The Secretary of State to the Ambassador in Italy ( Phillips )
73. Department’s instruction No. 56 of March 17, 1937. Our counter proposal relating to foreign exchange is embodied in the following [Page 442] provisions which should be inserted between the third and fourth paragraphs of our redraft of Article VIII:
“If either High Contracting Party establishes or maintains, directly or indirectly, any form of control of the means of international payment, it shall, in the administration of such control:
- Impose no prohibition, restriction, or delay, on the transfer of payment for imports of articles the growth, produce, or manufacture of the other High Contracting Party, or on the transfer of payments necessary for and incidental to the importation of such articles;
- With respect to rates of exchange, and taxes or surcharges on exchange transactions, in connection with payments for or payments necessary and incidental to the importation of articles the growth, produce, or manufacture of the other High Contracting Party, accord unconditionally treatment no less favorable than that accorded in connection with the importation of any article the growth, produce, or manufacture of any third country; and
- With respect to all rules and formalities relating to exchange transactions in connection with payments for or payments necessary and incidental to the importation of articles the growth, produce, or manufacture of the other High Contracting Party, accord unconditionally treatment no less favorable than is accorded in connection with the importation of the like article the growth, produce, or manufacture of any third country.
With respect to non-commercial transactions each High Contracting Party shall apply every form of control of foreign exchange in a non-discriminatory manner as between the nationals of the other High Contracting Party and the nationals of any third country.”
It will be noted that the last paragraph of Article VIII relating to consultation would apply in respect of the foregoing exchange provisions.
Inasmuch as prohibitions and restrictions on the transfer of payments are employed by some countries as a means of limiting imports, recent deliberations have led us to the conclusion that in order to render the most favored nation and the quota provisions in our trade agreements and treaties effective, and to discourage the accumulation of blocked commercial debts which usually lead to the diversion of trade through clearing and payments agreements, it is necessary to revise substantially our policy relating to exchange control.
Accordingly, we have formulated a policy which, broadly speaking, is that we shall endeavor to have other countries agree (a) to act favorably and promptly upon all applications for exchange to pay for imports of American goods which are admitted into the other country and (b) to accord unconditional most favored nation treatment in respect of exchange rates and fiscal charges affecting payments for imports from the United States. As a standard expression of that policy [Page 443] we have adopted the language contained in the first sentence of our counter proposal quoted above. As long as exchange control is employed to limit imports, we shall endeavor to have the same language incorporated in all future treaties and trade agreements.
We recognize that in certain circumstances Italy and other countries may desire to protect their currencies by limiting the amount of exchange which can be used for commercial payments to the United States. Such limitation can be accomplished by Italy under our counter proposal, not by placing prohibitions or restrictions on the transfer of payments but by limiting the amount of imports within the formula relating to quotas, licensing, etc., set out elsewhere in Article VIII.
Further, the operation of the provisions contained in the first sentence of our exchange proposal would not impose any obligation upon Italy in respect of that exchange which may be employed for purposes other than for payment for imports from the United States and for payments necessary and incidental to such importations. The provisions in the second sentence relating to non-commercial transactions, which have already been accepted by Italy, would govern other exchange payments. The second sentence has been amended slightly by substituting the word “every” for the word “any” where “any” first appears.
In presenting our counter exchange proposal to Italian officials, the Embassy may utilize such of the foregoing information as it may deem appropriate and expedient.