Foreign Relations of the United States Diplomatic Papers, 1935, General, The Near East and Africa, Volume I

611.0031/1737a

The Secretary of State to Diplomatic and Consular Officers

Washington, June 6, 1935.

Sirs: Detailed information in regard to the policies being followed in connection with the reciprocal trade agreements which are being concluded under the authority of the Trade Agreements Act of June 12, 1934,¹ is contained in the Department’s press release of April 1, 1935, and in the so-called standard general provisions for inclusion in trade agreements, copies of which are enclosed.

Since the factors involved in trade negotiations are not the same with respect to all countries, the general provisions of one agreement may differ somewhat from those of another. There has been formulated and approved, however, a standard set of general provisions after which the general terms of each agreement are patterned. The standard provisions embody a number of basic policies of the Government relative to trade agreements.

Of special interest are those provisions concerning quotas (reference numbers 7, 8, and 9), monopolies (reference number 10), exchange control (reference number 11), exchange depreciation (reference number 14), and competition from third countries (reference number 18).

The policy of the Government with respect to the generalization of tariff concessions made pursuant to trade agreements is fully set forth in the Department’s press release of April 1.

Very truly yours,

For the Secretary of State:

Francis B. Sayre

[Enclosure 1]

Statement Issued to the Press, April 1, 1935 on the Policy of the United States Concerning the Generalization of Tariff Concessions Under Trade Agreements

The President today proclaimed the Trade Agreement with the Belgo-Luxemburg Economic Union.² Concurrently with this action he issued instructions to the Treasury Department regarding the countries to which the concessions made in that Agreement will be extended. The latter document, a copy of which is attached,³ reflects the policy which the Government of the United States proposes to pursue in regard to the extension of the duties proclaimed in connection with trade agreements with foreign countries.

The commercial policy of the United States must, in the interest of our foreign trade, be designed to accomplish two objects, namely, (1) mutual and reciprocal reductions in trade barriers, and (2) the removal or prevention of discriminations against American commerce. It is hoped to accomplish the first object by means of trade agreements such as that with the Belgo-Luxemburg Economic Union, involving reciprocal reductions in barriers to trade. It is hoped concurrently to accomplish the second object by means of the policy described below.

Equality of treatment is the keynote of the foreign commercial policy of the Government of the United States. The United States neither seeks nor accords preferential, discriminatory treatment—it asks only that a foreign country treat American commerce no worse than it treats the commerce of any third country and, in turn, accords equality of treatment to the commerce of foreign countries.

In conformity with this policy, reductions in duties proclaimed under trade agreements with foreign countries will be extended immediately to the like articles of all countries in return for non-discriminatory treatment of American commerce. Such proclaimed duties may be characterized as our minimum duties. They will be withheld only from those countries which discriminate substantially against American trade, with due regard to trade agreement negotiations now in progress and with scrupulous observance of our obligations under existing treaties or agreements to accord most-favored-nation treatment as long as such obligations remain in force. To such countries, a standing offer is extended to accord to them the benefit of our minimum rates, or, in the case of those countries which receive them at once only by virtue of trade agreement negotiations or conversations now in progress or by virtue of our obligations under existing treaties or agreements, to insure to them the continued enjoyment of our minimum rates, if they agree not to discriminate or in fact cease to discriminate against American trade in respect of all forms of trade control measures, including exchange control and other measures not specifically dealt with in existing treaties or agreements in force with such countries. This policy is a reasonable one. The Government of the United States does not presume to say what should be the tariff or other commercial policy of any foreign country, provided merely that it is nondiscriminatory and insures fair and equitable treatment to American commerce.

With respect to customs duties the meaning of most-favored-nation treatment is clear. It means simply that the duty applied is no higher than that applied to the like commodity of any third country.

With respect to quantitative restrictions, what is meant by nondiscriminatory treatment, although somewhat less obvious and subject to different interpretations, can be defined with a fair degree of precision. While the undesirability of quotas is generally agreed to it is necessary as long as they are in use to define the term non-discriminatory treatment as applied to them. If quotas can be reconciled with non-discriminatory treatment this term must be defined as meaning the allotment to any foreign country of a share of the total quantity of any article permitted to be imported equivalent to the proportion of the total importation of the article which that foreign country supplied during a previous representative period. By “representative” period, is meant a series of years during which trade in the particular article under consideration was free from restrictive measures of a discriminatory character, and was not affected by unusual circumstances such as, for example, a crop failure in the case of an agricultural product. The term “representative” is thus flexible enough to take into account all circumstances affecting the trade in any given commodity with any particular country.

In regard to exchange control measures, the Government of the United States believes that any form of control of foreign exchange should be administered in such a way as to insure fair and equitable treatment for the nationals and commerce of the United States. With respect to the exchange made available for commercial transactions, this means that as nearly as may be determined, the share of the total available exchange which is allotted to any foreign country should not be less than the share employed in a previous representative period prior to the establishment of any exchange control for the settlement of commercial obligations to the nationals of the United States. In other words, the allotment of exchange should be adjusted to the natural flow of trade and not on the theory that the exchange granted for importations from a particular country should be regulated by the amount of exchange created by exports to that country. The latter policy tends to force a bilateral balancing of trade between each pair of countries, and thus tends to prevent the natural triangular or multilateral trade movements and to reduce the total volume of world trade.

If a country establishes or maintains a government monopoly for the importation or sale of a particular commodity or grants exclusive privileges to one or more agencies to import or sell a particular commodity, the Government of the United States believes that such monopoly or agency should not discriminate against American commerce but that it should accord American suppliers a fair and equitable share of the market as nearly as may be determined by considerations of price, quality, etc., such as would influence a private commercial enterprise.

In carrying out the policy of no discrimination described above and expressed in the Trade Agreements Act of June 12, 1934, the President has today issued instructions to the Secretary of the Treasury to apply the minimum rates provided for in the Belgian Agreement to the like articles the growth, produce or manufacture of all foreign countries.

He has, however, instructed the Secretary of the Treasury to extend our minimum rates provisionally to certain countries which at present are granting less favorable treatment to American trade than to that of other countries, but with which trade agreement negotiations are in progress. If in any such case the trade agreement negotiations are not successfully concluded before the expiration of six months from the date on which the President issues his instruction to the Secretary of the Treasury, or if in the meantime the foreign country has not ceased to discriminate against American trade or has not entered into an agreement to accord fair and equitable treatment in respect of both modern and old forms of trade control measures, our minimum rates under this procedure would be automatically withdrawn. It is hoped that in no case will it be necessary to withdraw our minimum rates from any one of the countries in this small group at the end of the six months’ period.

In his instruction to the Secretary of the Treasury, the President also has specified that the minimum rates provided for in the Agreement with Belgium shall be applied to the like articles originating in a number of countries even though they are at present granting less favorable treatment to American trade than to that of other countries, until thirty days from the date on which he advises the Secretary of the Treasury that the United States has ceased, or on a day certain will cease, to be bound by provisions of existing treaties or agreements. In the case of countries in this group, it is expected that notices of termination of existing treaties or agreements will be given, in accordance with their terms, with a view to clearing the way to the conclusion of agreements covering explicitly both modern and old trade control measures. It is hoped that such agreements, either separately or as part of comprehensive trade agreements, will be reached before the existing most-favored-nation treaties or agreements expire, in order that it will not be necessary to withdraw our minimum rates from any of the relatively few countries in this group.

In connection with this latter group, it may be pointed out that many of the trade restrictive measures imposed in recent years were not employed when the treaties or agreements now in force with these countries were signed. The most-favored-nation pledges contained in many existing treaties and agreements are worded broadly and do not deal as explicitly with the newer forms of trade control as might be desired. In view of the multiplication of new forms of trade restrictions in recent years, particularly exchange controls and import quotas, the Government of the United States believes it to be desirable to formulate new provisions in regard to fair and equitable treatment in respect of these more recent trade control measures. Such provisions, it is expected, will be included in trade agreements concluded under the authority of the Trade Agreements Act, or in notes exchanged with various foreign governments.

All countries not included in the two special groups described above are listed in a third large group. This group is heterogeneous in respect of eligibility for continued enjoyment of the benefit of our minimum rates. Most of these countries are not now discriminating seriously, if at all, against American commerce. These countries are assured continued enjoyment of the benefits of duties proclaimed under trade agreements so long as they continue to accord us fair and equitable treatment. In the case of other countries in this group, discriminations against American trade are known to exist but at present are relatively slight. The acts and policies of these countries will continue to be studied carefully, and if at a later time, on the basis of further study, it should appear that the discriminations against American trade are substantial, or if they should be increased substantially, consideration will be given to the withdrawal of our minimum duties from such countries, with due regard to obligations under any existing treaty or agreement.

In pursuance of the policy described herein, conversations have been carried on with a number of the countries in this group which have been discriminating against American commerce. Certain of these countries have either entered into an agreement to accord fair and equitable treatment to American trade or have indicated an intention promptly to remove existing discriminations, or in consequence of discussions now in progress have been provisionally included in the list.

It is the carefully considered view of the Government of the United States that the rule of no discrimination is the only standard of international conduct sufficiently definite to be applied fairly and with a minimum of international dispute in connection with the extension of minimum tariff rates and the administration of other forms of trade control measures. The Government of the United States rejects the view that such criteria as the relative balance of trade between countries, or the absolute height of trade barriers, can be used as proper guides to determine whether a country merits the enjoyment of our minimum duties. The first of these rejected criteria—the balance of trade—implies the desire to bring about a bilateral balance of trade between each pair of countries and leads to the impairment or destruction of multilateral trade based upon an economical and mutually advantageous international division of production. With respect to the second rejected criterion—the absolute height of trade barriers—such wide differences of opinion must necessarily exist, and the question is, moreover, so complicated by the characteristic structure of a nation’s industries, and by historical and traditional considerations, that any definite conclusions with regard to the application of such a criterion must, of necessity, be arbitrary. Under the policy which the Government of the United States is pursuing, this country would not refuse generalization of minimum duties to a foreign country, irrespective of the degree to which it is restricting trade, so long as American commerce is accorded its fair and equitable share of the permitted importations. This policy implements the unconditional most-favored-nation principle, which is the most effective means of bringing about more rapidly a general reduction of trade barriers, of giving elasticity to trade arrangements, and of expanding foreign trade.

[Enclosure 2]

Standard General Provisions for Trade Agreements

Preamble

The President of the United States of America and the . . . . . of . . . . . . ., being desirous of strengthening the traditional bonds of friendship between the two countries by maintaining the principle of equality of treatment as the basis of commercial relations and by granting mutual and reciprocal concessions and advantages for the promotion of trade, have through their respective Plenipotentiaries arrived at the following Agreement:

Article [I]

Articles the growth, produce or manufacture of the United States of America, enumerated and described in Schedule I annexed to this Agreement and made a part thereof, shall, on their importation into . . . . . . ., be exempt from ordinary customs duties in excess of those set forth in the said Schedule. The said articles shall also be exempt from all other duties, taxes, fees, charges or exactions, imposed on or in connection with importation, in excess of those imposed on the day of the signature of this Agreement or required to be imposed thereafter under laws of . . . . . . . in force on the day of the signature of this Agreement.

Article [II]

Articles the growth, produce or manufacture of . . . . . . ., enumerated and described in Schedule II annexed to this Agreement and made a part thereof, shall, on their importation into the United States of America, be exempt from ordinary customs duties in excess of those set forth in the said Schedule. The said articles shall also be exempt from all other duties, taxes, fees, charges or exactions, imposed on or in connection with importation, in excess of those imposed on the day of the signature of this Agreement or required to be imposed thereafter under laws of the United States of America in force on the day of the signature of this Agreement.

Article [III]

The United States of America and . . . . . . . agree that the notes included in Schedules I and II are hereby given force and effect as integral parts of this Agreement.

Article [IV]

Articles the growth, produce or manufacture of the United States of America or . . . . . . ., shall, after importation into the other country, be exempt from all internal taxes, fees, charges or exactions other or higher than those payable on like articles of national origin or any other foreign origin. The provisions of this Article in regard to the granting of national treatment shall not apply to taxes imposed in the United States of America on coconut oil or on any combination or mixture containing a substantial quantity of coconut oil.

Article [V]

In respect of articles the growth, produce or manufacture of the United States of America or . . . . . . ., enumerated and described in Schedules I and II, respectively, imported into the other country, on which ad valorem rates of duty, or duties based upon or regulated in any manner by value, are or may be assessed, it is understood and agreed that the bases and methods of determining dutiable value and of converting currencies shall be no less favorable to importers than the bases and methods prescribed under presently existing laws and regulations of . . . . . . . and the United States of America, respectively.

Article [VI]

1. No prohibitions, import or customs quotas, import licenses, or any other form of quantitative regulation, whether or not operated in connection with any agency of centralized control, shall be imposed by . . . . . . . on the importation or sale of any article the growth, produce or manufacture of the United States of America enumerated and described in Schedule I, nor by the United States of America on the importation or sale of any article the growth, produce or manufacture of . . . . . . ., enumerated and described in Schedule II.

2. The foregoing provision shall not apply to:

(a) Prohibitions or restrictions (1) specifically provided for in Schedules I and II of this Agreement; (2) imposed on moral or humanitarian grounds; (3) designed to protect human, animal or plant life; (4) relating to prison-made goods; (5) relating to the enforcement of police or revenue laws; or

(b) Quantitative restrictions in whatever form imposed by the United States of America or . . . . . . . on the importation or sale of any article the growth, produce or manufacture of the other country in conjunction with governmental measures operating to regulate or control the production, market supply, or prices, or tending to increase the labor costs of production, of like domestic articles. Whenever the Government of either country proposes to establish or change any restriction authorized by this subparagraph, it shall give notice thereof in writing to the other Government and shall afford such other Government an opportunity within thirty days after receipt of such notice to consult with it in respect of the proposed action; and if an agreement with respect thereto is not reached within thirty days following receipt of the aforesaid notice, the Government which proposes to take such action shall be free to do so at any time thereafter, and the other Government shall be free within fifteen days after such action is taken to terminate this Agreement in its entirety on thirty days’ written notice.

Article [VII]

1. If the Government of the United States of America or . . . . . . establishes or maintains any form of quantitative restriction or control of the importation or sale of any article in which the other country has an interest, or imposes a lower import duty or charge on the importation or sale of a specified quantity of any such article than the duty or charge imposed on importations in excess of such quantity, the Government taking such action will:

(a) Give public notice of the total quantity, or any change therein, of any such article permitted to be imported or sold or permitted to be imported or sold at such lower duty or charge, during a specified period;

(b) Allot to the other country for such specified period a share of such total quantity as originally established or subsequently changed in any manner equivalent to the proportion of the total importation of such article which such other country supplied during a previous representative period, unless it is mutually agreed to dispense with such allotment; and

(c) Give public notice of the allotments of such quantity among the several exporting countries, and at all times upon request advise the Government of the other country of the quantity of any such article the growth, produce or manufacture of each exporting country which has been imported or sold or for which licenses or permits for importation or sale have been granted.

2. Neither the United States of America nor . . . . . . . shall regulate the total quantity of importations into its territory or sales therein of any article in which the other country has an interest, by import licenses or permits issued to individuals or organizations, unless the total quantity of such article permitted to be imported or sold, during a quota period of not less than three months, shall have been established, and unless the regulations covering the issuance of such licenses or permits shall have been made public before such regulations are put into force.

protocol

Ad. Article [VII]

It is understood that this Article does not affect the application of measures directed against misbranding, adulteration and other fraudulent practices, such as are provided for in the pure food and drug laws of the United States of America, or the application of measures directed against unfair practices in import trade, such as are provided for in Section 337 of the United States Tariff Act of 1930.⁴

Article [VIII]

In the event that the Government of the United States of America or the Government of . . . . . . . establishes or maintains a monopoly for the importation, production or sale of a particular commodity or grants exclusive privileges, formally or in effect, to one or more agencies to import, produce or sell a particular commodity, the Government of the country establishing or maintaining such monopoly, or granting such monopoly privileges, agrees that in respect of the foreign purchases of such monopoly or agency the commerce of the other country shall receive fair and equitable treatment. To this end it is agreed that in making its foreign purchases of any product such monopoly or agency will be influenced solely by those considerations, such as price, quality, marketability, and terms of sale, which would ordinarily be taken into account by a private commercial enterprise interested solely in purchasing such product on the most favorable terms.

Article [IX]

The tariff advantages and other benefits provided for in this Agreement are granted by the United States of America and . . . . . . . to each other subject to the condition that if the Government of either country shall establish or maintain, directly or indirectly, any form of control of foreign exchange, it shall administer such control so as to insure that the nationals and commerce of the other country will be granted a fair and equitable share in the allotment of exchange.

With respect to the exchange made available for commercial transactions, it is agreed that the Government of each country shall be guided in the administration of any form of control of foreign exchange by the principle that, as nearly as may be determined, the share of the total available exchange which is allotted to the other country shall not be less than the share employed in a previous representative period prior to the establishment of any exchange control for the settlement of commercial obligations to the nationals of such other country.

The Government of each country shall give sympathetic consideration to any representations which the other Government may make in respect of the application of the provisions of this Article, and if, within thirty days after the receipt of such representations, a satisfactory adjustment has not been made or an agreement has not been reached with respect to such representations, the Government making them may, within fifteen days after the expiration of the aforesaid period of thirty days, terminate this Article or this Agreement in its entirety on thirty days’ written notice.

Article [X]

With respect to customs duties or charges of any kind imposed on or in connection with importation or exportation, and with respect to the method of levying such duties or charges, and with respect to all rules and formalities in connection with importation or exportation, and with respect to all laws or regulations affecting the sale or use of imported goods within the country, any advantage, favor, privilege or immunity which has been or may hereafter be granted by the United States of America or . . . . . . . to any article originating in or destined for any third country, shall be accorded immediately and unconditionally to the like article originating in or destined for . . . . . . . or the United States of America, respectively.

Article [XI]

Laws, regulations of administrative authorities and decisions of administrative or judicial authorities of the United States of America or . . . . . . ., respectively, pertaining to the classification of articles for customs purposes or to rates of duty shall be published promptly in such a manner as to enable traders to become acquainted with them. Such laws, regulations and decisions shall be applied uniformly at all ports of the respective country, except as otherwise specifically provided in statutes of the United States of America relating to articles imported into Puerto Rico.

No administrative ruling by the United States of America or . . . . . . . effecting advances in rates of duties or in charges applicable under an established and uniform practice to imports originating in the territory of the other country, or imposing any new requirement with respect to such importations, shall be effective retroactively or with respect to articles either entered for or withdrawn for consumption prior to the expiration of thirty days after the date of publication of notice of such ruling in the usual official manner. The provisions of this paragraph do not apply to administrative orders imposing anti-dumping duties, or relating to regulations for the protection of human, animal, or plant life, or relating to public safety, or giving effect to judicial decisions.

Article [XII]

In the event that a wide variation occurs in the rate of exchange between the currencies of the United States of America and . . . . . . ., the Government of either country, if it considers the variation so substantial as to prejudice the industries or commerce of the country, shall be free to propose negotiations for the modification of this Agreement or to terminate this Agreement in its entirety on thirty days’ written notice.

Article [XIII]

Greater than nominal penalties will not be imposed in the United States of America or in . . . . . . . upon importations of articles the growth, produce or manufacture of the other country because of errors in documentation obviously clerical in origin or where good faith can be established.

The Government of each country will accord sympathetic consideration to, and when requested will afford adequate opportunity for consultation regarding, such representations as the other Government may make with respect to the operation of customs regulations, quantitative restrictions or the administration thereof, the observance of customs formalities, and the application of sanitary laws and regulations for the protection of human, animal, or plant life.

Article [XIV]

Except as otherwise provided in the second paragraph of this Article, the provisions of this Agreement relating to the treatment to be accorded by the United States of America or . . . . . . ., respectively, to the commerce of the other country, shall not apply to the Philippine Islands, the Virgin Islands, American Samoa, the Island of Guam, or to the Panama Canal Zone.

Subject to the reservations set forth in the third and fourth paragraphs of this Article, the provisions of Article (12) shall apply to articles the growth, produce or manufacture of any territory under the sovereignty or authority of the United States of America or . . . . . . ., imported from or exported to any territory under the sovereignty or authority of the other country. It is understood, however, that the provisions of this paragraph do not apply to the Panama Canal Zone.

The advantages now accorded or which may hereafter be accorded by the United States of America or . . . . . . . to adjacent countries in order to facilitate frontier traffic, and advantages resulting from a customs union to which either the United States of America or . . . . . . . may become a party, shall be excepted from the operation of this Agreement.

The advantages now accorded or which may hereafter be accorded by the United States of America, its territories or possessions or the Panama Canal Zone to one another or to the Republic of Cuba shall be excepted from the operation of this Agreement. The provisions of this paragraph shall continue to apply in respect of any advantages now or hereafter accorded by the United States of America, its territories or possessions or the Panama Canal Zone to the Philippine Islands irrespective of any change that may take place in the political status of the Philippine Islands.

Unless otherwise specifically provided in this Agreement, the provisions thereof shall not be construed to apply to police or sanitary regulations; and nothing in this Agreement shall be construed to prevent the adoption of measures prohibiting or restricting the exportation of gold or silver, or to prevent the adoption of such measures as either Government may see fit with respect to the control of the export or sale for export of arms, munitions, or implements of war, and, in exceptional circumstances, all other military supplies.

Article [XV]

In the event that the Government of the United States of America or the Government of . . . . . . . adopts any measure which, even though it does not conflict with the terms of this Agreement, is considered by the Government of the other country to have the effect of nullifying or impairing any object of the Agreement, the Government which has adopted any such measure shall consider such representations and proposals as the other Government may make with a view to effecting a mutually satisfactory adjustment of the matter.

Article [XVI]

The Government of the United States of America and . . . . . . . reserve the right to withdraw or to modify the concession granted on any article under this Agreement, or to impose quantitative restrictions on any such article if, as a result of the extension of such concession to third countries, such countries obtain the major benefit of such concession and in consequence thereof an unduly large increase in importations of such article takes place: Provided, That before the Government of either country shall avail itself of the foregoing reservation, it shall give notice in writing to the other Government of its intention to do so, and shall afford such other Government an opportunity within thirty days after receipt of such notice to consult with it in respect of the proposed action; and if an agreement with respect thereto is not reached within thirty days following receipt of the aforesaid notice, the Government which proposed to take such action shall be free to do so at any time thereafter, and the other Government shall be free within fifteen days after such action is taken to terminate this Agreement in its entirety on thirty days’ written notice.

Article [XVII]

The present Agreement shall, from the date on which it comes into force, supplant the Agreement between the United States of America and . . . . . . ., effected by exchange of notes signed on . . . . . . .

Article [XVIII]

As long as the present Agreement remains in force, it shall supersede any provisions of the Treaty of . . . . . . . between the United States of America and . . . . . . ., signed at . . . . . . . on . . . . . . , which may be inconsistent with this Agreement. However, upon the expiration of this Agreement, the provisions of the aforesaid Treaty which have been temporarily suspended shall automatically resume operation and shall continue in full force and effect subject to termination as provided in that Treaty.

Article [XIX]

The present Agreement shall come into full force on the thirtieth day following proclamation thereof by the President of the United States of America and the . . . . . . . of . . . . . . . , or should the proclamations be issued on different days, on the thirtieth day following the date of the later in time of such proclamations, and shall remain in force for the term of . . . . . years thereafter, unless terminated pursuant to the provisions of Article (7), Article (11), or Article (14). The Government of each country shall notify the Government of the other country of the date of its proclamation.

Unless at least six months before the expiration of the aforesaid term of . . . . . years the Government of either country shall have given to the other Government notice of intention to terminate this Agreement upon the expiration of the aforesaid term, the Agreement shall remain in force thereafter, subject to termination under the provisions of Article (7), Article (11), or Article (14), until six months from such time as the Government of either country shall have given notice to the other Government.

In witness whereof the respective Plenipotentiaries have signed this Agreement and have affixed their seals hereto.

Done in duplicate, in the English and . . . . . . . languages, both authentic, at the City of . . . . . . . , this . . . . . . . For the President of the United States of America:

For the . . . . . . . of . . . . . . . :

1. 48 Stat. 943.
2. Vol. ii, p. 102.
3. Department of State, Press Releases, April 6, 1935, p. 216.
4. 46 Stat. 703.