611.60H31/126: Telegram

The Minister in Yugoslavia (Lane) to the Secretary of State

133. Department’s telegram No. 35, September 24, 3 p.m. Second meeting was held yesterday morning. Pilja said that while he had no objection to normalizing trade relief through the medium of a modus vivendi it would be impossible for Yugoslavia to accept modus vivendi along the lines of the Department’s draft as acceptance would expose Yugoslavia to the necessity of applying this principle to other [Page 699]countries. In agreements with other countries two main principles have been insisted upon: (1) The maintenance of balance of trade favorable to Yugoslavia, and (2) with regard to discrimination, such countries would be satisfied merely by Yugoslavia’s undertaking not to apply the import control so long as the trade is balanced or in favor of Yugoslavia.

He said that the third country would be in a position to protest only on some engagement which adopted nondiscrimination as a matter of principle, for example, as in the Department’s draft modus vivendi. When such an undertaking is, however, made in order to attain some specific aim, for instance through granting of a definite quota to use for automobiles and trucks, he could then justify his position.

I reaffirmed the Department’s desire for a quota on automobiles based on a ratio of 45 per cent, pointing out that according to our figures this is the average for the years from 1925 to the beginning of the control. Pilja agreed to compare their figures with ours at next meeting leaving matter in abeyance for the moment.

With regard to Department’s preference for the establishment of a global quota, Pilja said that the adoption of such a measure would fundamentally alter Yugoslavia’s basic policy and for technical reasons would be impossible. He added, however, that if eventually Yugoslavia might be able to apply import control to both clearing and non-clearing countries our formula could be accepted at once. At present stage he contended it would be harmful to the United States in the event that the total imports of cars should diminish, for now Yugoslavia would be disposed to give us a share independent of total imports or of the import control.

Due to more important questions yet to be decided upon, I did not yesterday bring up the subject of the last paragraph of the Department’s telegram.

It is our opinion that there is considerable reason in Pilja’s contention regarding non-acceptability of principles embodied in draft modus vivendi during present phase of Yugoslavia’s trade relations with non-clearing countries.