Annex VI (1 to 5)
Note to VIII, Annex VI
The German delegation declared that Germany was ready to concede the options demanded for chemical drugs and dyestuffs, although no relation could be found between these demands and the objects of reparation; it declined to accept price control by the Reparation Commission as involving a wholly unwarranted surrender of business secrets (Foreign Relations, The Paris Peace Conference, 1919, vi, 864). The more general option extending to 1925 was rejected.[Page 516]
Once more the German delegation asked for verbal negotiations, adding that Germany was prepared to compensate owners of destroyed industrial enterprises in Belgium and Northern France by transferring to them proportional shares in similar undertakings in Germany.
In the pre-war period Germany was reputed to be the world’s first source of chemical dyestuffs and pharmaceutical products. A considerable industry had been built up in that country around the coaltar series, which had been identified by British chemists. The German exploiters had developed many products from the coal-tar base in research laboratories and had succeeded in establishing a worldwide trade through the device of patenting the chemical formulas themselves under the lax laws of most countries. Owing to this combination of artificial monopoly and vigorous marketing policy, German dyestuffs and pharmaceutical products constituted the chief pre-war supply. Belligerents had manufactured during the war from the sequestrated formulas in the German patents on governmental files but in many cases had found that the patent specifications lacked essential elements. When the matter came up in the Paris negotiations, it was felt that the German ability to supply these chemical products would prove to be a considerable source of reparation in kind.
The German obligation under annex VI was to place dyestuffs necessary for their industries at the disposal of the Allied and Associated Powers and to furnish a continuous supply up to January 1, 1925 (paragraphs 1 and 2). The Organization Committee for the Reparation Commission entrusted the matter to a subcommittee, composed of experts nominated by the United States, Great Britain, France, Italy, and Belgium, which dealt with a German Expert Committee. They met on August 8, 1919 and as of August 15 found that the German inventory of dyestuffs and intermediates amounted to 21,522,723 kilos of which 50 percent, or 10,761,361 kilos, was subject to the commission’s option. An agreement arranged for September 17 and finally signed as a protocol on November 3 authorized the withdrawal of 5200 tons from those stocks to be delivered as follows: United States, 1500 tons; Great Britain, 1500 tons; France, 1000 tons; Italy, 700 tons; Belgium, 500 tons. Orders under this arrangement continued until September 1, 1920 and the total deliveries amounted to 9,889,650 kilos.
Under paragraph 2 the Reparation Commission had an option on German production of dyestuffs and chemical drugs not exceeding [Page 517] 25 percent. The option came into force with the treaty on January 10, 1920 and a provisional protocol of January 30 established a system of exercising options monthly on the basis of three-month estimates of German production. This protocol was renewed on April 28 and revised on May 31, 1920.
Dyestuff industries in the meantime were growing up in the United States, Great Britain, France, and Italy and before long the Reparation Commission found that it had a proportion of the German deliveries of the simpler dyestuffs remaining undistributed on its hands. The Reparation Commission thereupon negotiated the sale of the untaken balance to the Association of German Dyestuff Manufacturers at 75 percent of the list price. From February to May 1920 the Reparation Commission received 3,026,100 gold marks on this account. Other difficulties arose with respect to demands for types of dyestuffs of which 25 percent of the German production was insufficient to meet the requirements and also with respect to demands for products which were not manufactured by the Germans. A price factor was also involved in these demands. A supplementary agreement dealing with these matters was concluded on August 19, 1921. A further supplementary agreement relating to the calculation of prices was signed on June 12, 1922 and extended sine die on December 15 (for texts of the protocol and agreements, see Report on the Work of the Reparation Commission from 1920 to 1922, pp. 233–236).
The Reparation Commission organized a Bureau for Dyestuffs and Pharmaceutical Products to work in liaison with the Allied Experts Committee, while the German Experts Committee was aided by a service known as the Zentrale der Farbstoff Fabriken at Frankfurt. Since the Reparation Commission allotted dyes as a general rule only to governments or to their agencies, France and Italy each set up a Union of Producers and Consumers of Coloring Matters (Union des Producteurs et Consommateurs de Matières Colorantes). Great Britain appointed a Central Importing Agency and later organized the British Dyestuffs Corporation. The Belgian Government itself received and distributed its dyestuffs.
The United States designated the Textile Alliance Incorporated of New York as the exclusive importing agency for dyes, the decision being notified to the Organization Committee for the Reparation Commission on November 25, 1919 (Foreign Relations, 1920, ii, 476). This arrangement with respect to vat dyes ran until April 15, 1920 and for non-vat dyes until May 15. The Secretary of State on April [Page 518] 10, 1920 informed the Textile Alliance Incorporated of the conditions under which importation and sale were to continue (ibid., p. 495). Further instructions as to the purchase of German dyes for American consumption or foreign resale were sent to the Textile Alliance Incorporated by the Secretary of State on July 30, 1920 (ibid., p. 501). The Government of the United States withdrew the mandate to the Textile Alliance on December 14, 1921. The Reparation Commission, however, in the absence of objection from the United States Government, continued to deliver to the Textile Alliance the portion previously assigned the United States so far as it was required by American industry. The development of the dye industry in the United States brought these relations to an end on November 29, 1922 when the Textile Alliance informed the commission that it renounced its right to order reparation dyes, and the share allotted to the United States was distributed thereafter by the Reparation Commission to Great Britain, France, Italy, and Belgium.
The German dye industry’s position in the trade had a repercussion in later years. The British Dye Stuffs Import Regulations Act, 1920 (10 & 11 Geo. V, c. 77), which was in force until 1930, gave Germany the occasion for excepting coal from the operation of the international convention on import and export prohibitions and restrictions of 1927, and that exception started the train of exceptions in which Poland figured so prominently (see article 268b). After the failure of that convention the British act was consolidated in 1933 and made permanent (24 & 25 Geo. V, c. 6).
Germany accords to the Reparation Commission an option to require as part of reparation the delivery by Germany of such quantities and kinds of dyestuffs and chemical drugs as the Commission may designate, not exceeding 50 per cent. of the total stock of each and every kind of dyestuff and chemical drug in Germany or under German control at the date of the coming into force of the present Treaty.
This option shall be exercised within sixty days of the receipt by the Commission of such particulars as to stocks as may be considered necessary by the Commission.
Germany further accords to the Reparation Commission an option to require delivery during the period from the date of the coming [Page 519] into force of the present Treaty until January 1, 1920, and during each period of six months thereafter until January 1, 1925, of any specified kind of dyestuff and chemical drug up to an amount not exceeding 25 per cent. of the German production of such dyestuffs and chemical drugs during the previous six months period. If in any case the production during such previous six months was, in the opinion of the Commission, less than normal, the amount required may be 25 per cent. of the normal production.
Such option shall be exercised within four weeks after the receipt of such particulars as to production and in such form as may be considered necessary by the Commission; these particulars shall be furnished by the German Government immediately after the expiration of each six months period.
For dyestuffs and chemical drugs delivered under paragraph 1, the price shall be fixed by the Commission having regard to prewar net export prices and to subsequent increases of cost.
For dyestuffs and chemical drugs delivered under paragraph 2, the price shall be fixed by the Commission having regard to prewar net export prices and subsequent variations of cost, or the lowest net selling price of similar dyestuffs and chemical drugs to any other purchaser.
All details, including mode and times of exercising the options, and making delivery, and all other questions arising under this arrangement shall be determined by the Reparation Commission; the German Government will furnish to the Commission all necessary information and other assistance which it may require.
The above expression “dyestuffs and chemical drugs” includes all synthetic dyes and drugs and intermediate or other products used in connection with dyeing, so far as they are manufactured for sale. The present arrangement shall also apply to cinchona bark and salts of quinine.
Note to VIII, Annex VI (5)
The French text of the first sentence of this paragraph reads as follows: [Page 520]
“Les matières colorantes et produits chimiques pharmaceutiques visés à la présente Annexe comprennent toutes les matières colorantes et tous les produits chimiques pharmaceutiques synthétiques, ainsi que tous les produits intermédiaires et autres employés dans les industries correspondantes (English: in connection with dyeing) et fabriqués pour la vente.”
The English text of this sentence does not make it clear whether the commission’s option extends to intermediates used in the manufacture of dyestuffs. Since the Allied experts were of the opinion that it was desirable to encourage their dye producers to manufacture their own intermediates, the Reparation Commission did not undertake to interpret the sentence, but provisionally limited its option to the intermediates used in dyeing and printing. The protocol of May 31, 1920 limited delivery of these to the quantities delivered before the war for the same use to the respective countries. However, Germany was manufacturing new products and certain old products were being more extensively employed. It was, therefore, arranged that the products especially employed in manufacture could be passed for an unlimited quantity provided they were employed only for dyeing and printing and were not reexported; but those products especially employed in dyeing or printing were limited to the 25 per cent option.
A total of 1,013,847 kilograms of pharmaceuticals, valued at 13,550,944 gold marks, had been delivered under a protocol dated October 19, 1920.
Up to December 31, 1922 the quantity of dyestuffs delivered was 22,689,775 kilograms valued at 58,657,311 gold marks under a protocol concluded May 31, 1920, supplemented or amended July 12 and August 19, 1921 and June 12, 1922.
Total deliveries of dyestuffs and pharmaceuticals eventually were valued at 107,360,223 gold marks.