The Chargé in Italy (Reed) to the Secretary of State

No. 570

Sir: With reference to the Department’s Instruction No. 167 of August 17, 1937,26 I have the honor to report that Mr. Henry Grady, a member of the United States Tariff Commission, arrived in Rome on September 15 and remained until September 17.

The Embassy arranged appointments for Mr. Grady with Mr. Felice Guarneri, Undersecretary for Trade and Foreign Exchange; Senator Giannini, Head of the Commercial Department of the Foreign Office, and Mr. Emanuele Grazzi, Chief of the Transoceanic Department of the Foreign Office. In his conversations with these officials Mr. Grady discussed informally with them matters of interest bearing upon trade between Italy and the United States and explained for their benefit the fundamental principles governing United States foreign trade policy.

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A copy of a memorandum prepared by the Embassy’s Commercial Attaché of Mr. Grady’s conversation with the Undersecretary for Trade and Foreign Exchange on September 16 is transmitted herewith at Mr. Grady’s request. Mr. Grady considers this the most important and significant of the various conversations in which he engaged here. Furthermore, it covered fully all the points which were discussed in his subsequent talks at the Foreign Office.

When calling on Mr. Guarneri, Mr. Grady was accompanied by Mr. Livengood, the Embassy’s Commercial Attaché, while Mr. Reber, Second Secretary, was present at his interviews with Messrs. Giannini and Grazzi.

The Embassy is very decidedly of the opinion that Mr. Grady’s visit to Rome has been extremely helpful in clearing up any doubts and misunderstandings which the competent Italian authorities may have had concerning our foreign trade policy and in reassuring them of our sincere desire to cooperate to the fullest extent possible in mutual efforts to improve commercial relations between the two countries.

Respectfully yours,

Edward L. Reed

Memorandum by the Commercial Attaché in Italy (Livengood)

At Prof. Guarneri’s invitation, Dr. Grady called at the Undersecretariat at 6.30 on September 15, and a general discussion was held with regard to certain basic principles and procedure followed by the United States in the Trade Agreements program. At the conference with Prof. Guarneri were Gr. Uff. Manlio Masi, Director General for Commerce (of the Undersecretariat) and Ing. Da Gignano Bonaini, who is concerned with American affairs in the Treaty office of the same Undersecretariat. The Commercial Attaché accompanied Dr. Grady.

Dr. Grady referring to special concessions accorded by Italy to Danubian countries, said that we desired to know the commodities in which these concessions are granted, their amount and kind, and the countries concerned. Moreover, we wished to be assured (1) that these concessions would not be a means by which American trade in products of proper interest to us could be injuriously affected, and (2) that we should be kept informed in case new concessions should be contemplated in the future.

Prof. Guarneri replied that the questions had already been received, and replies supplying the desired information would be given the Embassy. The special concessions applied to Austria and Hungary. [Page 454] They were accorded by Italy in a period of “dramatic need” on the part of those two countries, when wheat and livestock prices were excessively low. The concessions were not reciprocal, as Italy received no countervalue. The conditions which led to the concessions have now greatly changed, and Italy’s policy is not to add to them, but is in the opposite direction. “We would gladly donate these countries to you”, said Prof. Guarneri.

Guarneri declared that he was very desirous that a Trade Agreement be concluded between Italy and the United States, that he attached such importance to the realization of this that in the general clauses of the Treaty now under negotiation, he had consented to the suppression of various Italian objections to the American text.

Dr. Grady explained that under the Trade Agreement policy American tariff concessions on a given product are given to the country which is a principal, or at least an important supplier to the United States; that under this principle no product of which Italy is a leading supplier would be excluded from consideration for possible tariff reduction—although the result of the consideration would of course be determined by the negotiations. For commodities in which Italy has a secondary interest, the most-favored-nation clause would assure to Italy any tariff concessions granted to other nations.

In various Trade Agreements, the United States has already accorded reductions on over 500 tariff items, and as there is every intention to push the Trade Agreements program vigorously forward, the benefits which should accrue to Italy by virtue of the most-favored-nation clause should be important. In this connection, agreements are envisaged with Great Britain and various British Dominions, and the concessions which would be involved should be of material interest to Italy.

Up to the present, the advantages to Italy of American tariff reductions have been less in evidence than they would have been had it not been for the suspension of negotiations with Spain—with which country it had been contemplated that negotiations would be carried forward simultaneously with the Italo-American negotiations.

While in granting tariff reductions, the United States expects a quid pro quo, the spirit guiding the decisions taken is a generous one. When a Trade Agreement with Italy was under discussion over two years ago, a preliminary survey was made of concessions which might be made to Italy, and the American officials were of the opinion that these concessions, if granted, would make possible a very substantial increase in Italian exports to the United States.

At this point Prof. Guarneri remarked: “What was not done then, can be done now”.

Dr. Grady explained clearly that notwithstanding Italian quota restrictions, monopoly purchases, exchange control, etc., the United [Page 455] States must demand for its products as large a proportionate participation in the Italian market as had been enjoyed before the system of controls was initiated. This proportionate participation must apply to all forms of control including the allocation of foreign exchange.

Prof. Guarneri stated that this principle had been acceded to by Italy in connection with the treaty now under negotiation. He also recognized the principle of making tariff reductions to principal suppliers of the relative articles, a principle which, he said, Italy also followed.

Ing. Bonaini remarked that a list of tariff concessions desired by Italy had been submitted, but that no reaction from the American side had been received. Prof. Guarneri added that it was desirable for Italy to know what concessions could be had, since, if the resulting increase in exports should be sufficiently large, it might enable him to suppress the system of quotas and controls.

Dr. Grady explained that the question of concessions was one which it was desirable to take up apart from the treaty. When the treaty is signed, the way will be cleared for negotiating a trade agreement, in which matters of the kind referred to would be involved.

Throughout the conversation, Prof. Guarneri indicated a most earnest desire that negotiations for a trade agreement be started as soon as possible. He stated, incidentally, that he was by training and economic theory against the system of trade restrictions, but that under present conditions Italy had no choice but to follow such a policy. “With our small gold reserve, we can not take the chance of eliminating the control at present”.

In the course of the conversation, he declared most emphatically that in case the franc should be further revalued, the lira would not follow. Regarding a tripartite monetary agreement, he said that the peculiar circumstances affecting Italy prevented Italy’s participation at this time. (Possibly his meaning was that Italy was not prepared to participate in guaranteeing the franc).

(In a conversation having no connection with the conference reviewed above, Comm. C. Ruggieri, representative in Italy of the Chase National Bank, in discussing Italian financial matters with Dr. Grady, expressed the opinion that there would be no devaluation of the lira in the near future. Ruggieri seemed to think that for perhaps five years stability in the exchange relationship of the lira could be logically expected. On the other hand, the progressive cumulation of the national debt may be followed eventually by some form of drastic capital levy by which a percentage of the value of national bonds would be wiped out through governmental action. This, in Ruggieri’s opinion, would be purely of internal application, and the lira would not be affected in its exchange value).

Charles A. Livengood
  1. Not printed.