611.6231/320

The Ambassador in Germany ( Dodd ) to the Secretary of State

No. 571

Sir: I have the honor to refer to my telegram No. 40 of February 20, 11 a.m., sent by way of a preliminary reply to No. 23 of February 18, 5 p.m., wherein the Department directed the Embassy to express its opinion, first, as to the desirability of establishing a connection between the German quota of imports of wines and spirits into the United States and the general question of Germany’s commercial policy, particularly in regard to treatment of American goods; and, secondly, as to whether the Embassy considered it feasible to suggest [Page 410] to Germany an agreement adequately covering the most-favored-nation treaty clause under monopoly and quota agreements.

The desirability of connecting restrictions to be imposed upon the import of German wines and spirits with the treatment of American goods in general, meets with the cordial approval of the representatives of the Government here. As to the question of making some further agreement redefining the most-favored-nation clause, the situation is not so clear and it is felt that the Department should have in succinct form a review of the various difficulties with which American trade is faced in Germany, before taking any definite steps. This review is submitted in the form of memoranda from the Consulate General (C. G.), the Commercial Attaché (C. A.), and the Agricultural Attaché (A. A.), copies of which are enclosed.1

The discrimination which these memoranda reveal may be broadly divided into:

1) activities tending to restrict the marketing of American goods in favor of the German producer;

and

2) discrimination in favor of the goods of third countries.

1) It will be recalled that shortly after the Nazi Government came into power, word was passed around to German commercial concerns that they should “buy German”. References to the forms in which this campaign was made are to be found in the despatches from the Consulate General, No. 1233 of April 11, 1933,2 No. 1243 of April 19 [18], 1933,3 No. 1296 of May 9, 1933,4 and No. 1301 of May 12, 1933.5 While it is often difficult to obtain concrete evidence of propaganda against foreign goods, there is no doubt that the tendency above referred to has proved destructive of American import trade. Without any apparent compulsion a large part of the public voluntarily buy German goods, while a smaller group of purchasers is restrained from acquiring highly competitive American manufactured products, such as farm implements, office equipment and automobiles,* by the fear of giving offense to influential party members, a fear that has been cleverly exploited by German competitors in those lines.

Our position in the face of this “Buy German” campaign is indeed somewhat weakened in view of the existence in the United States of a limited boycott of German goods. But, apart from this circumstance, the German Government has so definitely committed itself to a policy [Page 411] of extreme nationalism in commercial matters, that a reversal of this general policy is hardly to be expected in the near future.

In the attached memoranda the following are the instances of the tendency above described: German marriage loan decree (C.G.); machine replacements rebates (C.G.); tax-remission certificates (C.G.); advertising campaign (C.G.); restriction of out-put of machinery (C.G.); exchange restrictions, as especially exemplified in the Miehle Printing Press & Manufacturing Company case (C.G.); sanitary or safety regulations, as for instance in the matter of lard and Otis elevators (C.G. and C.A.); intimidation and propaganda (C.G.); arbitrary increase of duties, as for instance on typewriters (C.G.); and on pectin (C.A.); regulation in regard to smoking tobacco (C.A.); discrimination against American doors in municipal buildings (C.A.); demands that taxicabs should be built to metric standard (C.A.)

2) Instances of discrimination in favor of the goods of third countries are given in the enclosed memoranda as follows: fatbacks (C.G.); packing of grapes (C.G.); additional exports (C.G.); cases of sodium nitrate (C.A.); sardines (C.A.); prunes (A.A.); apples (A.A.); fats and oils (A.A.); corn from the Danube (A.A.). (In regard to the last mentioned, and particularly with reference to Section 6, paragraph c, of the Commercial Attaché’s memorandum, there are enclosed copies of the Agricultural Attaché’s memorandum dated October 21 [20], 1932,6 which was sent by the Embassy to Ministerialdirektor Dr. Dieckhoff following a conversation on the German corn monopoly operations resulting in discrimination against American corn, and translation of the note verbale of the Foreign Office, of November 22, 1932,6 in reply thereto.)

The treaty clause of the most-favored-nation which is involved in most of the cases enumerated under 2) no longer commands the confidence of the German authorities. Various prominent Government and Party officials have recently made declarations in this sense (see despatch No. 560, of February 21, 1934, and also No. 295, of November 25, 19337). In casual conversation with the Acting Chief of the Commercial Section of the Foreign Office the other day, the latter expressed the opinion that this clause had become so modified by various interpretations and agreements that its present worth was greatly impaired.

The Department raises the question whether a fresh agreement covering the most-favored nation treaty clause under monopoly and quota agreements would improve the situation. This suggestion has a special significance at the present time in view of the circumstance that [Page 412] the Treaty of Friendship, Commerce and Consular Rights between the United States and Germany8 reaches its term on October 14, 1935. Thereafter, according to Article 31, the treaty is to remain in force unless within one year before the expiration of the aforesaid period, which will be prior to October 14, 1934, either of the parties notifies the other of the intention to modify.

A redefinition of the most-favored-nation clause would naturally not affect the trouble mentioned under the first heading. As to discrimination against American exports in favor of the exports of third countries, the Germans practice this in order to increase their exports or to maintain the existing favorable trade balance with certain specific political units. Experience shows that unless commercial agreements are made worth while to the German Government, the latter will devote considerable ingenuity to finding some technical reason for circumventing them. (For the German answer to this statement, see enclosed memorandum of conversation with Dr. Bitter, Head of the Economic Section of the Foreign Office.9)

In considering the inducements which might be presented to the Germans to make our imports more welcome, the first suggestion that presents itself is to increase German exports to the United States. The Germans, of course, are most anxious for such an increase, and it seems desirable that it should be encouraged. A glance at the following trade figures for the last two years, however, raises the question whether by itself this procedure would prove a sufficiently stable incentive.

1932 1933
(figures in Reichsmarks)
Total imports into Germany from U. S. A. 591,805,000 482,772,000
German exports to U. S. A. 281,202,000 245,852,000
Balance in favor of U. S. A. 310,603,000 236,920,000

Of the imports of Germany from the United States there are certain items which this country must have for its industries. Such are:

1932 1933
(figures in Reichsmarks)
Cotton 219,717,000 223,137,000
Mineral Oils 58,578,000 34,688,000
Copper 18,772,000 14,665,000
Total 297,067,000 272,490,000

From this it appears that German exports to the United States do not quite pay for the imports which Germany must have. In addition, [Page 413] however, one must consider the debt situation. Recent figures set the total of Germany’s indebtedness to the United States at RM 4,721,912,000. Now, if the interest on this vast sum was scaled down to a 4 per cent rate, Germany would still have to find exports of RM 188,876,480 a year, over and above the sums needed to pay for indispensable imports. The exports to Germany which might be in need of assistance from our Government, such as agricultural products other than cotton and machine-made goods, are precisely those which the Germans hope to produce themselves. It is therefore not excluded that for the protection of our existing trade interests the United States may have to resort to the following expedients.

I. Placing American imports on the quota system, such as the wine import restrictions under contemplation. Whatever the point of view as to the general desirability of increasing the quota system, it is clear that, as a consideration in making a bargain, it has value, and that such action would serve as a counterpoise to the German tendency to place our agricultural exports on disadvantageous quota bases, as in the case of prunes and fatbacks. In this connection the Government may care to consider the advisability of intimating to the German authorities that the United States might be obliged to place on the quota system such articles as toys, pharmaceutical goods, etc. For instance, in the German toy industry there is at present considerable unemployment. This industry could be helped by the lowering of the United States’ duties on certain window display types which the Germans claim are not manufactured in America and which might increase their exports to three or four million marks per annum. The Saxon textile industry is also in a serious condition, so that an intimation that German cheap cotton gloves could be placed under the quota might presumably carry weight here.

II. The use of our credit for obtaining advantages. The situation is rapidly developing which brings the use of our credit to the fore as an effective bargaining instrument. In the first place, Germany is very anxious to reduce the interest on the rate of existing debts to not more than 4 per cent. Moreover, up to now the total amount of foreign short term credits to Germany has been greatly in excess of the irreducible minimum necessary for Germany to finance her imports of indispensable raw materials, such as cotton, wool, petroleum, copper and other metals and ores, etc. Through the recall of these foreign short term advances the total amount of credits under the Standstill Agreement10 has fallen from RM 6,500,000,000 in 1931 to less than RM 2,500,000,000 at the present time. It is estimated that at least RM 1,250,000,000 of this amount represent commercial acceptances on [Page 414] the essential imports above mentioned. These credits are, so to speak, Germany’s life-line. The bulk of these credits has been advanced by a small number of great American banks, such as Chase National Bank, National City Bank of New York, Guaranty Trust Company, Continental Illinois Trust Company, Bankers’ Trust Company, First National Bank of Boston, the Bank of America, and a few others. The movement for the return of short term credits still continues through the sale of registered marks; and in the course of another year the total amount will approximate the essential irreducible minimum. The Germans are fully aware of this situation and are in a state of mind disposed to prevent any dangerous peril to these credits. American bank representatives have recently mentioned the way in which their German debtors are endeavoring to meet all their wishes, a situation which did not obtain a year ago. If the possibility is not excluded of enlisting the active cooperation of the American creditor banks in any fundamental commercial negotiation with the German Government, the assistance should be valuable. Possibly this might be feasible in view of the public monies invested in these banks.

If American short term credits to Germany were reduced as a move in commercial policy, the question then would arise as to whether British or other foreign banks supported by their Governments would fill the gap by granting credits on approximately the same terms. The probability is that they would not; but would more likely be inclined to strike a harder bargain than we.

Referring to the use of credit as of aid for bargaining purposes, the principal value of this lies in the desire of the other party to obtain or renew it. In this connection a short term credit for indispensable objects, concentrated in a few hands, would seem to afford considerably greater leverage than a funded debt.

III. Raising the question with Germans as to the necessity of applying retaliatory tariffs. By a recent increase in the German duty on office equipment, particularly typewriters, American investments here amounting to EM 35,000,000 have been imperilled. The duty on lard was raised last year 900 per cent. In other items the Germans have increased duties with great severity and without warning. The present possibility of increasing duties 50 per cent in the United States is inadequate to combat the drastic tendencies here, where public hearings on duty increases are not held, and where without notice these decisions are made in a hasty and perhaps arbitrary way; and where action is practically never rescinded on the basis of complaints or petitions. The possibility of applying retaliatory tariffs should therefore not be overlooked.

Respectfully yours,

William E. Dodd
  1. None printed.
  2. Foreign Relations, 1933, vol. ii, p. 418.
  3. Ibid., p. 421.
  4. Not printed.
  5. Foreign Relations, 1933, vol. ii, p. 428.
  6. Evans, European representative of General Motors, reported that half of all German Motor trade now in their hands. [Footnote in the original.]
  7. And two-year Hearst “Buy American” campaign. [Footnote in the original.]
  8. Not printed.
  9. Not printed.
  10. Neither printed.
  11. Signed at Washington, December 8, 1923, Foreign Relations, 1923, vol. ii, p. 29.
  12. Not printed.
  13. Agreement between the German Banker’s Committee and Germany’s Foreign Bank Creditors; text printed in The Financial News, London, September 15, 1931.