711.652/135: Telegram
The Secretary of State to the Ambassador in Italy (Phillips)
192. Your 509, December 10. We do not desire to conclude the temporary arrangement until complete agreement has been reached with respect to the interpretation of certain provisions of Article VIII. If the treaty is signed and transmitted to the Senate for advice and consent to ratification, it will be necessary also to transmit to the Senate the Précis which contains the interpretation in reference. Hence, the best procedure from the standpoint of this Government is to have the language of the Précis express in itself the interpretative understanding.
It is understood that the language of the first two paragraphs of the Précis is satisfactory to Italy.
As regards the Italian comment with respect to “representative period”, we do not agree to a specification in the Précis that the phrase means that a particular year shall be representative of past trade in all products. Paragraph 3 of Article VIII deals with quantitative limitations on the importation of individual products and the formula laid down in the Article is based upon that past period of trade in any individual product which was in fact representative. Thus the language of the paragraph anticipates that a period of trade which might be representative in respect of one product may not be representative in respect of another product. Moreover, it is often necessary to consider the trade over a period of more than 1 year in order to determine a period which is representative. In view of the foregoing, this Government does not agree to any change in the language of the third paragraph of the Précis.
It is understood that all of the language of paragraph 4 of the Précis is satisfactory to Italy.
Italy has accepted the language of the first sentence of paragraph 5 of the Précis. It appears, however, that the Italians have misconstrued the thought which we intended to convey by the term “cross rates of exchange”. By this term is meant the relative value of two currencies calculated from their values in terms of some third currency as expressed in their rates of exchange on that third currency. Hence, the Embassy should explain further that under the terms of the first sentence in paragraph 5, an Italian importer would not be required to produce more lire to pay for an article imported from the United States than he would have to produce should he buy exchange of any third country and exchange it for dollars. To illustrate: the lira was worth 5.26½ cents and the Reichsmark 40.33 cents in New York on December 10. Hence, the cross rate of exchange of the Reichsmark on the lira was approximately 7.66 lire per Reichsmark. [Page 491] Should the cost of the Reichsmark to Italian importers be reduced below this figure, the cross-rate in New York remaining unchanged, we would be entitled, under our understanding of the terms of paragraph 4 of Article VIII, to an equivalent reduction in the cost of the dollar to Italian importers. It is not, of course, the intention to require the importer actually to purchase the currency of a third country and convert it into dollars. The provisions of paragraph 5 of the Précis relate only to the method of computing the required rate for the purchase of dollars. It is not the intention of this Government, however, to seek to apply the provisions of subparagraph (b) of paragraph 4 of Article VIII in respect of compensation currencies, except where American trade is materially affected. If the Italian Government accepts this interpretation we agree to omit the second sentence of paragraph 5 of the Précis.
In order that we may be fully informed you are requested to cable immediately all parts of the Italian memorandum regarding Article VIII which were not transmitted with your 509 of December 10. We are hopeful that the Embassy can report the Italian reaction to the foregoing and that agreement can be reached on the Précis in time to authorize signature of the temporary arrangement on December 15.
For your information and use at the proper time, the Italian proposal with respect to the third paragraph of the temporary arrangement is satisfactory, but it is suggested that it be amended to read as follows:
“It is agreed that on its part the Government of Italy will in fact apply the provisions of Article VIII of the proposed new treaty on and after December 15, 1937, and that the Government of the United States will on its part continue to accord …”
Also the last paragraph of the temporary arrangement should be amended to read as follows:
“It is understood that the stipulations of this temporary arrangement do not apply to—
- (a)
- Preferential advantages which Italy accords to Albania, Austria, Bulgaria, Hungary, and Yugoslavia between December 15, 1937 and December 31, 1937, or to
- (b)
- Preferential tariff advantages which Italy accords to Austria after December 31, 1937, under the terms of the treaty between Italy and Austria signed at . . . . . on December 2, 1937.”
Before proposing the foregoing change in the last paragraph, the Embassy should satisfy itself that the treaty between Italy and Austria of December 2 accords only the advantages set forth in Lists A and B as telegraphed to the Department in your 492 of November 29.47b
- Not printed.↩