Foreign Relations of the United States Diplomatic Papers, 1938, The British Commonwealth, Europe, Near East, and Africa, Volume II

611.6831/207

The Secretary of State to the Minister in Greece (MacVeagh)

No. 484

Washington, September 29, 1938.

Sir: The receipt is acknowledged of your despatch No. 2298 of June 10, 1938 transmitting a copy of the Greek draft of the proposed modus vivendi in commercial matters together with explanatory notes by the competent Greek authorities.

The Department has given careful consideration to the draft modus vivendi proposed by the Greek Government as well as to the Legation’s comments and suggestions thereon. The Department feels that the Greek proposals fall short in certain essential respects of providing for satisfactory treatment of American trade, as indicated in the comments contained herein. Certain modifications of the Department’s second draft modus vivendi, which was enclosed in its Instruction No. 454 of April 13, 1938, are suggested below. With these modifications, the Department desires that you endeavor to obtain the assent of the Greek authorities to a modus vivendi more nearly in accord with the second draft proposed by the Department.

With respect to Article I, while the Department would prefer the form of its second draft, it is prepared to accept the Greek draft of this Article, which combines the provisions of the Department’s first and second drafts. In paragraph 2, commas should be inserted after the words “sale”, “favor”, and “America”, in the eleventh, thirteenth and last lines, respectively.

With respect to Article II, it would appear that the objection of the Greek authorities to the acceptance of paragraph 2 of the Department’s second draft is based on the belief that its provisions do not conform to the existing Greek system of import control and regulations and that these provisions would tend to give rise to endless discussions with respect to the methods of establishing the United States percentage share of total permitted importations.

As to the first of these points, the Department feels that it is neither necessary nor desirable to distinguish between the various types of quantitative restrictions, such as “general quotas” and “customs quotas” on the one hand, and “special licenses” and “extra quotas” on the other, as is done in the Greek counterproposal. In this connection, you should point out to the Greek authorities that the quota article proposed by the Department in its second draft modus vivendi makes provision for “extra” or supplementary quotas during a quota period in the phrase in Article II, paragraph 2 (page 2, lines 2 and 3) “and of any increase in such amount during the specified period”,²⁵ and in the last sentence of subparagraph (b) of the same paragraph, which reads as follows: “If the total amount permitted entry from all countries is increased during any quota period, the quota established for the other country shall be increased proportionately.” Therefore, the quota article proposed by the Department does not require, as stated in the explanatory notes accompanying the Greek counterproposal (pages 3 and 4),²⁶ that the total amount of permitted imports of a particular product, including “extra” or supplementary quotas, shall be established in advance of the given quota period. Under the Department’s proposed draft of Article II, paragraph 2, the Greek Government could continue its present policy of establishing in advance for a given period what is referred to, under the Greek import regime, as a “general quota”, and of subsequently granting “special licenses” or allotting “extra quotas” for merchandise imports in excess of the original (or “general”) quota.

With respect to both original (or “general”) global quotas (the word “global” referring to the total amount of a given product permitted to be imported from all countries) established prior to the quota period, and the supplementary (or “extra”) global quotas established during the given quota period, the Article provides, at the option of the country which imposes the restriction, for two alternative methods of procedure, namely, the global quotas by products may be (a) unallocated, or (b) allocated by countries, as described in the Department’s instruction No. 454 of April 13, 1938, pages 2 and 3. In this connection, the Department understands that the Greek Government’s draft modus vivendi under reference proposes that, with respect to any article imported into Greece subject to quantitative restrictions, the original or “general” global quota shall be unallocated by countries, whereas the supplementary or “extra” quotas shall be allocated by countries; at least that the United States’ share in such supplementary quotas shall be allocated. While such a quota system is theoretically possible, the Department feels that a less cumbersome method of quantitative restriction of imports, which would be more satisfactory to Greek importers and United States exporters, would be a system which provided, with respect to any given product, for either an unallocated global quota (including both original or “general” and supplementary or “extra” quotas), or an allocated global quota. However, under the Department’s proposal, if a quota for any product should be allotted by the Greek Government to any third country, an allotment would have to be made to the United States, including both original and any supplementary quotas, on the basis of trade in past years. In any event, the phrase “the total amount permitted to be imported from all countries during any specified period … and of any increase in such amount during the specified period” includes all imports of the regulated article. This means that the global quota for any product with respect to which the United States would be assured a share based upon trade in past years, must cover all permitted imports of the product in question, including such imports as may be made through public or private clearing, compensation, or payment arrangements from all countries, including Germany. This point should be made clear to the Greek authorities. In discussing it you may wish to invite their attention to the first paragraph (page 4) of the “Memorandum of Interpretation of Article VIII” contained in the Temporary Commercial Arrangement between the United States and Italy of December 16, 1937, a copy of which was enclosed with the Department’s instruction No. 454 of April 13, 1938.

With a view to meeting the second point of objection of the Greek Government regarding the method of establishing the proportion of the total importation of specific articles which shall be allotted by the other country you are authorized to propose to the Greek authorities the following alternative draft of Article II, paragraph 2, subparagraph (b):

“(b) Establish in advance, and inform the other country concerning, the quota of such article which shall be permitted to be imported from the other country during the specified period. Such quota, as originally established or subsequently changed, shall be equivalent to the proportion of the total importation of such article which the other country supplied during past years, account being taken in so far as practicable in appropriate cases of any special factors which may have affected or may be affecting the trade in that article. Where a quota for importation from the other country is established, no obstacle, administrative or otherwise, shall be placed in the way of importation sufficient to fill the quota allotted to the other country. If the total amount permitted entry from all countries is increased during any quota period, the quota established for the other country shall be increased proportionately.”

This new language is designed to meet the Greek views for the application of a formula based on the Department’s earlier proposal of a “representative period” and is believed to be sufficiently flexible to cover, among other things, newly developing trade in certain products.

If the Greek Government should be inclined to accept Article II, paragraph 2, with the suggested modification of subparagraph (b), but should hesitate to do so on the ground that such a formula would still leave too much uncertainty as to the treatment to be accorded to various articles imported from the United States, the Department would consider the possibility of setting forth in an annex to the modus vivendi a list of articles of important interest to us and the percentages of total permitted imports of such articles which would be allotted to the United States if or so long as allocations were made to any third country. Provision might also be made for periodic revision of such a list and the minimum percentages prior to the beginning of each quota period. Your comments on this possible solution would be appreciated.

With respect to the Legation’s proposal contained in enclosure No. 1 to despatch No. 2298 of June 10, 1938, that we ask the Greek Government to accord us a share of the total permitted imports of all products subject to quantitative restrictions (such a share would, of course, have to be based on the value of the trade in the products subject to restrictions), the Department feels that such a provision would tend to perpetuate the discriminatory treatment with respect to specific products imported into Greece from the United States during recent years under the existing Greek quota system. It is the Department’s understanding that the advantages expected from the special semi-annual “lump value” quotas granted by the Greek authorities to cover imports into Greece from the United States of items in Greek quota groups B, F, and G have been frequently nullified by the practice of arbitrarily shifting items, either from the quota-free list or from some other quota group, to one of the aforementioned quota groups during the quota period to which the lump value quota is applicable, with the result that discrimination against imports from the United States has continued. Moreover, with respect to specific products, discrimination against imports from the United States has also occurred through the practice of allotting the lump value quota to those particular items which the Greek authorities desire shall be imported from the United States, while at the same time withholding the issuance of import licenses for those products the importation of which from the United States the Greek authorities wish to restrict or prohibit.

Although the Legation’s proposal, by requiring a lump value quota for all products subject to quantitative restrictions, would presumably preclude the continuance of the former practice on the part of the Greek authorities of nullifying advantages obtained in the form of lump value quotas by the shifting of items within the various quota groups, it would leave the Greek authorities entire freedom to make arbitrary allocations of the lump value quota with respect to specific items, and thus would provide no definite assurance that non-discriminatory treatment would be accorded imports into Greece from the United States of individual products subject to quantitative restrictions.

With respect to Article II, paragraph 3, of the Department’s second draft modus vivendi, no reasons are given in your despatch No. 2298 under reference for (1) the omission from the Greek draft of subparagraph (c); and (2) the changes in subparagraphs (a) and (e), which are apparently contained in modified form in Article II, paragraph 2 B (c) of the Greek draft. The Department feels that the substance of subparagraph (c) should be incorporated in the modus vivendi, and that Article II, paragraph 2 B (c) of the Greek draft is not a satisfactory substitute for Article II, paragraph 3, subparagraphs (a) and (e) of its second draft for the following reasons: (1) Greek importers should be informed regarding all regulations relating to the issuance of licenses or permits before they are put into force, which would be required under the provisions of subparagraph (a) of the Department’s draft, whereas the Greek draft provides merely that such regulations “be communicated to the interested Government”; (2) subparagraph (e) of the Department’s second draft provides, in certain circumstances, for the communication to the Government of the other country of “the amount of [an]²⁷ article, the growth, produce, or manufacture of each exporting country which has been imported or for which licenses or permits for importation have been granted” (underscoring added), whereas the Greek draft provides only that the “amount of each product [subject to regulation]²⁷ for which import licenses or permits shall be granted to the other country” (underscoring added) shall be communicated to the other Government.

As to the modifications of Article II, paragraph 3, subparagraph (d) of the Department’s second draft, contained in Article II, paragraph 4, of the Greek draft, the Department has noted the comments relating thereto contained in your despatch No. 2258 of May 14, 1938 (page 4, paragraph 3²⁸). In view of the possibility of discrimination against imports from the United States, particularly with respect to those products for which the global quotas may be unallocated by countries, by allotting licenses to importers in such a manner as to favor imports from some third country, such as Germany, with which close trade connections have become established during recent years when imports of such products from the United States have been so greatly restricted, the Department would prefer that subparagraph (d) of its second draft be retained in the modus vivendi, rather than Article II, paragraph 4, of the Greek draft. Moreover, the Greek draft appears to weaken the commitment more than is necessary to fulfill the condition stated in your despatch No. 2258 under reference, namely, that the Greek Government “desires to keep within limits the number of licensed Greek importers”, since it provides that “if either country controls or limits the establishment of new or re-establishment of old trade connections by local importers”, et cetera. It may well be, however, that this was not intentional on the part of the Greek authorities, but was simply an attempt on their part to adapt the language of the text, as nearly as possible, to that contained in subparagraph (d) of the Department’s draft. In view of the aforementioned comments relating to this subparagraph contained in your despatch No. 2258, the Department would be willing to accept subparagraph (d) of its second draft with the addition of the words “duly qualified” before the word “importer” in lines 1 and 6, respectively. This modification should meet the views of the Greek authorities.

You should therefore inform the Greek authorities that your Government feels that the Greek counterproposal with reference to Article II does not give adequate assurances for non-discriminatory treatment of American trade and that it believes that provisions such as those contained in Article II of the draft modus vivendi presented to the Greek Government on April 28, 1938, modified as suggested above in respect of paragraph 2, subparagraph (b) and paragraph 3, subparagraph (d), should be included in the proposed temporary agreement.

With respect to Article III, paragraph (a) of the Greek draft, the meaning intended by the addition of the phrase “provided that such articles have been imported in accordance with the regulations in force” is not clear to the Department. If the phrase is intended to refer to the regulations relating to quantitative restrictions (quotas, licenses, etc.) it is unnecessary, since such regulations are covered by the provisions of Article II. If the phrase is intended to refer to the regulations relating to exchange control, it would appear to permit regulations which would greatly weaken the commitment. What is desired is an agreement with the Greek authorities in regard to the principles which shall govern this matter. It would of course be understood that whatever regulations the Greek authorities might see fit to issue would conform to those principles.

With respect to Article III, paragraph (b), the Department feels that the Greek draft is unsatisfactory in that the meaning intended by the phrase “in conformity with the situation of the respective markets and the real value of the respective foreign exchanges” is vague, notwithstanding the explanatory notes of the Greek authorities accompanying the paragraph.

Therefore, the Department would appreciate receiving further explanatory comments describing specifically how the Greek authorities would expect to apply the provisions of paragraphs (a) and (b) in practice. In the absence of a satisfactory explanation and of a more precise phraseology, the Department feels that the substance of Article III, paragraphs (a) and (b) of its second draft should be retained in the modus vivendi.

It is noted that the Greek draft of Article III omits the words “growth, produce or manufacture” contained in the Department’s second draft in every instance. For purely technical reasons the Department would prefer that these words be included.

With respect to Article IV, the Department feels that the Greek draft is unsatisfactory, particularly in view of the second paragraph (page 9)²⁹ of the explanatory note of the Greek Government relating thereto. You should, therefore, point out to the Greek authorities that your Government is of the opinion that non-commercial factors should not be permitted to influence decisions with respect to foreign purchases by governmentally-controlled or authorized monopolies, or with respect to governmental purchases of foreign supplies or the awarding of governmental contracts to foreigners in connection with public works, and that therefore it feels that reciprocal assurances in accordance with the terms of Article IV of its second draft should be incorporated in the modus vivendi.

With reference to the statement by the Greek Government in its explanatory note to the effect that “the right of any Government to reserve for itself unlimited freedom of decision with regard to purchases and contracts has never been disputed”, you may wish to invite to the attention of the Greek authorities that pledges of non-discriminatory treatment in respect of these matters is an appropriate subject for inclusion in treaties or agreements between sovereign states, regardless of their size. In this connection, it may be desirable to point out that provisions similar to those proposed in Article IV of the Department’s second draft are incorporated in the trade agreement between the United States and Czechoslovakia, and in draft general provisions of trade agreements now in the course of negotiation. Practically every international agreement involves limitations on freedom of action, but these reciprocal limitations are voluntarily undertaken by each of the parties, and provision customarily is made for regaining freedom of action, by termination of the treaty or agreement, in case of necessity.

If the Greek authorities continue to oppose the inclusion in the modus vivendi of Article IV of the Department’s second draft in its entirety, you are authorized to propose the deletion of the second sentence of paragraph 1, with a view to making the language of the Article more acceptable to the Greek authorities, but on the understanding that the deletion of that sentence in no way changes the interpretation we would give to the Article. If the Greek authorities should reject this proposal and continue to resist inclusion of the Article, you are authorized to withdraw it in its entirety. However, at the same time, you should make it clear to the Greek authorities that your Government does so without prejudice to its right to make representations to the Greek Government in the event that circumstances should arise in which it appears to your Government that fair and equitable treatment, with reference to the provisions of its proposed Article IV, has not been accorded by the Greek Government to imports from the United States. In your discretion, you might add that if, in such circumstances, representations did not lead to a satisfactory adjustment of the matter, your Government would feel free to terminate the modus vivendi in accordance with the provisions of Article VI.

With respect to the last sentence of Article V, paragraph 2, of the Greek draft, the Department is giving consideration to the question of accepting an Article containing provisions which would except the advantages which may be accorded by Greece to the members of the Balkan Entente, but desires certain additional information before reaching a decision. The Department’s information indicates that provisions excepting from most-favored-nation treatment the advantages which may be accorded by Greece to the members of the Balkan Entente have so far been incorporated in only two accords, namely, in the Commercial Agreement between Greece and Lithuania which was signed at Kaunas on December 1, 1937³⁰ and ratified by Greece on January 28, 1938 (your despatch No. 2168, March 11, 1938,³¹ Provisional Entry into Effect of Commercial Agreement between Greece and Lithuania, enclosure 2, Official Gazette of February 5, 1938, page 192), and in the exchange of notes accompanying the signature of the Convention of Commerce and Navigation between Greece and Latvia which was signed at Riga on January 15, 1938,³² and ratified by Greece on April 15, 1938 (your despatch No. 2271, May 24, 1938,³³ Ratification of Commercial Treaty between Greece and Latvia, enclosure 2, Greek Government Gazette of April 20, 1938, pages 990–991).

Moreover, in each instance, the provisions are qualified. In the Agreement between Greece and Lithuania of December 1, 1937 (Article 2) each of the Balkan countries is named with respect to which advantages accorded are to be excepted, thus restricting the excepted advantages to those accorded the present members of the Balkan Entente. In the exchange of notes with Latvia of January 15, 1938, the acceptance of the Balkan clause by Latvia is made conditional upon its incorporation in two treaties of commerce “to be concluded” between Greece and one of the “Great Powers” (Germany, France, or Great Britain), and the other between Greece and one of the Baltic countries. The Department’s information does not indicate whether the Commercial Agreement between Greece and Lithuania mentioned above fulfills the second condition in the exchange of notes with Latvia, namely, the incorporation of the Balkan clause in an accord with one of the Baltic countries. Inasmuch as the Commercial Agreement between Greece and Lithuania, although signed on December 1, 1937, was not ratified by Greece until January 28, 1938, whereas the Convention of Commerce and Navigation between Greece and Latvia was signed on January 15, 1938, it appears that the former agreement may fulfill this condition. You should therefore ascertain from the Foreign Office, and inform the Department whether such is the case. According to the Department’s information, however, Greece has not yet concluded an accord with either Germany, France or Great Britain containing the Balkan clause, so that the clause in the accord between Latvia and Greece is presumably not yet effective. In this connection, you should endeavor to ascertain from the Foreign Office whether negotiations are in progress with any other countries for agreements which the Greek Government hopes will contain the Balkan clause. You should also inform the Department how much importance, in your opinion, the Greek authorities attach to the inclusion of the Balkan clause in the proposed modus vivendi with this country, and how far they would be willing to go in restricting the scope of the clause, with reference to both countries and articles.

If it should be decided to accept an Article containing provisions which would except the special advantages which Greece accords to the members of the Balkan Entente, the Department would prefer that such advantages be restricted to those accorded to the present members of the Balkan Entente and only to those articles with respect to which advantages are accorded on the effective date of the modus vivendi, as was done in the provisions relating to Danubian preferences in the trade agreement between Czechoslovakia and the United States which became provisionally effective April 16, 1938.³⁴ In this connection, the Department desires that you submit a report, as soon as possible, of the preferential advantages, including those relating to all forms of quantitative trade control (import quotas and licenses, exchange allotments, clearing and compensation arrangements, etc.) as well as tariff concessions, which Greece now actually accords to Bulgaria, Rumania, Turkey or Yugoslavia, with references to the pertinent conventions, decrees, etc. relating thereto.

You are also instructed to (1) delete, for purposes of uniformity, the words “It is understood that” at the beginning of Article V, section 2; and (2) to insert preceding the word “exportation” in Article V, section 4, of the Department’s second draft modus vivendi the words “importation or”.

Very truly yours,

For the Secretary of State:

Francis B. Sayre

25. Page 527, lines 9 and 10.
26. Paragraph numbered 2, bottom of p. 537.
27. Brackets appear in the original instruction.
27. Brackets appear in the original instruction.
28. Paragraph beginning “The Commission then reverted”, p. 531.
29. Paragraph beginning “It is evident that any Government,” p. 539.
30. League of Nations Treaty Series, vol. cxciii, p. 185.
31. Not printed.
32. League of Nations Treaty Series, vol. cxcv, p. 19.
33. Not printed.
34. Department of State Executive Agreement Series No. 147, or 53 Stat. 2293.