611.6731/387: Telegram
The Ambassador in Turkey (MacMurray) to the Secretary of State
[Received June 10—8 p.m.]
46. From Trade Agreement Delegation, Embassy’s No. 43, May 30, 5 p.m.10
Delegation has been informed by the Secretary General of the Foreign Office, acting under instructions from Prime Minister, that the Turkish Government has become convinced that it is not in Turkey’s interest to enter into a trade agreement with the United States on the basis of the general provisions proposed by us.11 He said that our project contained so many provisions contrary to the existing Turkish commercial system that Turkey would derive “neither material nor moral advantages” from an agreement containing such provisions.
He emphasized especially that for internal political reasons the Turkish Government could not accept our proposals with regard to making absolute tariff reductions and binding them for period of [Page 1058] agreement, and with regard to consolidating other similar taxes and charges, and bases and methods of determining dutiable value the Turkish Government could not make an agreement which would limit legislative power of Turkish Parliament. (As indicated by the Embassy’s telegrams question of basis of tariff reductions has been subject of discussion from very beginning. When Turks insisted upon inability to accept our proposals regarding binding of tariff rates, et cetera, the two delegations sought to formulate a compromise along the lines of fifth paragraph of article 1 of trade agreement with France.12 When eventually Prime Minister decided that tariff reductions could be made only on percentage basis, an effort was made to work out a provision stipulating 6 or 8 months delay in the application to imports from the United States of tariff increases on schedule articles. Consolidation strikes the Turks as a new form of capitulations. Reaction against pre-war capitulatory régime has not yet run its course and Turks are firmly set against assuming obligations which limit their freedom of action.)
In discussing other objectionable provisions Secretary General stated that it would be impossible for Turkey to make exchange available without delay for American imports unless there were quota restrictions on importations of American goods. Turkey, however, had given up the quota system and did not desire to revert to it. He objected strongly to the various escape clauses which permitted denunciation of trade agreement on short notice as being disadvantageous to the weaker country. Not only did such clauses make the agreement very fragile but they were specially disadvantageous in the case of Turkey on account of seasonal character of Turkish export trade.
Secretary General went on to say that Turkey attached great importance to relations with the United States for both economic and political reasons. He hoped, therefore, that it would be possible to conclude for a 1-year period a very simple trade agreement similar to our trade agreement with Belgium13 which would supplement the existing commercial treaty and facilitate the development of American-Turkish commercial relations through tariff concessions. Such an agreement would be based on unconditional most-favored-nation treatment, contain lists of articles upon which tariff concessions were accorded—those in schedule I being percentage reductions—and provide (1) that the schedule articles could be freely imported without restriction or limitation and (2) that the two Governments would refrain from prohibiting, restricting or delaying payments for importations [Page 1059] “on condition that the commercial exchanges between the two countries leave a balance of 20% in exchange freely transferable in favor of Turkey.” There would be also a provision providing for (1) a delay of 3 months in the application to imports from the United States of any tariff increases which Turkey might make on schedule articles, (2) consultation with regard to such increases if United States desired official list to commence not later than 30 days after promulgation of new duties and (3) right of United States to terminate agreement on 3 months’ notice if satisfactory agreement had not been reached within a month after beginning of negotiations.
Secretary General was informed that it was not believed that our Government would be willing to make tariff reductions on any basis other than the general provisions proposed by us. However, delegation would inquire of its Government whether it would be possible to conclude a trade agreement along the lines suggested by him. Secretary General stated that in case it was impossible to make a trade agreement with tariff concessions, some sort of a modus vivendi might be worked out which would stabilize the present trade pending further study of the question of the possibility of concluding a trade agreement if no modus vivendi were possible, then trade would function under provisions of unpublished decree summarized in Embassy’s number 31, May 10, 6 p.m.
This changed attitude toward trade agreement are [is?] not yet entirely clear but it is believed that the most important factor is the worsening of Turkey’s foreign exchange position, particularly in respect to the United States. Imports from the United States during first 4 months 1938 increased to pounds (Turkish) 7,392,041 (3,926,153 in 1937) while exports to the United States decreased to pounds (Turkish) 2,603,986 (4,587,295 in 1937). Foreign exchange shortage finally became so alarming that payments for imports were stopped on May 11. Under influence of this situation Turks are unwilling to make concessions which they might make under more favorable conditions and apparently fear that acceptance of our standard provisions would so weaken their position vis-à-vis the principal European countries that their present basic tariff, financial, and commercial policies would be endangered. The weakening of their position that might result from the acceptance of our general provisions outweighs in their eyes any possible advantage they might derive from the conclusion of a trade agreement with us.
The provisions contained in Turkish proposal are obviously inadequate as a substitute for our standard provisions. While Turkish Government might be willing to make minor concessions to our viewpoint delegation believes that it will be impossible to obtain at the present time the Turkish Government’s acceptance of the substance of our general provisions. Ambassador shares this view as a result [Page 1060] of conversations which he had yesterday with Secretary General and Prime Minister. Prime Minister stated to him that while he greatly admired our trade agreements program, Turkey’s economy was not strong enough to permit her to enter into such definite commitments as acceptance of our provisions involve.
The delegation is furthermore of the opinion that even if it were possible to reach an agreement at this time as the result of concessions to the Turkish viewpoint which we could make, there would not be sufficient benefits accruing to us in the near future from the agreement to justify our making substantial concessions. In view of Turkey’s foreign exchange situation at the present time any trade agreement containing a provision providing for making available foreign exchange without delay could not be put into effect now or in the near future without being accompanied by quantitative restrictions on imports from the United States involving drastic reductions from amounts imported in 1937. Practically only exchange available to Turkey for payment of American goods is that derived from sale of Turkish products in the United States and due to great increase in imports of American goods during the past 12 months Turkey’s supply of exchange is lower than it has ever been before.
In view of the foregoing, delegation recommends that Department give consideration to suspension of present negotiations for trade agreement with door being kept open for resumption of negotiations whenever situation appears to offer possibilities of Turks agreeing to provisions which would be acceptable to us.
Delegation requests Department to give urgent consideration to American-Turkish trade problems which will require settlement in the event no trade agreement is concluded.
As the Department is aware no exchange is now being made available for imports from the United States except for petroleum. Arrears in the form of customs amount to approximately $3,500,000. Without taking into account new imports it is estimated that amount now in arrears cannot be liquidated before middle of October. From the aforesaid period to the end of year foreign exchange available to Turkey from American tobacco purchases alone will amount to a minimum of $6,000,000.
If no trade agreement can be concluded Turkish Government will probably propose a temporary agreement designed to palliate failure to conclude a trade agreement and to secure our acceptance of the principle involved in unpublished decree referred to in Embassy’s No. 31, May 10, 6 p.m. Proposed agreement will probably be based on following:
(1) Unconditional most-favored-nation treatment; (2) no quantitative restrictions and (3) exchange for payment of commercial imports of American origin to be made available to the extent of 80 percent of [Page 1061] exchange derived from sale of Turkish goods in the United States. Such an arrangement would have advantage of consolidating very large part of gain made by American exports to Turkey during last 2 years, and of still leaving ample margin of dollar exchange available to Turkey to meet financial obligations in the United States, such as match company bonds, et cetera. It would limit to small amounts possible utilization of dollar exchange for payments on British credit, French bonds, et cetera. (Turkey probably desires to be in a position to state that they have no dollar exchange available for noncommercial payments in other countries and consequently to force these countries to take Turkish goods.) Apart from apparent incompatibility with Department’s commercial policy, this arrangement would have disadvantage of permitting accumulation of blocked balances.
If there is no temporary agreement the American trade will be subject to terms of unpublished decree and other applicable legislation.
Department’s instructions are desired with regard to desirability of a temporary agreement and if so along what lines? If no temporary agreement is concluded what sort of public statement should be made? What position does the Department desire taken toward application to American trade of principle contained in unpublished decree—if published, or if applied without publication? Department’s views are also requested with regard to action to be taken with respect to application to imports from the United States of decree of March 15 (Embassy’s despatches Nos. 590, 602, and 64714).
Inasmuch as within the next 2 weeks there will be a general exodus of high officials from Ankara, including Prime Minister, and also principal Turkish negotiators, Secretary General of the Foreign Office and Chief of Turko F. I. S.,15 who are leaving for Berlin on trade mission, it is hoped that the Department will find it possible to telegraph its instructions not later than next Wednesday. [Trade Agreement Delegation.]
- Not printed.↩
- See telegram No. 66, August 13, 1937, 6 p.m., to the Chargé in Turkey, Foreign Relations, 1937, vol. ii, p. 947, and footnote 7, p. 949.↩
- Signed at Washington, May 6, 1936; Department of State Executive Agreement Series No. 146, or 53 Stat. 2236.↩
- Reciprocal Trade Agreement between the United States and the Belgo-Luxemburg Economic Union, signed at Washington, February 27, 1935; Department of State Executive Agreement Series No. 75, or 49 Stat. 3680.↩
- None printed.↩
- Usually referred to as Türkofis, which is the Turkish designation for the Department of Trade in the Ministry of National Economy.↩