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

No. 133

Sir: Reference is made to the Legation’s telegram no. 52, March 30, 6 p.m. and despatches no. 555, April 21 and no. 570, May 4, and to the Department’s telegram no. 15, April 15, 1 p.m.2

For your information, the Yugoslav Minister3 called at the Department on March 15 and 16 to inquire as to the Department’s views regarding the possibility of initiating trade-agreement negotiations between the United States and Yugoslavia. In reply, it was indicated that this Government was ready to give sympathetic consideration to such a possibility and it was agreed that the next step would be for the Minister to suggest to his Government the formulation of a proposal in that connection. Mr. Fotitch requested and was given copies of our standard general provisions for transmittal to his Government, a copy of which, together with new standard quota and exchange articles, is enclosed.4

It would appear that there probably is a basis for a mutually profitable trade agreement between the two countries as far as schedules of concessions are concerned. A cursory examination of items imported into the United States from Yugoslavia indicates that this Government might be in a position to consider the possibility of granting concessions on some seventeen commodities, the imports of which from Yugoslavia in 1937 constituted approximately 22 percent of all United States imports from that country. It is believed that the chief obstacle to finding a basis for negotiations would be the reluctance of the Yugoslav Government to accept publicly our standard general provisions, particularly the articles relating to quantitative and exchange controls.

It is thought that the Yugoslav Minister may have approached the Department on his own initiative and without the prior authorization [Page 876]of his Government, and hence it is not at all certain that the Minister’s move will be followed by the submission of a trade-agreement proposal from his Government.

Meanwhile, particularly in view of the fact that the Yugoslav import control list has been expanded to cover approximately 92 percent (based on 1935 imports) of Yugoslav imports from the United States, it would appear to be desirable for you to resume your discussions with the Yugoslav authorities with a view to obtaining satisfactory assurances of non-discriminatory treatment for imports from the United States.

In this connection, it is not felt that the most recent statements of the Yugoslav officials, as reported in your despatch no. 555 of April 21, to the effect that “the National Bank is at present granting permits for the import of American goods on the control list (other than automobiles and films) in amounts equal to the imports from the United States of those articles in 1935” offer the equivalent of non-discriminatory treatment.

It is possible that in taking the position referred to above the Yugoslav authorities had in mind the discussions in Washington in 1937 in connection with a proposal transmitted to the Department through the Yugoslav Minister offering the United States quotas for controlled articles equivalent to the actual amounts of such articles imported from the United States in 1935. Sympathetic consideration was given to the proposal at that time because, with the exception of automobiles, the greater part of imports from the United States was free of import control and was to be assured of such a status for the duration of the Yugoslav commitment. Moreover, again with the exception of automobiles, the specific amounts of the controlled items imported from the United States in 1935 seemed to offer the possibility for a substantial improvement in the American trade. Any such proposal could have been accepted then only as a temporary measure.

The Department does not believe that it would be practicable or desirable to accept such a proposition at the present time not only because of the increased scope of the Yugoslav import control but also because the proposition falls considerably short of the well-recognized requirements of our commercial policy. Moreover, as pointed out above, an examination of the trade statistics indicates that the year 1935 cannot be accepted as a representative period for all the products whether for calculating ratios or as the basis for the minimum quotas suggested by the Yugoslav officials. Finally, the Yugoslav commitment with respect to automobiles and trucks would appear to indicate the possibility of that Government’s acceding to requests for proportional treatment for other products of interest to the United States.

[Page 877]

While the Department concurs with your view that it would be impracticable at this time to urge the Yugoslav Government to enter into a published agreement, such as the modus vivendi previously suggested by the Department, containing only the principles of non-discriminatory treatment, it would be highly desirable to obtain a Yugoslav commitment which would assure United States trade the essence of most-favored-nation treatment with respect to quantitative restrictions. Thus although the Yugoslav Government may not be in a position to publicly agree to a statement of the principles of non-discriminatory treatment, it should be able to agree to accord the substance of such treatment to the United States by allotting quotas for imports from the United States based on fair and equitable proportions of total current imports of the products in question into Yugoslavia. The Yugoslav authorities took a step in this direction in according the United States ratios for automobiles and trucks, although the ratios were smaller than seemed justified by our showing in the trade and although the ratios were to be applied to total Yugoslav imports in the previous period rather than to total permitted imports for the current period.

In your discussions with the Yugoslav authorities you should point out that this Government considers proportional treatment to be the closest equivalent, which it is possible to formulate, to the most-favored-nation principle in the application of quantitative import controls. When a country has been allotted an equitable share of the total imports of a particular product, it has the opportunity to participate in increases which may take place in the trade in that product. It is also affected, proportionately, by any decreases which may occur in total permitted imports.

The Department notes that the Yugoslav officials have taken the position (Legation’s despatch no. 555, April 21, page 5) that their Government is now according the United States what amounts to preferential treatment in some cases, and that in general it should be compensated for the measures which are being taken with respect to American trade. It should be pointed out of course that the American Government has on no occasion requested what might be considered preferential treatment. This Government has requested no more than equitable ratios based upon this country’s position in the Yugoslav market in past years.

Such requests cannot properly be considered to afford grounds for requesting compensation beyond the non-discriminatory treatment already accorded by the United States to Yugoslav trade. They are not quota concessions of the kind included in trade agreements to which the United States is a party. The United States seeks in general the exemption from quota restrictions of all items contained in [Page 878]the trade-agreement schedules of duty concessions. In the case of those items which have been the subject of quantitative restriction and on which quota-free treatment is not possible, the United States requests minimum quotas representing increases over the current trade in the articles in question. Such minimum quotas may properly be considered “quota concessions”. The guarantee of proportional treatment, in such cases, operates above but not below the minimum amounts specified.

The Department therefore desires you to take up with the Yugoslav authorities the question of according to the imports of controlled products from the United States fair and equitable ratios based upon this country’s position in the total trade in the respective products in a representative period. This would require a careful examination of the trade, product by product. In this connection there is enclosed a table,5 based on the one prepared by the Consul at Belgrade (enclosed with your despatch no. 570 of May 4) which includes pertinent trade figures on each of the controlled items considered to be of substantial interest to the United States, and suggestions as to what year or years might be considered an acceptable basis for a representative period. For your information there is also enclosed a copy of a report by the Department of Commerce entitled “Imports into Yugoslavia of Principal Articles from the Standpoint of United States Interest”.5 You should refer to the Department’s telegram no. 15, April 15, 1939, 1 p.m. for a discussion of the basis for determining a representative period.

It should be noted that the term “proportional treatment” as used by this Government refers to a proportion of prospective total imports in a particular period. To that end, the policy of this Government as expressed in the standard quota provision as recently revised is to seek assurances that if a restriction is imposed on imports from either country by the other the total quantity of such article permitted to be imported during a specified period, or any change in such quantity, shall be established and made public. If a share of such total quantity is allotted by either country to a third country a share shall also be allotted to the other country (unless it is mutually agreed to dispense with such allotment) equivalent to the proportion of the total imports supplied by the other country in a previous representative period.

The above procedure, which calls for the establishment of global quotas and allows the interested importers to participate currently in changes which may be taking place in the total permitted imports, is more satisfactory than a procedure (such as provided by the present [Page 879]arrangement with Yugoslavia with respect to automobiles and trucks) whereby a ratio is applied to total actual imports from all countries in the previous period instead of to a global quota representing total prospective imports. The difficulty with the procedure for basing the proportion on imports in the previous period is particularly serious in the case of a commodity subject to wide seasonal variations or to an unusually large current demand but might be important in the case of any commodity.

With respect to the assurance given by the Yugoslav Government that it would permit the importation in the first half of 1939 of American automobiles to the extent of 11,015,400 dinars and American trucks to the value of 10,695,300 dinars, the Legation is requested to ascertain and transmit to the Department as soon as available the monthly figures for total imports and imports from the United States into Yugoslavia of automobiles and trucks as well as the quotas being accorded the United States in the second half of 1939. The Legation should also report any other available information which would give a further indication of the treatment being accorded imports of these products from the United States.

With respect to your request, in the despatch no. 570 of May 4, 1939, for the Department’s views as to the method of determining a quota for the grouped items, it is felt that this is a matter which logically follows a resolving of the basic question, namely, whether the Yugoslav Government is prepared to accord proportional treatment to imports from the United States.

Although in the table prepared in the Department, referred to above, no distinction has been made between the grouped and individually important items, this does not imply that there is any objection to grouping certain items, in your discussions with the Yugoslav authorities, when the determination of individual ratios does not seem feasible. When a grouping of certain items appears necessary, a single ratio for the group may be determined by calculating on a value basis the proportion which the imports from the United States bear to total imports of all the items in the group.

It is the understanding of the Department that the quotas to be accorded the United States would represent amounts for which import permits would be freely granted and for which exchange would be forthcoming (as provided in the standard Article concerning exchange restrictions).

Since the effectiveness of any arrangement with respect to quotas and the amount of exchange to be made available for imports from the United States will depend to an important extent on the rate at which such exchange will be made available (as compared with the rates for the equivalent of the dollar in other currencies), it would [Page 880]appear essential that assurances be obtained from the Yugoslav Government that the United States will receive unconditional most-favored-nation treatment in that regard. In the absence of such assurances, the rate for dollar exchange could be so high as to seriously impair or even completely nullify the benefits accruing from otherwise favorable treatment.

It is understood that the Yugoslav Government exercises a control over exchange rates, but the Department does not know to what extent such control has affected imports from the United States. Moreover, there is a lack of information here as to the rates at which exchange is now being made available for imports into Yugoslavia from the United States. Such information is needed to enable the Department to answer inquiries as to treatment being accorded various imports from the United States as well as for its own information.

It may be recalled that Mr. Joseph L. Ryan of the Royal Typewriter Company has been in communication with the Department with respect to the regulations affecting Yugoslav imports of American typewriters. It will be noted that in recent letters to Mr. Ryan, copies of which are enclosed,6 it was indicated that the Department expected to be in a position shortly to give him some information concerning Yugoslavia exchange rates.

It would be very helpful, therefore, if the Legation would transmit to the Department all available information with respect to the Yugoslav system of exchange control. Such a report should contain all information pertinent to the present situation that has been included in previous reports. The Department particularly has in mind the following questions:

To what extent, if any, is the rate of exchange at present an obstacle to the importation of American goods. In other words, is the rate charged importers of American goods so high in relation to the rate charged importers of similar articles from third countries as to make importation of particular American products unprofitable?
What rates (official or otherwise) are actually available to importers of American goods and to importers of similar products from other countries in the following cases:
For items described in paragraph 5 of the public statement of March 2, 1939 by the Yugoslav National Bank, namely automobiles, tires, and tubes, radio apparatus, motorcycles, typewriters and other office machinery, etc.
For other items for which exchange must be obtained at the National Bank.
For items for which exchange must be obtained, at the Bourse rate of exchange, from the Bourse or through normal banking channels.

Very truly yours,

For the Secretary of State:
Henry F. Grady
  1. None printed.
  2. Constantin Fotitch.
  3. Not attached to file copy of instruction.
  4. Not printed.
  5. Not printed.
  6. Not printed.