711.652/127b: Telegram
The Secretary of State to the Ambassador in Italy ( Phillips )
184. Department’s 183, November 27. In order to prevent any possible misunderstanding concerning the meaning of certain provisions of Article VIII of the proposed treaty please discuss the matter orally with the appropriate officials of the Italian Government explaining the understanding of this Government as set forth in the following Précis and ascertain whether the understanding of the Italian Government on these points is the same as our own. Please give to the Italian officials a copy of the Précis:
[Page 474]“Paragraph 3. The total amount of any permitted import, of which a share is to be assigned by either country to the other, shall include all imports of the regulated article, including such imports as may be made through public or private clearing, compensation, or payment arrangements.
“If the authorities of either country permit imports additional to the amount of any quota which has been established by establishing a supplementary quota, in that event an equitable share of such supplementary quota is to be assigned unconditionally to the other country.
“It is also to be understood that the ‘representative’ base period should be one in which the trade of the other country was not being impaired by discriminations and was not seriously affected by conditions of an unusual and temporary character.
“Paragraph 4, subparagraph (a). To impose the condition that payment for the importation of any article must be made in compensation would be to impose a ‘restriction’ on the transfer of payment.
“Paragraph 4, subparagraph (b). In determining most-favored-nation treatment with respect to rates of exchange it is suggested that a suitable criterion would be cross rates of exchange in some free market. If, for example, exchange control were in force in Italy which prevented complete freedom of action on the part of importers having payments to make to the United States, the rate of exchange between the dollar and the lire should not be such as to result in a higher cost in lire to the importer than it would be if he were free to purchase the currency of any third country (including compensation currencies) at a rate which applies to any imports from that third country and then to exchange this third currency for dollars at the rate prevailing in some free market.”
When the Italian Government confirms to you that this Précis represents also their understanding of the provisions of Article VIII therein discussed you are authorized, as soon as we have received your telegram defining Danubian preferences and telegraph you that it is satisfactory, to conclude the temporary arrangement set forth in Department’s telegram No. 183 of November 27.
If you perceive objections to the foregoing procedure we would appreciate receiving your comments and suggestions.