The Secretary of State to President Roosevelt

The President: The undersigned, the Secretary of State, has the honor to lay before the President, with a view to its transmission to [Page 617]the Senate to receive the advice and consent of that body to ratification, if his judgment approve thereof, a convention, signed at Washington on March 18, 1938, on the part of the United States of America and the Netherlands providing for the arbitration of a difference between the Governments of the two countries in regard to the sufficiency of the payment made by the Government of the United States of America to the Government of the Netherlands for certain military supplies of the Netherlands Government which were requisitioned in 1917.

The differences between the two Governments, which it has been impossible to compose through the regular diplomatic channels, are of the following general nature:

In November 1917 this Government requisitioned certain quantities of machine guns and ammunition therefor which had been manufactured for the Netherlands Government by the Colt Patent Fire Arms Company and the United States Cartridge Company, it having been understood with the Purchasing Agent for the Netherlands Army in New York City that this Government would reimburse the Netherlands Government the cost of the materials plus certain expenses. This Government had previously indicated to the Netherlands Government that “there is objection in principle to the shipment from this country to any other not allied with it in this war of any fighting material of the class which is supplied by the Ordnance Department”.

After assembling the relevant evidence of the cost of the materials and of the expenses in question, the War Department Board of Appraisers calculated the amount due at $5,720,492.53. The Netherlands Government, however, in accepting that amount refused to accord full acquittance of this Government’s obligation, contending that it should be reimbursed in the terms of the foreign exchange with which it had purchased the dollars to be used to pay for the manufacture of the munitions. It contends that the fluctuation of exchange between the date when such dollars were purchased by it and the date of receipt of the above-mentioned reimbursement was such as to represent an exchange loss of approximately 2,600,000 florins, to which is now added a claim for interest on that amount. The Department of State has contended that the conversion of florins into American currency was an independent transaction with which this Government has no concern. Despite protracted diplomatic negotiations throughout a period of many years, it has been impossible for the two Governments to reconcile their differences in this respect.

On January 13, 1930, a Treaty of Arbitration21 was concluded between the two Governments Article I of which provides as follows:

“All differences relating to international matters in which the High Contracting Parties are concerned by virtue of a claim of right made [Page 618]by one against the other under treaty or otherwise, which it has not been possible to adjust by diplomacy, which have not been adjusted as a result of reference to the Permanent International Commission constituted pursuant to the treaty signed at Washington, December 18, 1913,22 and which are justiciable in their nature by reason of being susceptible of decision by the application of the principles of law or equity shall be submitted to the Permanent Court of Arbitration established at The Hague by the Convention of October 18, 1907,23 or to some other competent tribunal, as shall be decided in each case by special agreement, which special agreement shall provide for the organization of such tribunal if necessary, define its powers, state the question or questions at issue, and settle the terms of reference.

“The special agreement in each case shall be made on the part of the United States of America by the President of the United States of America by and with the advice and consent of the Senate thereof, and on the part of the Netherlands in accordance with its constitutional laws.”

This treaty provision has been invoked by the Netherlands Government, and, pursuant to the obligations thereof, the attached convention has been concluded as a means for the final disposition of this international dispute.

It will be observed from the terms of the convention that it provides for the systematic development of the factual and legal issues of the controversy, by a series of pleadings, and, for a limited period thereafter, for further consideration by the two Governments with a view to its final disposition otherwise, before it becomes necessary to refer it to formal arbitration. This is believed to be the most logical and the most economical procedure for disposing of such a controversy since it will involve this Government in no added expense unless and until formal arbitration becomes necessary.

Provision is also made in the convention for the similar development and disposition of certain counterclaims for overpayment which this Government proposes to advance.

Respectfully submitted,

Cordell Hull

[Arbitration under this convention was interrupted by the war.]