The Chargé in Estonia (Leonard) to the Secretary of State
[Received March 9.]
Sir: I have the honor to refer again to the Department’s special instruction No. 26,5a received on January 10, 1938, relative to the possible negotiation of a trade agreement between the United States and Estonia.
Since reporting to the Department in my code telegram No. 1 of January 15, and No. 2 of January 22,6 and in despatch No. 359 of January 22, 1938, I have had a number of informal discussions with members of the Foreign Office and of the Ministry of Economic Affairs, from which it is more evident than ever that the Estonian authorities feel that they cannot modify to any appreciable extent their proposals already conveyed to the Department. They state that they agree in theory with the principles explained by me as embodied in American trade agreements, but in practice they cannot deviate to any extent from Estonia’s present system of controlling imports, chiefly through quotas and import licenses. Such a control, they state, is necessitated by Estonia’s economic situation, and by the insistence of the leading countries, with which they have commercial treaties, to trade on a bi-lateral rather than a multilateral basis. I have pointed out that this system as administered at present tends to be prejudicial to American trade.
My conversations with the local authorities have shown that they are very desirous of maintaining the good will of the United States and they have pointed out that on the basis of present treaty relations between our countries, Estonia has purchased considerably more American goods than it has been able to sell to the United States. In fact, the authorities insist upon emphasizing the preponderance of American imports into Estonia over exports of Estonian products to the United States, notwithstanding my explanations of the basic Principles of American trade agreements. For instance, in a conversation [Page 248]with Director Tuhk (February 10th) of the Ministry of Economic Affairs, he stated that the 1937 foreign trade statistics indicated that Estonia imported in that year goods from the United States to the value of slightly more than 9,000,000 Estonian krones, while the United States purchased from Estonia slightly less than 3,000,000 krones worth of goods, which was much the largest “unfavorable” balance Estonia had with any one country. Further, Mr. Tuhk pointed out from the statistics that Great Britain imported during the same year (1937) 36,000,000 krones worth of Estonian goods, while it sold in the Estonian market approximately only half of that amount, namely British goods to the value of 18,500,000 krones.
I suggested to Mr. Tuhk that the exchange gained by its favorable balance of trade with Great Britain, could be used to purchase goods from the United States, inasmuch as it more than made up for the “unfavorable” balance with the United States. Mr. Tuhk replied that Estonia needed at least a part of the free exchange obtained from Great Britain for its own unfavorable balance of payments. He pointed out that in 1937, Estonia had an unfavorable balance of trade, according to preliminary statistics just published, of 5,050,000 Estonian krones. Estonia’s invisible balance of payments was also “unfavorable”, its income from investments abroad and other income from foreign sources being less than its financial obligations abroad, aside from its unfavorable balance of trade. Besides, Director Tuhk stated that Great Britain used its large purchases of Estonian goods as a lever in endeavoring to extend its export trade to Estonia.
I am citing Mr. Tuhk’s remarks above, inasmuch as they are typical of the arguments which the local authorities like to use, but which I have endeavored to explain to them should have no bearing on the principles of a trade agreement with the United States, particularly since the bulk of imports from the United States has consisted of cotton, sulphur and other raw materials needed in Estonia’s industries.
In my conversations, I have proceeded on the theory that if agreement could be reached on a reasonable import-quota for American goods, the chief obstacle would be overcome. There would then be a possibility of agreement on other points.…
. . . . . . . . . . . . . .
In my last conversation at the Foreign Office, which was yesterday (February 18th), and when Secretary Trimble was also present, inquiry was made of Mr. Mickwitz as to whether he thought, after our various conversations, that there existed any possibility of reaching agreement on fundamentals so that a trade agreement might be negotiated, he replied that he believed no such solution could be found for the moment, at least not in time to enable a trade agreement to be negotiated by May 22, 1938. Hence, it was his opinion that the [Page 249]best plan, for the present at least, would be to extend the present treaty of friendship, commerce and consular rights7 for another year in the hope that during that time some solution could be found.
As indicated in my despatch No. 259  of January 22, 1938, Mr. Wirgo left on that date for Poland and the Balkan States. He had not returned as yet, but as soon as he returns, I shall go over the matter with him again, and report further to the Department. However, it is evident that there is little chance for the difficulties to be overcome in time to complete negotiations by May 22 next, and unless conditions in Estonia change, there would appear to be poor prospects for successfully negotiating a trade agreement.
The Estonian Foreign Office and the Ministry of Economic Affairs wish me to convey their appreciation for the concessions which would likely be granted on vodka and other Estonian articles by the United States, and they hope some means may be found eventually to give them the benefit of these concessions.