The Acting Secretary of State to the Ambassador in Italy (Phillips)
111. Your 256, May 31, 1937. Following are the Department’s views with respect to the points discussed in the Foreign Office memorandum:
1) The Italian amendment of sub-paragraph (a) of our exchange proposal constitutes a vital change and would so radically alter the provision that it would fail to accomplish the objectives of this Government in respect of the transfer of commercial payments. This leads us to believe that perhaps the Italian Government has not envisaged clearly the meaning and import of the provisions in reference.
By way of further explanation, we would point out that the underlying purpose of sub-paragraph (a) as proposed by this Government is to supplement the most-favored-nation and import restriction provisions of Article 8 in such manner as will render those provisions effective and assure that American traders in Italy will in fact enjoy the kind of treatment stipulated. In this connection, it would seem obvious that if American traders can not receive payment for their goods exported to Italy or be certain that no prohibitions or restrictions will be placed upon the transfer of commercial payments, trade would be restricted and channelized effectively even though it may be entitled to most-favored-nation treatment in tariff matters and fair and equitable treatment in respect to import restrictions as defined [Page 445] in the Article. Of course, the Article would afford Italian exporters exactly the same safeguards in the United States, should by any chance restrictions be imposed here. Currently, of course, we have no exchange restrictions whatsoever on the transfer of normal commercial payments.
This Government has given very careful consideration to the question of an exchange provision which will assure effective operation of the other provisions of Article 8 relating to treatment with respect to tariff matters and quotas. It has concluded that probably the provisions of our exchange proposal are the only solution. The provisions of sub-paragraph (a) preclude the imposition of prohibitions or restrictions on the transfer of payments for imports and thus assure that all permitted imports will be paid for. But at the same time these provisions in no way prevent the state from taking such action as may be deemed necessary, under certain circumstances, to protect its currency by limiting the amount of its total imports in accordance with the provisions of the Article relating to quantitative restrictions and thus limiting the amount of exchange which would be necessary to pay for permitted imports.
Under the Italian proposal, the only advantage that would be guaranteed would be that prohibitions or restrictions on transfers of payments for commercial transactions would not be imposed against American goods unless they were also imposed against the goods of other countries. But this would in no way protect us from a total prohibition of transfers to us or from discrimination against us in the allocation of whatever exchange may be granted by the control authorities.
Considering the foregoing, we hope the Italian Government, in the same cooperative spirit which has prevailed throughout the negotiations, will give further careful consideration of our exchange proposal of May 1, 1937. If after such reconsideration the Italians still find the language of our proposal unacceptable, this Government would appreciate receiving a counter proposal from the Italian Government which would have the effect of assuring that American exporters can receive prompt payment in foreign exchange for permitted importations of their goods into Italy.
For your information, should the Italians fail to present an exchange provision which is satisfactory to this Government, we are considering the advisability of dropping Article 8 from the negotiations and concentrating on the conclusion of a general treaty of friendship, commerce and navigation which would contain no provisions relating to subjects of that Article. The problems involved in Article 8 might then be left for later negotiations.[Page 446]
2) Final consideration is being given the Italian proposals with respect to the other articles of the treaty and it is expected that our counter proposals will be forwarded to the Embassy within about 2 weeks.
3) Reduction of the period during which Article 8 may be terminated to 3 months is a very vital part of our counter proposal of March 17, 1937, and is necessary, we feel, because of (1) the concessions accorded Italy in that article, and (2) the changing character of present trade control methods. If the period be extended as now proposed by Italy, we feel that it would be necessary to revise again the text of Article 8.
4) The Italian amendment of Article 19 as proposed on December 15, 1936,13 is so broad in its terms that it would nullify to a large extent the effectiveness of Article 8. It is therefore unsatisfactory to this Government. We are disposed to agree, however, to the inclusion of qualified exceptions in respect of Danubian countries and Albania, but in order that we may give the subject appropriate consideration, it is necessary that the Italian Government supply this Government with information in respect of the following in writing:
- Which countries does Italy desire to be included in the amendment?
- Precisely, what are the advantages now accorded to such countries which conflict with the provisions of the treaty? As regards trade matters, what are the specific tariff, tax, quota, exchange and other advantages now accorded these countries?
- Are the advantages in reference intended to come within the purview of recommendations of the Stresa Conference, the Rome Protocols, or any other European scheme for economic assistance to Central and Eastern Europe?
5) We are not clear as to what is meant by “the supplementary protocol”. Does this have reference to the questions involved in Article 20 relating to the territorial application of the treaty?
With reference to the Italian proposals for a trade agreement, studies are being made, as you are aware, of the commodities entering into trade between the two countries and of the possible concessions to be requested or granted. These studies are not as yet sufficiently advanced for the Department to make fully considered comment on the Italian proposals.
You may bring the foregoing information and inquiries to the attention of the Foreign Office in such manner as you may deem appropriate and at the same time express this Government’s appreciation of the friendly spirit in which the negotiations are being conducted. [Page 447] It is still our hope that they may be concluded in time to permit the treaty to be presented to the Senate before the adjournment of Congress.
- Article 19 provided for certain exceptions to the treaty. The Italians proposed that the stipulations of the treaty not extend to the advantages then accorded by Italy to countries of the Danubian Basin and to Albania.↩