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The Ambassador in Turkey (MacMurray) to the Secretary of State

45. Department’s 39, August 19, 3 p.m. Minister for Foreign Affairs informed British Ambassador August 16 that the Turkish Government proposed to put all trade with Great Britain, France, and the United States on a compensation basis as from August 20. He said that the commercial treaty just signed with France40 provided for putting trade with that country on a compensation basis; that the American Embassy in Turkey had indicated, subject to final approval from Washington, that such an arrangement would be acceptable to the American Government; and that the British Government itself had a short time previously advanced the idea of putting Anglo-Turkish trade on a compensation basis. British Ambassador on August 18th informed Minister of Foreign Affairs that, in view of existing agreements and regulations which it was not possible to terminate immediately, all Anglo-Turkish trade could not be placed immediately on a compensation basis. Turks agreed to refrain from taking contemplated action on August 20th. However, pending the conclusion of an agreement putting all trade on a compensation basis the British Government has expressed its willingness to increase (which can be done under existing agreements) the number of articles subject to compensation. Turks apprehend that they must take some action before the commencement of the Turkish export season.

There have been no discussions of any sort between the Embassy and Turkish authorities with regard either to the proposals made to Department by Turkish Ambassador on July 29 or to any Turkish desire to place American-Turkish trade on a compensation basis. With regard to the latter point it may be stated that Turkish Government fully understands that our trade agreement precludes the application of compensation requirements to imports from the United States and, as the Department is aware, the application of compensation system to trade with the United States was formally abolished on May 9th. While both British Ambassador and British Commercial Secretary [Page 879] who was with him are certain that the Turkish Minister for Foreign Affairs referred to the American Embassy in Turkey, they both are of the opinion that it is quite possible that the Foreign Minister meant to refer to Turkish Embassy in Washington. British Commercial Secretary states that in a subsequent conversation with him Turkish Under Secretary for Commerce said that “the American Government” had expressed sympathy with difficulties confronting Turkey and had approved the proposed arrangement in principle.

It is clear from discussions with British Embassy that the proposal made to British Government is not the same as that made by Turkish Ambassador in Washington. However, inasmuch as the compensation system operates to reduce the cost of Turkish products to foreign purchasers it would appear that the two proposals have the same objective. It is possible for this reason that the Turkish Foreign Minister loosely used the term “compensation” to cover the system of exchange differentiation which Turkey proposes to apply with regard to the United States.

For some time the Turkish Government has been giving consideration to ways and means of increasing trade with free exchange countries which it considers desirable for both political and economic reasons and especially with a view to minimizing the possibilities of retaliatory action which Germany might take on political grounds. It would appear that the Turkish Government has now decided that the application of the compensation system is the best method of bringing about a reduction in the cost of Turkish goods to purchasers in free exchange countries which hitherto has been a serious obstacle to the expansion of Turkish exports to such countries.

  1. Signed August 23, 1939, Journal Officiel de la République Française, August 31, 1939, p. 10896.