The Yugoslav Minister (Fotitch) to the Secretary of State

Mr. Secretary: With reference to your letter of December 17, 1936, I have the honor to transmit to Your Excellency, by the order of my Government, two alternative proposals for the regulation of our commercial relations.

The Royal Government has given detailed consideration to the view expressed in the abovementioned letter and by its present proposal, desires to meet, to the utmost, the proposals made for the regulation of that part of American exports into Yugoslavia which is limited by the recent regulations regarding the control of imports and which my Government had to adopt reluctantly, owing to the general economic situation in Central Europe. The Royal Government is making this proposal, (in spite of the fact that for the national economy it represents a great effort) in order to maintain the application of the most favored nation clause in our mutual relations, which corresponds also to the policy of the United States and is the basis on which the economic relations could be developed and improved.

I avail myself [etc.]

Constantin Fotitch

Yugoslav Proposals for the Regulation of Commercial Relations Between the United States and Yugoslavia

1) The importation of controlled articles from the United States would have to be adjusted in relation to a percentage established in the year 1935, that being the last year before the control of importation was put into effect and in which year the entire importation of controlled articles from the United States into Yugoslavia amounted to 30,920,000 dinars. We are willing to accord also to the United States the same treatment as we did to England (with whom our situation was more favorable), that is to say 50% of the importation of the controlled articles in 1935, which means that we would import in this year the above mentioned articles to the amount of 15.5 million dinars. The system which was accorded to England could be retained in this instance, i. e. to permit to every importer of the controlled articles from the United States an importation to the extent of 50% of his importation of the same article in 1935.

This system excludes compensations, i. e. the necessity that the importers of American articles should find exporters of our products. According to this plan, this system is very much simplified. It has, however, the drawback for us that it might, in case of a disadvantageous [Page 589] development of our exports to the United States in relation to the year 1935 lead to a situation in which we would allow a larger importation of controlled articles from America than that which existed in the year 1935. We can, therefore, only propose this system with the reservation that the ratio of our export to our import (in our relations with the United States of America) in the year 1937 and thereafter will be the same as that existing in 1935 or in any case not worse. In such a case we would have to ask for a revision of the import percentage from the year 1935.

2) The import of controlled articles from the United States is established on the ratio of our export to the United States. In other words, the amount of our importation of controlled articles would depend on the amount of our export. Here the export of copper would have to be excluded, as we do not participate in the profit of the export of that metal, as copper is the product of the Bor Mines, which are the property of a French company, registered in Paris. The credits established for the exported copper, therefore, do not belong to us but to the French company.

The import of controlled articles from the United States would have to represent 25% of our export to the United States (excluding copper), on the ratio of the last yearly quarter. We have to propose this ratio of 25% for the reason that our import of uncontrolled, articles (cotton and raw materials) from the United States is much larger than the import of the controlled articles, which represent only 10% of our imports.

In the meantime, independently of the amount of our export, we propose to guarantee, in any case, the import of controlled articles to the amount of 50% of the importation of such articles in 1935. (The total import of controlled articles in 1935 amounted to 30,000,000 dinars).

One example will give a good illustration of this:

For every hundred units of value of our exports into the United States (copper not included) an amount of 25% of the import of controlled articles is allowed (the import of uncontrolled articles is completely free).

In 1936 our export into the United States amounted to 214 mil. din.
From that sum was applicable to copper 118 mil. din.
Remaining 96 mil. din.

According to the above formula the import of controlled articles into the United States would amount, in the year 1937, to 25% of the 96 million dinars, i. e. 24 million dinars or 80% of the imports in the year 1935.

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If our exports to the United States should rise to 120 million dinars, the import of controlled articles would reach a total of 100% of the import for the year 1935. Naturally, if this percentage should be exceeded the import would be larger than in 1935.

As will be seen, this system also excludes compensation and is now applied to England with very satisfactory results for both sides. The general standard of exchange has greatly increased.