Contracting Party.
[Page 439]
If either High Contracting Party establishes or maintains any
form of quantitative restriction or control of the importation,
sale, or exportation of any article in which the other High
Contracting Party has a considerable interest, including the
regulation of importations, sales or exportations thereof by
licenses or permits issued to individuals or organizations, the
High Contracting Party taking such action: (1) shall establish
the total quantity of any such article permitted to be imported,
sold, or exported during a specified period, (2) shall
immediately communicate to the other High Contracting Party the
provisions adopted together with complete details with respect
to the administration thereof, and (3) in the case of imports,
shall allot to the other High Contracting Party for such
specified period a proportion of such total quantity equivalent
to the proportion of the total importation of such article which
the other High Contracting Party supplied during a previous
representative period, and (4) in the case of exports, shall
allot to the other High Contracting Party for such specified
period, a proportion of such total quantity equivalent to the
proportion of the total exportation of such article which was
supplied to the other High Contracting Party during a previous
representative period, unless it be mutually agreed to dispense
with such import or export allotment.
[The provisions relating to exchange are omitted pending further
consideration of the Italian proposal on this subject. A new
draft of these provisions is expected to be ready shortly.]10
In the event that either High Contracting Party establishes or
maintains a monopoly for the importation, production or sale of
a particular product or grants exclusive privileges, formally or
in effect, to one or more agencies to import, produce or sell a
particular product, the High Contracting Party establishing or
maintaining such monopoly, or granting such monopoly privileges,
shall, in respect of the foreign purchases of such monopoly or
agency, accord the commerce of the other High Contracting Party
fair and equitable treatment. In making its foreign purchases of
any article such monopoly or agency shall be influenced solely
by competitive considerations such as price, quality,
marketability, and terms of sale. Either High Contracting Party
shall supply such information with respect to the foreign
purchases of every such monopoly or agency as the other Party
may at any time request.
The High Contracting Parties will consult with each other in
respect of any matter presented by either Party relating to the
application of the provisions of this article.
[Page 440]
[Enclosure 2]
Memorandum on the Proposed Treaty of
Friendship, Commerce and Navigation Between the United
States and Italy
A Comparative Analysis of
the Italian Counter Proposals of December 15, 1936 in Respect of Article VIII and Explanation of a Projected Second
Proposal by This Government
The important broad differences between the Italian proposal and
our original draft of Article VIII are in the provisions
relating to quantitative restrictions and foreign exchange
(Italian Par. (d)—U. S. Par. 3).
Under the terms of our original draft, neither country could
establish or maintain any import prohibition or restriction in
respect of any article unless it admitted from the other country
a proportion of the total quantity of such article permitted to
be imported from all sources equivalent to the proportion
supplied by the other country during a previous representative
period. That is to say, Italy would be required to admit the
restricted goods from the United States on the basis of the
proportionate share formula, and vice versa.
The Italian proposal differs sharply from the foregoing in that
it does not require that an allotment based on the proportionate
share formula or any other formula be accorded to the United
States in respect of imports subjected to quantitative
restrictions. It provides in effect that in case the Italian
Government chooses to establish the restriction upon the basis
of a share of the total importation for a fixed period of time
either a proportionate share shall be accorded to the United
States—albeit the Italian Government having within its
discretion the choice of the base period—or the two Parties
shall come to an agreement with respect to the quantity of goods
to be admitted.
The Italian proposal also omits reference to customs quotas and
licensing restrictions and relates to exports as well as
imports. Other Jess fundamental differences with respect to
quantitative restrictions are analyzed elsewhere in this
memorandum.
As regards exchange, our original draft requires that exchange
control shall be administered in such manner as to insure fair
and equitable treatment in the allotment of exchange, and
provides that the Party administering the control shall be
guided by the principle that the share of total funds made
available for settlement of commercial transactions which is
allotted to the other Party shall not be less than the share
employed for the settlement of commercial obligations to the
nationals of such other Party during a representative period
prior to the establishment of exchange control.
[Page 441]
The Italian proposal accepts in general the proposition that
exchange control shall be administered so as to insure fair and
equitable treatment in the allotment of exchange. But in lieu of
our provision which sets up the basis for allotment, the Italian
proposal provides that if either Party considers that exchange
restrictions may damage its interests as compared with the
manner in which interests of third countries are treated, “it
may demand the initiation of conversations in order to agree
upon suitable measures to insure the transfer of sums paid by
purchasers as the price of its importations effected within the
agreed upon limits.” Judging from the character of Italy’s
recent commercial agreements with other countries and from the
background of trade agreement negotiations, the wording of this
provision seems clearly to envisage the negotiation of
agreements or arrangements which would have as their objective
the balancing of trade between the two countries. Considering
the present policy of this Government, it seems clear that we
could not agree to a definitive treaty provision which would
permit the conduct of commercial relations upon the basis of
this principle.
. . . . . . . . . . . . . .
