The Secretary of State to the Minister in Switzerland (Wilson)
Sir: The Department has given careful study to the reports from the Legation and from the consular offices in Switzerland with regard to certain matters concerning the operation of the trade agreement which have been the subject of discussion with the Swiss Government. Reference is made in particular to the Swiss stamp-tax on customs receipts (Despatch No. 4595, September 23, 19362), the measures adopted for the control of lard imports (Despatch No. 4592, September 22, 19363) and the régime applicable to imports of Douglas fir plywood (Despatch No. 4551, August 28, 19362).
The replies made by the Swiss Government to the Legation’s representations on these subjects reveal an attitude on the part of the Swiss Government which the Department is unable to regard as other than unsatisfactory, not only from the point of view of a more liberal commercial policy which it was confidently expected would result from the trade agreement, but also in view of the specific commitments in the trade agreement. Since the lard and plywood cases will be treated in separate instructions, the Department wishes in this instruction to emphasize its general concern regarding the apparent failure of the Swiss Government to recognize its obligations under the agreement in these instances. The cases to which reference is made are not individually of far-reaching importance but the Department is loath to see an accumulation of small issues of this nature which have the effect of interfering with the operation of the agreement, or to allow certain Swiss contentions with regard to the interpretation of the agreement to go unchallenged.[Page 566]
Among these matters is the four percent stamp tax levied by the Swiss Government on customs receipts. The question of the validity of this tax directly concerns the scope of the Swiss commitments with respect to the products listed in Part A of Schedule I. The Department has carefully examined the Swiss note of September 19, 1936.4 It is unable to find in that note any statement which would lead it to a different conclusion than it has previously expressed, namely, that the imposition of this tax on the products listed in Part A of Schedule I is in contravention of the obligations assumed by the Swiss Government in Article I of the trade agreement.
The Department is compelled to reject the Swiss view that the provisions of Article 25 of the Customs Law of October 1, 1925, are mandatory within the meaning of Article I. It is not believed that it will be necessary or desirable to enter into a discussion with the Swiss as to the meaning of the phrase “donne lieu a la perception de taxes speciales” in the law of October 1, 1925, which constitutes the only ground upon which a mandatory reading of the law could possibly be based. For your own information, however, the Department regards the Swiss position as untenable both in the light of the words themselves and of the sense of the entire Article. “Donne lieu” may be rendered into English as “gives rise to” or “results in”. The provision in its entirety appears to provide a means for establishing, by executive regulation, appropriate charges and penalties to compensate the customs authorities for special services rendered in connection with the execution of the customs laws. The only previous use made of this provision, in the ordinance of the Federal Council of August 24, 1926, establishes charges for such services as clearance of goods after normal business hours or at other than established customs clearing points, certification of previous clearance, copying of documents, and the like. A tax such as the present one, the amount of which is established as a percentage of the total import duties paid, is clearly not related to the cost of performing services in connection with the work of the customs authorities, but is in fact an additional import duty, and as such may not, under the terms of Article I of the agreement, be imposed on American products enumerated and described in Part A of Schedule I.
In reply to the Swiss allegation that the provisions of Article 25 of the law of October 1, 1925, are mandatory within the meaning of Article I of the trade agreement, it is believed that it will be sufficient to point out that the Swiss authorities have not given a mandatory effect to these provisions in actual practice. Even if there were a reasonable question as to whether the fees might be collected, or were required to be collected, as the Swiss Government claims, the failure [Page 567] of the Swiss authorities to levy the fees over a period of ten years raises a strong presumption for a non-mandatory reading of the provision. This fact is further emphasized by the exemption from the four percent tax of certain classes of goods. The order of the Direction Générale des Douanes of February 3, 1936, exempts from the tax goods admitted free of duty and certain classifications of benzine and leaf tobacco. It also establishes a classification of goods on which the tax is fixed at two percent.
You are requested to take this matter up again with the competent Swiss authorities and to re-state the opinion of this Government, in the sense of the Department’s instruction No. 3640 of July 25, 19365 and the foregoing paragraph, that the four percent tax contravenes the provisions of Article I of the trade agreement when applied to the articles listed in Part A of Schedule I, and to request that these articles be exempted from the tax.
The Department has taken note of the Swiss contention that the action requested by this Government can only be taken by the Federal Assembly. In view of the exemptions from the tax which are specified in the order of the Direction Générale des Douanes of February 3, 1936, it is difficult to understand why similar facilities cannot be provided with respect to the trade agreement items. While this may be pointed out to the Swiss authorities, you should make it clear that this Government does not regard the fact that the tax was provided for in a measure passed by the Federal Assembly as in any way modifying the obligation of the Swiss Government to accord to the products in question the treatment provided for in the trade agreement.
For your information there is attached hereto a copy of a note addressed to the Swiss Minister at Washington6 at the time the trade agreement was signed, indicating what sort of laws the Government of the United States considered as covered by the words “required to be imposed under laws of the United States of America in force on the day of the signature of this Agreement”. In the discussions of this provision of Article II and of the exactly corresponding provision of Article I, it was made clear to the Swiss negotiators that the only exception to the commitment not to levy charges on importation higher than those in force on the day of signature of the agreement was the exception for special charges which mandatory laws in force on that day required to be imposed under given circumstances.
Separate instructions are being transmitted to you regarding the lard import control system and the Swiss treatment of American plywood.
Very truly yours,