662.6331/89
The Ambassador in Germany (Sackett) to the Secretary of State
[Received April 4.]
Sir: Referring to the Embassy’s cablegram No. 35 of March 23, 1931, 3 p.m., summarizing the protocol of a preliminary agreement in principle of the Austro-German customs union plan which has been approved by the Cabinets of the two countries in an exchange of notes, I have the honor to transmit herewith copies of the protocol which was supplied me by the Ministry for Foreign Affairs, and its translation.94
The main features of this carefully worded document are that the two Governments will be willing to enter into similar negotiations with any other European country expressing a desire to do so; that the Customs Union so established differs from any similar previous union in that there will be no joint tariff parliament, the economic independence of neither country will be curtailed, and both countries are to retain their full sovereignty; that existing mortgage rights on customs revenues as security for foreign loans such as the Austrian loan under the Geneva Protocol of October, 1922, will not be infringed and that each country is free independently to conclude commercial [Page 567] treaties with third countries provided the interests of the other country within the provisions of the Customs Union treaty are not violated.
The treaty must be ratified by the parliaments of the two countries, whose consent likewise will be necessary to any future alterations.
From the effective date of the treaty, like customs duties will be collected under the same customs law but the two administrations will be entirely separate. The duties collected will be apportioned between the two countries according to a fixed ratio. No import or export duties are to be levied, but certain specific goods to be agreed upon shall be subjected to temporary tariffs.
An arbitration committee is provided for settling differences of interpretation and application of the treaty and other disputes arising thereunder.
The treaty shall run for a minimum of three years after which it may be denounced on one year’s notice, with parliamentary consent, but either country may terminate the treaty at any time on six months’ notice if it considers that a decision of the arbitration committee in a disagreement between the two countries violates its vital interests.
Negotiations for the conclusion of the treaty are expected to be opened immediately after Easter. Two to three months will probably be required to complete it for signature and presentation to the two parliaments, and a further period of time will be necessary to work out the technical details so that it can come into force on or about January 1, 1932.
Although considerable comment appeared in the German press on the subject of relieving Austro-German difficulties and promoting freer intercourse between the two countries, subsequent to the recent visit of Dr. Curtius to Vienna, the announcement of the Austro-German customs agreement came as a surprise.
The well-informed Deutsche Volkswirt explained the haste of the German Government in the following terms: “There was haste because it is desirable to inform the Pre-Preparatory European Commission, which will meet next week in Paris, in advance of the substance of the agreement.” Foreign press comment countered with the observation that, as Germany is apparently planning to reopen the problem of reparations, Berlin has chosen a propitious moment but that the value was lost by not discussing the matter first with the Commission.
Other foreign observers referred to Austria’s painful economic condition and her inclination towards German commercial support, expressed by her constant disinclination to enter any central European combination in which Germany should not take part. However, Germany proved slow in responding to Austrian appeals and the negotiations with a view to reaching a commercial accord between the two [Page 568] countries are reported as having been laborious, with Austrian threats to join a “Danubian Federation.” In addition, Austria’s agricultural production demands ever more protection from her over-produced neighbors, and her commercial treaties with Hungary and with Jugoslavia terminate in July. From these facts, the observers deduced that Austria’s complaints and threats made the German Government take the hasty step it has taken.
The German press considered the announcement of the agreement as an event of prime importance and devoted a great amount of space to it, with unanimous approval. Leading economic writers contributed lengthy articles.
Semi-official news organs state the Government’s arguments in behalf of the agreement substantially as follows: The severe economic conditions and the appalling amount of unemployment in both Germany and Austria, and the failure of all international conferences called to consider means of alleviating this condition to achieve European economic cooperation—conferences from which both countries had long hoped for fruitful results—led them to an agreement looking to the forming of an “economic universal customs union in the fullest sense of the word but under new legal forms.” It is pointed out that the idea is not a new one, as Dr. Schober, the Austrian Chancellor, at the League of Nations meeting, last September, suggested the conclusion of regional agreements as the best way to initiate the Briand idea of European union, and that such an agreement between Germany and Austria, the two countries culturally related and having the fewest obstacles to remove, has been under discussion for some years. The initiation of a movement in Southeastern Europe towards regional agreements influenced the conclusion of the agreement.
The “new legal forms” are included in the rights, under the treaty, of each party to make commercial treaties with other states; in the maintenance of absolute independence of both parties, as compared with the Germany-Luxemburg and the Belgium-Luxemburg customs unions in which the larger state dictated and the smaller one conformed, giving up its economic independence; in the absence of a Customs Parliament, as was the case with the former German Customs Union; in the dependence upon both parliaments for the alteration of the treaty and in that similar negotiations may be entered into with any other European country.
The German Government maintains that the agreement in no way violates the terms of the treaties of Versailles and of Saint Germain, because Austria retains her complete independence and may denounce the treaty and that, in entering an agreement to which any other European nation may adhere, she has not discriminated between other states. Also, that in consideration of the foregoing and of the fact that the [Page 569] combined customs revenues will exceed the commitments under the Austrian loan, the Geneva Protocol of 1922 has not been infringed.
It is argued that the Customs Union does not constitute an initiative against European union but rather the beginning of the application of the Briand idea which, according to Dr. Max Jordan, writing in the Berliner Tageblatt, is “but the first step along the way to the last boundary of the union of joint European economics and the first step towards further regional treaties and finally to European customs union.”
Existing commercial treaties containing the most-favored-nation clauses will not be affected, it is claimed, as in international law the principle does not apply to customs unions. However, as was stated in the Embassy’s despatch No. 811 of March 17, 1931,95 there is a possibility that by the law empowering the Government to alter customs tariffs, reference to which is therein made, the German Government may, in the consideration of most-favored-nation treatment, incline towards conditional most-favored-nation treatment. This assumption has now found voice in the Social Democratic Vorwaerts of March 23rd, in which it is stated that: “For Germany’s far-flung export a deviation from the principle of most-favored-nation treatment is conceivable.”
The purely economic character of the proposed Customs Union is emphasized by the Government. The press maintains that Austria, with a population of but six and a half millions as compared with sixty-three millions in Germany, will profit most by the union. The latter can increase her market by only 10 per cent. One-sixth of Austria’s commodity export is received by Germany, while one-fifth of Austria’s imports originate in Germany. The balance of Germany’s trade with Austria for the years 1925 and 1930 is given as follows:
| (In Millions of Marks) | |||
| Imports | Exports | Excess | |
| 1925 | 175.5 | 319.9 | 144.4 |
| 1930 | 181.2 | 360.3 | 179.1 |
The removal of the customs barrier, it is pointed out, will augment the volume of exchanged commodities, reducing prices, while the stretching of each country’s frontiers will facilitate trade with new neighbors.
The consensus of German press opinion is that the Southeastern European states, especially Hungary and Rumania, with their problem [Page 570] of overproduction, will look with sympathy upon the Customs Union and incline towards participation in it, and hope is expressed that by gradual expansion a complete Continental Customs Union may eventuate.
In conclusion it may be said that whatever the motives of Germany may be, it is reported that her actions are viewed with suspicion abroad. The Anschluss is too old a question to evade the realization that a customs barrier is the sole remaining reason for a frontier between the two countries and every tendency towards German unity in the past has begun with a customs union. A portion of the German press evidently considers the agreement as a first step towards evading treaty rights. To quote the Montag Morgen: “But although the treaty separates them (Germany and Austria) politically, they can seek other means to unite economically” and the Berliner Boersen-Zeitung: “The hated treaties of Versailles and St. Germain are perforated with all due respect, naturally, for modern paper. If the Germans desire, they will have their freedom and their union,” as concrete examples.
However, Germany’s moral position is strong since, having ratified the Geneva Customs Conference96 and having shown consistently her willingness to guarantee preferential tariffs in return for the export contingent of other states, she has indicated her desire to cooperate. But laudable as is her revolt against the system of tariff walls, it remains to be seen whether or not her action, as is believed by some observers, will actually create a political storm which may wreck the customs union by the intimidation of Austria on the part of the other signatory powers to the Geneva Protocol of 1922, or affect adversely Germany’s possibilities of future reparations discussion.
The Embassy will watch the developments in this matter and report further as the occasion warrants.
Respectfully yours,
- For text of the protocol, see Permanent Court of International Justice, Series A./B., Fascicule No. 41, Customs Regime Between Germany and Austria (Protocol of March 19th, 1931), p. 99.↩
- Not printed.↩
- For correspondence concerning the First International Conference for the Abolition of Import and Export Prohibitions and Restrictions, Geneva, October 17–November 8, 1927, see Foreign Relations, 1927, vol. i, pp. 246 ff.; concerning the Second Conference, Geneva, July 3–19, 1928, see ibid., 1928, vol. i, pp. 366 ff. For texts of the convention and protocol together with the supplementary agreement and protocol which resulted from those two Conferences, see ibid., pp. 336 ff.↩