The Under Secretary of State (Welles) to the Secretary of the Treasury (Morgenthau)

My Dear Mr. Secretary: The Department has studied with attention the memorandum transmitted by the Treasury in regard to the conversation between Dr. Wilhelm Tannenberg, First Secretary of the German Embassy, and Mr. W. E. Johnson, Acting Deputy Commissioner of Customs, which took place on April 21.

I have discussed the questions involved with the Secretary of State and it is our thought that the matter might appropriately be handled if the Acting Deputy Commissioner of Customs informed the First Secretary of the German Embassy that if the German Government on its own initiative takes such action as will abolish the practices which made it mandatory for this Government to impose countervailing duties upon German exports, and this Government was satisfied that the objectionable practices have in fact been abolished, this Government in such event would rescind the order imposing the countervailing duties. Such statement to the First Secretary of the German Embassy would of course make it clear that action would have to be taken by the German Government unilaterally and upon its own initiative and that no agreement between the two Governments was involved directly or indirectly.

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As most recently described in telegram No. 304 of May 2 from our Embassy in Berlin,29 there appears to be firmly established in Germany an all-pervasive direct and indirect system for facilitating exports. Even if the German Government wishes to exempt its exports to the United States from the effects of this system, there would remain the question of how effectively Germany could prohibit, with reference to exports to the United States, the different practices and procedures for enabling German products to compete on a price basis in foreign countries. It would appear that it must be difficult to devise assurances that the German system will not result in bounties or grants on various articles which would in the future make the latter subject to countervailing duties under Section 303 on grounds different from those covered in the assurances given by the German Government in August 193630 or which would be covered in additional assurances directed toward the practices covered by the most recent countervailing duty order.

The questions raised, both as regards the particular assurance mentioned by Mr. Tannenberg and by the more general aspects of the German system, are largely of detailed and technical legal character within the field of legal interpretation of the responsibilities of the Secretary of the Treasury under the mandatory terms of Section 303, and I find it difficult, without the necessary studies, to express a definite opinion.

Sincerely yours,

Sumner Welles