667N.116/68

The Ambassador in the United Kingdom (Kennedy) to the Secretary of State

No. 5043

Sir: Referring to my telegram No. 883 of April 9, 194032 reporting the receipt of a note outlining the British Government’s position with regard to the effect on American commercial rights of the exchange control and import licence system in Palestine, in other British mandated territories and in the British territories within the Congo Basin, I have the honor to enclose a copy of the note in question which is dated April 8, 1940 (File No. W 5104/280/49).

[Page 859]

There is also enclosed, in order to complete the Department’s files, a copy of note No. 1716 of December 21, 1939, in which this Mission brought to the attention of the British Foreign Office the considerations embodied in the Department’s telegram No. 1638 of December 19, 7:00 p.m.,33 regarding the effect on American commercial rights of the exchange control and import license system established in Palestine.

Previous correspondence referring to questions touched on in the enclosed note includes the Department’s instruction No. 1134 of December 26, 193934 (File No. 648T.006/), its telegram No. 38 of January 6, 4:00 p.m.,35 and this Mission’s despatch No. 4392 of January 17, 1940.35

Respectfully yours,

For the Ambassador:
Herschel V. Johnson
[Enclosure 1]

The British Secretary of State for Foreign Affairs (Halifax) to the American Ambassador (Kennedy)

No. W 5104/280/49

Your Excellency: In Mr. Herschel Johnson’s note No. 1716 of the 21st December, 1939,36 he was good enough to draw my attention to the establishment by the Palestine Government of an import license system and to state that the United States Government were unable to recognize the necessity or justification for the administration of the exchange control and import license system in a manner to give preference to imports from British Empire sources, with a resultant discrimination against imports from the United States of America.

2.
I would ask Your Excellency to assure the United States Government, first, that His Majesty’s Government in the United Kingdom are determined to respect the rights of the United States of America in Palestine to the utmost of their ability and anxious to justify, or alternatively to rectify, any situation of fact or law which might seem inconsistent with those rights; and secondly, that whatever other motives may have led to the adoption of the measures to which Mr. Herschel Johnson’s note refers, a desire to increase the export trade to Palestine of the United Kingdom or any other part of the British Empire at the expense of other countries was not among them.
3.
I am confident that the United States Government will share the view of His Majesty’s Government in the United Kingdom that the paramount obligation imposed upon the Mandatory Power by the Mandate for Palestine is to protect the interests of Palestine and its inhabitants, and that the rights conferred by the Mandate or by international instruments concluded within the framework of the Mandate upon third parties (whether these parties be the Mandatory Power itself, States Members of the League of Nations, countries like the United States of America with rights analogous to those of States Members or non-Members) must in case of conflict defer to this obligation.
4.
The interests of Palestine and its inhabitants require first and foremost that Palestine territory should be protected from foreign aggression and it might well be argued that so long as the possibility of aggression continued this would in itself justify the Mandatory Power in taking any step, even if that step were at variance with the letter of its obligations under the Mandate to States Members or States with analogous rights, which might directly or indirectly increase its ability to protect this territory. His Majesty’s Government, however, do not wish to rely unduly upon this general consideration in the present case, since the measures to which Mr. Herschel Johnson drew attention can, in their opinion, be justified by the more particular considerations arising out of the economic and financial interest of Palestine which are explained below, but they nevertheless regard it as lying at the basis of the Mandatory system.
5.
It must be remembered that the export trade of Palestine has been seriously damaged by the war. As a result the purchasing power of the country has been greatly diminished and strict control of the import trade is necessary. In particular the very limited quantities of non-sterling currency which are now being received render the utmost economy in their use essential. The whole basis of the present system of control is that the best use should be made of the purchasing power available to Palestine and licenses are issued solely with that object in view. The legislation which has been introduced is nondiscriminatory, the licenses being granted for imports both from the British Empire and from foreign sources, and although it is no doubt the case that the Palestine authorities are able to grant import licenses more freely for goods from most Empire sources than from foreign countries, since these goods are paid for in sterling, this does not apply to the whole British Empire as such, Canadian imports for example being treated on the same basis as United States imports in view of the similarity of the exchange position of Canada to that of the United States.
6.
As regards United States goods in particular, the United States Government will no doubt realize that the balance of trade between the United States and Palestine has in the past been very favourable to the former, imports from the United States to Palestine in the three years 1936 to 1938 having averaged over £1,000,000 per annum, while the total exports to the United States from Palestine averaged under £100,000 per annum and has since fallen much below that figure. As Palestine currency is based on sterling, the large excess of imports from the United States during this and previous periods was in effect being paid for by the purchase of United States dollars with the proceeds of Palestine exports to other countries, that is (except to the extent that dollars were provided by an import of capital from the United States) mainly with the sterling proceeds of exports to the United Kingdom, the principal importer of Palestine products.
7.
If, therefore, the emergency measures in force throughout the British Empire generally were not to be put into force in Palestine, the effect would be that the United Kingdom would have to provide Palestine importers with dollar exchange to finance Palestine imports from the United States in excess of those balanced by exports to the United States. The United States Government are aware that the United Kingdom is finding great difficulty in providing foreign exchange to meet her own essential imports, and she cannot continue to provide unrestricted exchange to meet Palestine imports of non-essential commodities from the United States or other countries from which Palestine cannot import without creating a drain on sterling.
8.
It is not desired, nor would it be possible, to reduce United States exports to Palestine to the level of the Palestine exports to the United States and so to remove all exchange burdens on this account from the United Kingdom, but I trust that the United States Government will agree that it is inevitable that the Palestine authorities should not be able to grant import licenses for all applications whatsoever for imports from the United States, and reasonable in the circumstances that they should not be expected to try to do so.
9.
I trust that these explanations will reassure the United States Government as to the manner in which His Majesty’s Government and the Palestine administration intend to use the powers conferred upon them by the Palestine import and exchange control legislation, and I would ask Your Excellency to add, when transmitting them to the United States Government, that His Majesty’s Government will gladly furnish any further explanations on points of detail which the United States Government may desire.
10.
The same considerations apply mutatis mutandis to the position in other Mandated Territories administered by His Majesty’s Government in the United Kingdom, and in the British territories within [Page 862] the Congo Basin, regarding which an Aide-Mémoire was received from the United States Embassy on the 16th January.38

I have [etc.]

(For the Secretary of State)
N. B. Ronald
[Enclosure 2]

The American Chargé (Johnson) to the British Secretary of State for Foreign Affairs (Halifax)

No. 1716

My Lord: Under instructions from my Government, based on information received from the American Consul General at Jerusalem, I have the honor to invite your Lordship’s attention to the establishment by the Palestine Government of an import licence system, effective December 11, 1939, applicable to some 422 items of the total of 760 items of merchandise in the Palestine Customs classification list, including almost all articles imported from the United States.

The Department of State is also informed that in an interview on December 12, 1939 between a representative of the American Consulate General and the Economic Adviser of the Palestine Government, the latter stated that he was unable to give assurances that American trade will not be subject to restrictions placing it on a less favorable footing than British trade with Palestine.

The Economic Adviser is stated to have explained that the policy of the Palestine Government, in accordance with instructions from the British Government, is to accord preference to imports from British Empire sources, such a policy having been justified by the Economic Adviser on the ground that the British Government cannot cut Palestine adrift during the war but must afford its currency and economic interests the protection of emergency measures applied throughout the British Empire.

Any effort on the part of the Palestine authorities to discriminate against American imports into Palestine with a view to reducing the demand for foreign exchange or for exchange from countries outside the sterling exchange control area would, of course, be viewed by my Government as violation of American treaty rights in Palestine and particularly those embodied in Article 2 of the American British Mandate Convention of December 3, 1924, and the related Article 18 of the Mandate assuring American trade with Palestine equality of treatment with that of the mandatory power or of any foreign state.

While the United States Government is not disposed to raise any question regarding the adoption of measures in Palestine which may [Page 863] be reasonably necessary and consistent with the status of Palestine and the obligations of the British Government as mandatory for that territory, it cannot overlook illegal and unwarranted interferences with American treaty rights and it does not find itself able to recognize either the necessity or justification for the administration of the exchange control and import licence system in Palestine in a manner to give preference to imports from British Empire sources, with a resultant discrimination against imports from the United States.

The foregoing observations are deemed equally applicable, mutatis mutandis, to British mandated territories in Africa where a control import licence system is understood to have been introduced similar to that in Palestine.

I have the honor to add that the United States Government feels confident that, in accordance with the obligations under its mandate conventions with the United States, the British Government will continue to recognize that American products must be admitted to Palestine and British mandated territories in Africa on a basis of full equality in all respects with British and all other products.

I have [etc.]

Herschel V. Johnson
  1. Ante, p. 121.
  2. Foreign Relations, 1939, vol. iv, p. 815.
  3. Not printed.
  4. Ante, p. 118.
  5. Ante, p. 118.
  6. Enclosure 2, infra.
  7. Ante, p. 119.