American purchases in this country are not sufficiently large to
induce a change in policy to the disadvantage of European countries,
particularly Great Britain, and in matters of this kind it does not
appear probable that the Government would take into consideration
the important invisible exports from the United States in the form
of remittances and pensions. Nor could the fact that the balance of
trade was in favor of Lithuania in 1933 and continues so be expected
to constitute a determining factor, simply by reason of the
comparatively small volume of the trade exchange.
Therefore as conditions do not appear to warrant any system of
government guarantee, individual American firms might find it
profitable to consider the policy of marketing Lithuanian products
in return for orders placed here. I refer especially to firms
interested in government purchases of equipment and supplies.
Charges of discrimination of American goods made by certain local
merchants are more general than specific. In fact, the only actual
complaint to the Consulate is that made by the local agent of the
Chevrolet automobile who reported that his bid for certain cars for
the use of a government department, although lower, was not accepted
and the order was placed with the British firm manufacturing the
Morris car. He was asked for data upon which an investigation might
be conducted but neglected to supply them.
Officers of several government departments when asked why more
American equipment was not purchased have stated that they were not
permitted to do so, indicating a policy to place orders, regardless
of bids, where the Government considered best for the economic good
of the country.
Perhaps the plan for purchases by the Ministry of National Defense,
mentioned in the strictly confidential portion of the attached
memorandum, is worthy of more consideration than the Legation is at
present inclined to give. Nevertheless, one of the most important
divisions of that Ministry has let it be known that it is not bound
to the restrictions on purchases and would buy the equipment which
its experts recommended. This was shown in its recent orders for
American-made aircraft defensive apparatus and the fact that it was
ready and willing to purchase a type of American artillery had not
the American firm been found to be unprepared to manufacture and
deliver within a reasonable time, greatly to the disgust of the
Lithuanian commission which went to New York to inspect the arm and
witness demonstrations of its operation, (Please see consular
despatches No. 459 of January 29, 1934, No. 460 of January 31, 1934,
and No. 492 of March 26, 1934).1
In the purchase of the aircraft defensive instruments the purchasing
officer, in order to comply with the insistence of the Finance
Ministry, finally consented to accept the American offer upon a
reduction in the stipulated price by 10 per cent or the supplying of
auxiliary appliances to approximately the same value. The company
agreed to the latter. It is not a practice that may be followed
consistently, although there is no reason to believe that it will
not be resorted to again under favorable conditions. American firms,
of course, could prepare their price quotations accordingly.
Government bids for equipment employed by technical departments, such
as for railway and construction use, are perfunctory and often so
worded as to bar material other than that previously decided upon
and from firms with which satisfactory arrangements have been
made.
The Legation has been assured by both Mr. Garsva and Mr. Jonas
Norkaitis, Director of the Trade Division of the Ministry of
Finance, that even should the license system, now affecting 11
products none which is imported from the United States, be extended
no licenses would be refused to those desiring to import American
goods. Nevertheless, applicants for licenses are known to have been
persuaded by the licensing authorities to purchase from favored
countries and while not refusing the requested permits, the effect
has been the same. There [Page 622]
is no reason to believe that American goods would not be adversely
affected in the same manner.
The Legation will continue to observe the situation in the interest
of American trade, however small, and would welcome any suggestion
which the Department might decide to offer.
[Enclosure]
Memorandum by Mr. Basil F. Macgowan, Clerk
in the Consulate at Kaunas
[
Kaunas
,] April 25,
1934.
I had an extended interview on April 24 with Mr. Bronius Garsva,
Referent of the Trade Division of the Lithuanian Ministry of
Finance. His division is responsible for maintaining a favorable
trade balance and administering the license system inaugurated
on December 22, 1932.
In discussing the report of a flax crop shortage in the United
States and the prospect of developing flax exports from
Lithuania to the United States in 1934, Mr. Garsva said that it
would be to the mutual benefit of both countries if something
would come of it and that the Lithuanian Government was taking
steps to place the flax industry on a firmer basis in order to
expand its exports. He reiterated what he said to me in December
1933,* that in view of the
new economic policy instituted in Lithuania, to even up trade
balances between individual countries, it was essential that
those countries desiring to export to Lithuania take measures to
increase their imports from this country and, consequently, if
exports of flax to the United States could be developed anew, it
would make a difference in the attitude of the Lithuanian
Government towards the United States in regard to the import
trade.
When it was pointed out to Mr. Garsva that the trade balance
between the United States and Lithuania was favorable to the
latter in 1933 by approximately Lits 1,000,000, that the United
States was Lithuania’s fourth best customer at the present time,
and that remittances from the United States to Lithuania have
aggregated about $2,000,000 per annum, he stated that the
Government had noted this fact and no measures had been taken by
his department against individuals or government departments
desiring to import American goods: in other words, nothing has
been done to restrict imports from the United States.
[Page 623]
He was then informed that the Consulate had received several
complaints during the past few months from local importers of
American goods, for the importation of which a license is not
even required, and that in one instance at least one government
purchasing department had rejected the bid of the local agent of
an American automobile manufacturer in favor of the British-made
Morris, although the price of the latter was considerably
higher. To this, Mr. Garsva replied that other factors must have
entered into the purchase since his department had issued no
instruction to the bureau concerned or to any other and, since
all contemplated government purchases come through his office
for checking against individual countries, he would have been
aware of any discrimination.
I then mentioned that information had, however, been received
that both the Aviation Department and the Military Technical
Supply Department had intimated that they would be unable to
purchase American material in 1934 in view of the demand to buy
British goods—regardless of price or quality—unless the American
manufacturer were in a position to offer some form of
compensation in regard to exports from Lithuania. Mr. Garsva
stated that this assertion belied the facts since each
government department was required to submit a program at the
beginning of each budget year regarding the purchases it
contemplated making and from which countries. This program must
be approved by his department as well as by other pertinent
authorities.
To prove his point, Mr. Garsva exhibited a table which had been
prepared by the Lithuanian Ministry of National Defense showing
its contemplated purchases in 1934 by countries and
departments.
Although I was not given an opportunity to memorize the plan,
nevertheless sufficient time was had to confirm the information
which Mr. Garsva himself had divulged that the Ministry of
National Defense contemplates purchasing from abroad in 1934
approximately Lits 20,000,000 worth of war materials of which 50
per cent will be purchased by the Armament Department and 25 per
cent by the Aviation Department. Of the total sum, Great Britain
has been allotted approximately Lits 6,500,000, Germany Lits
3,900,000 and the United States, Lits 200,000. The balance of
the purchases are divided between about 10 other countries,
principally Czechoslovakia and France. The sum allotted to the
United States represents purchases to be made by the Armament
Department. Of the total purchases by the Aviation Department,
aggregating about Lits 5,000,000, it is understood that Great
Britain has been allotted Lits 4,500,000.
From other sources it has been ascertained that the appropriation
allotted the Aviation Department in 1934, the largest in many
years, is for the purpose of acquiring eight airplane motors,
two to four [Page 624] bombing
planes, and pursuit planes, number unknown. Lits 2,000,000 was
allotted Great Britain by the Armament Department for the
purchase of anti-aircraft guns from Vickers (erroneously
reported previously as having already been purchased from
Schneider), and auxiliary equipment, consisting of height
finders and anti-aircraft searchlights.
In further elaboration of the operation of the program, Mr.
Garsva explained that, the Ministry having decided from which
countries purchases in 1934 would be made, steps would
immediately be taken by his department with those countries
whose balance of trade were unfavorable to Lithuania to force
them to make some concession. In the case of Germany, for
instance, which has been allotted Lits 3,900,000 in military
equipment purchases alone in 1934, Mr. Garsva stated that the
Lithuanian Government would demand that Germany take Lithuanian
butter to an equal amount. This procedure would offset the
virtual stoppage in butter exports to Germany which took place
recently as a result of political reprisals.
In view of the fact that the preparation of such a program as
outlined by Mr. Garsva anticipated purchases from specific
countries he was asked if a government department would be
permitted to purchase from a different country than foreseen and
what effect the bidding would have. He stated that bids were not
always called for if the purchasing department had already
arrived at a decision, but that, nevertheless, even where bids
were called for the department had the right to make purchases
elsewhere with the approval, of course, of the proper
authorities.
Mr. Garsva’s attention was then called to the fact that several
American firms were desirous of participating in the bids on
Government contracts in 1934. He discreetly stated that it was
entirely up to the American firms to offer something in the way
of compensating exports such as other foreign firms were
doing.
It was pointed out to Mr. Garsva that since there were no
restrictions in the United States on imports and exports with
the exception of alcoholic beverages, it was impossible for an
American firm to obtain guarantees from its government to buy
Lithuanian products. He replied to this that large American
manufacturers desiring to sell their products in Lithuania or
rather to compete in government bids should be able with their
wide contracts to import Lithuanian goods themselves for
distribution in the United States, but if this was impossible
then it was up to the United States Government to conclude a
trade agreement with Lithuania such as was recently concluded
with Denmark whereby the foreign trade between the two countries
would be balanced every six months. Similar agreements are now
being negotiated with other countries. Mr. Garsva stated that an
[Page 625] offer by the
United States to enter into such an arrangement with Lithuania
would meet with favorable approval by the Ministry for Foreign
Affairs, since Lithuania was gradually being forced from
economic circumstances to go over to the policy of balancing its
trade with each individual country.
Mr. Garsva stated further that although there was a tendency to
buy in Great Britain (since the balance of trade between the two
countries in 1933 was favorable to Lithuania by Lits
47,222,700), nevertheless, owing to the recent cut in the bacon
quota allotted Lithuania by the former, the Government was being
forced to seek other markets through the conclusion of special
agreements.
Elaborating further on the possibility of expanding trade between
the United States and Lithuania, Mr. Garsva asserted that,
although any increased trade which might result between the two
countries as a result of an agreement would comprise an
infinitesimal part of the total foreign trade turnover of the
United States, it would mean a great deal to Lithuania.
To summarize, I obtained the impression from Mr. Garsva, which is
supported by facts, that the Lithuanian Government is using the
government purchases abroad, which comprise approximately 20 per
cent of the total imports into this country, to equalize trade
balances and to satisfy the demands of those countries
(principally Great Britain) the balance of trade of which is
favorable to Lithuania. It is also evident from the conversation
that the Lithuanian Ministry of Finance has issued instructions
to government departments not to purchase in certain countries,
including the United States, except in exceptional cases where
the superiority of the material is of predominant importance
unless export compensation is granted by the foreign firm. This
information is confirmed by the secret memorandum issued to all
government departments by the Cabinet of Ministers in November
1933.†
It is therefore believed that American firms will have no
opportunity of competing in forthcoming bids unless they agree
to buy Lithuanian products to the same amount, in spite of the
fact that the balance of trade between Lithuania and the United
States continues to be favorable to the former.
Although the import license system affecting eleven important
commodities and groups was invoked to diverge Lithuania’s import
trade to Great Britain where possible, the Government is also
encouraging the importation of other commodities from Great
Britain, and, where government purchasing departments are
concerned, through direct instructions. Complaints are being
received especially from local importers [Page 626] of American automotive vehicles who state
that the chiefs of the government purchasing departments openly
admit that they are no longer able to buy American made cars if
similar types can be bought in Great Britain. As yet, however,
statistics for 1933 and 1934 of automobile imports do not show
any direct discrimination against American vehicles in favor of
British made, although imports from the United States did
decrease during 1933 but to the benefit of Germany.
The principal items of export to the United States in 1933 and
1934 were cellulose comprising 95 per cent of the total,
followed by calfskins.
Lithuania formerly exported large quantities of flax and
calfskins to the United States and it is possible that the
American market could be opened up anew for these commodities.
Other items of importance in Lithuania’s export trade which
might find a market in the United States are: vodka, sawn
lumber, plywood, flaxseed and tow, other hides and skins and
candy. It is understood that peat moss, of which Lithuania
abounds, is imported into the United States from Soviet Russia
in large quantities, in which case it might be a factor in any
negotiations entered into between the United States and
Lithuania.