The Chargé in Iran ( Merriam ) to the Secretary of State

No. 1013

Sir: I have the honor to refer to my despatch No. 947 of December 9, 1936,41 informing the Department of the Legation’s communication to the Minister of Foreign Affairs, on the same date, of the Department’s views with reference to the apparent discrimination against American trade with Iran which arises from Article 17 of the Irano-German Convention of October 30, 1935.42

There is enclosed herewith a memorandum of an interview between the Chargé d’Affaires and M. Massoud-Ansari, Chief of the Division handling American affairs, at which the Legation interpreter was present, during which M. Massoud-Ansari undertook to answer the objection that had been raised.

The Iranian position contains in effect two lines of defense:

While a percentage of the value of the goods imported from Germany is not charged as in the case of goods imported from other countries, this is counterbalanced by the fact that exporters of Iranian goods to Germany do not receive the bounty which exporters receive when sending goods to other countries.
Even if the foregoing explanation is not acceptable, there is no discrimination because Iran is prepared to enter into a similar clearing agreement with the United States.

Whatever may be thought of the first argument, the Foreign Legations at Teheran who have received the second argument in answer to their protests have considered it as theoretically valid, [Page 762] whether or not their Governments were prepared to negotiate a clearing convention.

The main interest of the Legation in making the protest was to ascertain whether, in view of the certain tension existing in the diplomatic relations of the two countries, the Foreign Office would offer to negotiate a clearing convention with us as it had done in the case of other countries. Should such an offer be forthcoming, an opportunity would be afforded of saying to the Foreign Office that while we were uninterested in a clearing convention, we had proposed the negotiation of a reciprocal trade agreement43 and were still awaiting a reply.

During past months the Department’s unfavorable attitude toward compensation or clearing conventions has become so clear through the speech of the Secretary of State at Buenos Aires44 and other pronouncements that, when confronted with the reply of the Foreign Office, it seemed a waste of time to put the question to the Department whether or not it desired to negotiate such an agreement. Moreover, M. Massoud-Ansari’s remark that it was his personal opinion that clearing conventions were unsound (incidentally he was a member of the Iranian delegation which went to Berlin to negotiate the agreement with Germany) indicated that the Foreign Office is unhappy about the German convention and would be unenthusiastic about negotiating an additional agreement of the kind. Negotiations begun under such circumstances would have little hope of success.

In view of these considerations, I ventured to give at once my personal view that my Government would be disinclined to enter into a clearing agreement with Iran, and to remind M. Massoud-Ansari that our proposal to enter into negotiations with a view to concluding a reciprocal trade agreement was still before the Iranian Government. He was unfamiliar with the matter since he did not, when this question was forward, occupy his present position, and has agreed to examine it.

Respectfully yours,

Gordon P. Merriam

Memorandum by the Chargé in Iran (Merriam)

The Chargé d’Affaires called on M. Massoud-Ansari by appointment on March 6, 1937, to discuss the publication of certain documents in Foreign Relations. When this subject had been concluded, the latter referred to the note of the Chargé d’Affaires to the Foreign [Page 763] Minister of December 9, 1936, calling attention to the apparent discrimination involved in the Irano-German Compensation Agreement of October 30, 1935.

M. Massoud-Ansari said he was instructed by the Foreign Minister to say that there was no discrimination against American trade because, while import permits are not required in the case of Germany, the advantage is offset because export certificates, which involve a bounty to Iranian exports, are not exacted. In any event, there was no discrimination because Iran was prepared to negotiate a similar clearing convention with the United States—a reply which had been made to all the other Legations which had protested. He personally thought, however, that such clearing conventions were not sound.

The Chargé d’Affaires replied that the question whether the disadvantage of the requirement of export certificates was counterbalanced by the advantage of import permits would have to be studied by the experts of the Department of State. He did not think, speaking personally, that his Government would be interested in negotiating a clearing convention. Its program was embodied in fifteen reciprocal trade agreements which had been negotiated within the last few years. This program contemplated the general revival of trade through the mutual lowering of tariffs on the commodities of chief interest in the trade between the United States and individual countries. Under the most favored nation principle, these tariff concessions were generalized. The result was a general increase in trade as contrasted with the uneconomic funnelling of trade which resulted from compensation agreements.

Mr. Massoud-Ansari said that he did not understand, if the tariff concessions were generalized, what inducement there was for additional countries to enter into reciprocal trade agreements with us.

The Chargé d’Affaires answered that it had been found by experience that if the trade of any two countries is analyzed, the bulk of the trade is made up of comparatively few commodities, which are of interest to other countries in a minor degree only. When, therefore, mutual tariff concessions are made on the principal commodities, the effect on the trade of the other countries to which they have been generalized is so slight that they are willing to negotiate agreements with us dealing with the commodities of chief interest to them.

Mr. Massoud-Ansari asked, supposing the Iranian duty on American automobiles were reduced 10%, what competition would remain?

The Chargé d’Affaires replied that if the duty on American automobiles were reduced by 10%, this reduction would be generalized under the most favored nation principle to Germany, England, Russia and to all the other countries supplying Iran with automobiles. The competitive basis would therefore remain exactly what it had been, but [Page 764] because automobiles would cost 10% less, presumably more would be sold. We should not mind the generalization of the concession because the share of other countries in the automobile trade was slight.

Mr. Massoud-Ansari then repeated what he had said at first.

The Chargé d’Affaires said again that this answer would be studied in the Department. He thought he could go so far as to say that Mr. Massoud-Ansari’s personal opinion regarding the unsoundness of compensation agreements was the official view of his own Government. He supposed that the Foreign Minister’s reply would later be communicated in writing and asked whether, before it was sent, the Foreign Office would not reconsider the question of negotiating with us a reciprocal trade agreement. The Foreign Office had been on the point of giving a favorable answer to this question at the time certain difficulties arose.

Mr. Massoud-Ansari did not commit himself beyond promising to look it up and to reexamine the question of a reciprocal trade agreement.

In an effort to acquaint Mr. Massoud-Ansari further with the nature of a reciprocal trade agreement as contrasted with the nature of a clearing convention, the Chargé d’Affaires spoke of the trade of the United States with Brazil. The United States bought tremendous quantities of coffee from Brazil, and exported lesser values of manufactured goods to that country. If a compensation agreement should be concluded between the two countries, American coffee imports from Brazil would be greatly reduced, causing economic distress in Brazil. On the other hand, we should have to make up our requirements in coffee elsewhere, and be compelled to pay higher prices for an inferior product.

He added that while fifteen agreements were in effect, and all the tariff reductions had been generalized to Iran, actually Iran had not benefitted at all because the duties on the principal exports of Iran to the United States had not been touched.

He continued by saying that we had had considerable experience with reciprocal trade agreements and that they had worked well. While it was impossible to say what portion of the trade increase resulted from the conclusion of such agreements, and what portion resulted from general economic improvement, the fact was that, generally speaking, trade with the countries with whom we had agreements had improved, in some instances markedly so. The reciprocal trade agreement program was generally well regarded by traders and economists as a sound and courageous program, and had been described in such terms by the economic experts of the League of Nations. The Secretary of State, Mr. Hull, had always been interested in tariff matters as a Senator, and the whole program was the result of his familiarity and long experience with them.

  1. Ibid., p. 399.
  2. For text, see Iran, Administration des Douanes, Statistique Commerciale de l’Iran en 1314–1315 (22 juin 1935–21 juin 1936), p. 364.
  3. For previous correspondence, see Foreign Relations, 1935, vol. i, pp. 909 ff.
  4. For the opening address by the Secretary of State at the Inter-American Conference for the Maintenance of Peace, December 5, 1936, see Department of State, Press Releases, December 5, 1936, p. 432.