Memorandum by Mr. Vernon L. Phelps of the Division of Trade Agreements33

The inquiry of the Turkish Government, communicated to the Department informally by the Turkish Ambassador in a conversation with Mr. Alling on July 29, 1939 (see memorandum of conversation [Page 875] attached34), as to whether we would be agreeable to a system whereby exports from Turkey to the United States, excepting tobacco, would be allotted amounts in Turkish lire per dollar above the official rate in an endeavor to encourage exports to this country, and thereby possibly curtail further expansion of Turkish exports to Germany under the Turkish-German clearing agreement, raises questions with respect to which a definitive answer can be given only by the Treasury Department, and any formal communication to the Turkish Ambassador would need to be cleared with that Department.

However, this matter has been discussed by the interested officers of NE, EA, and TA,35 and two memoranda (attached hereto)36 have been prepared in EA and TA, respectively, with reference thereto. Meanwhile, this matter has been the subject of a further conversation between the Turkish Ambassador and Mr. Murray on August 9, 1939 (see memorandum of conversation attached37).

On the basis of the aforementioned memoranda, it is suggested that the Turkish Ambassador be called in and the following informal observations relative to the Turkish proposal be given to him orally:

The Turkish proposal to allot amounts in Turkish lire per dollar above the official rate of exchange for Turkish exports to the United States raises questions the definitive answers to which fall within the jurisdiction of the Treasury Department.
With respect to dutiable imports into the United States, it seems almost certain that the Turkish proposal would be considered by the Treasury to constitute a bounty or grant within the meaning of Section 303 of the Tariff Act of 193038 and would therefore require the imposition of countervailing duties on dutiable imports from Turkey subject to the Turkish proposal. However, the payment by the Turkish exchange control authorities of a uniform exchange premium above the official rate for all dollars and other currencies offered for sale in Turkey might not be interpreted by the Treasury Department as constituting a bounty or grant within the meaning of Section 303. It is understood that a similar action taken by the Hungarian Government in December, 1935, whereby a uniform premium of 50 percent and surcharge of 53 percent were paid and charged, respectively, for all freely convertible foreign currencies, was considered by the Treasury Department as not constituting a bounty or grant under Section 303.
The payment of a higher rate for dollars arising out of Turkish exports which are on the American free list would not require action [Page 876] by the Treasury under the aforementioned Section 303 since that section does not apply to imports of articles on the free list; but there is the possibility that if the imports resulting from such action on the part of the Turkish Government proved injurious to American industry, action against them might be instituted under the Anti-Dumping Act of 1921.39 In this connection it is suggested that the Ambassador’s attention be invited to the fact that in recent years dutiable imports into the United States from Turkey other than tobacco have amounted to only a little over 5 percent of the value of total imports from that country. Therefore, it would appear that, since it desires to exclude tobacco, the Turkish Government might very largely accomplish its purpose by alloting amounts in Turkish lire per dollar above the official rate only on products exported to this country which are on the American free list.
While this Government concurs fully with the desire of the Turkish Government to promote the expansion of trade in both directions between Turkey and the United States, it nevertheless would seem that the present problem is primarily one for solution by the Turkish Government, since it arises very largely out of Turkey’s trade relations with Germany. The suggestion made to the Turkish Ambassador in the aforementioned conversation of August 9, 1939 might therefore be repeated; namely that the Turkish Government may wish to consider having restored in the Turkish-German clearing agreement provisions similar to those contained in the Turkish-German clearing agreement concluded in August 1937 whereby German imports from Turkey of certain important raw materials were restricted to specified amounts, with possibly an additional proviso that any imports into Germany of these products in excess of the specified limits would be paid for by Germany in free exchange.
If the Turkish authorities are interested in exploring the matter further, the Department would be glad to arrange a conference between the Turkish Ambassador and the competent Treasury officials to discuss the matter.

  1. Marginal note by Mr. George V. Allen of the Division of Near Eastern Affairs: “Contents communicated to Turkish Ambassador orally, Aug. 21, 1939. GVA.”
  2. Ante, p. 872.
  3. Division of Near Eastern Affairs, Adviser on International Economic Affairs, and Division of Trade Agreements, respectively.
  4. Not printed.
  5. Supra.
  6. 46 Stat. 590, 687.
  7. 42 Stat. 11.