611.003/3389
The Secretary of State to Representative Robert L. Doughton 1
My Dear Mr. Doughton: I thank you for your letter of January 11, 1935,2 through which the Committee on Ways and Means requests any comments or recommendations I may care to make with respect to the Bill H. R. 2051, “To levy additional tariffs on imports from certain countries which are in default on war debts to the United States.”
The Bill provides that there shall be levied, collected and paid upon all articles imported from any foreign country which is in default on its national indebtedness to the United States incurred in connection with the World War, duties in lieu of the duties prescribed under existing law and three times the amount of the duties prescribed under existing law. Such duties shall be imposed on articles imported from a foreign country during any period during which more than ten percent of the amount due on its indebtedness to the United States remains unpaid. Amounts collected in excess of the amount which would be collected under the provisions of existing law shall be credited as payment on amounts due on such national indebtedness. The last section of the Bill reads: “Nothing in any treaty or agreement made by the United States shall be construed to prevent the operation of this Act according to its terms.”
The Bill would reverse the policy hitherto followed in the matter of the repayment of war debts. For a policy of negotiated agreements under which the debtors voluntarily pay agreed amounts, the Bill would substitute a policy of undertaking direct collection by discriminatory legislation against the trade of debtor countries. Instead of looking to the debtor’s obligation, secured on its good faith and credit, to pay from all its resources, the Bill would disregard all agreement and look only to the exports of each country to the United [Page 600] States, although in almost every case the value of such exports is insufficient to pay even for the goods which the debtor country buys from the United States, while the annual debt payments scheduled to be made by our important debtors also exceed the value of their total annual exports to the United States. The capacity of one country to pay another is not measured either by its exports to or by its balance of trade with the creditor.
There is at present a considerable tendency for debtors to pretend that they can pay foreign debts only out of the proceeds of direct sales of goods in the creditor country. This argument is particularly used to justify stopping payments to Americans while continuing payments to European creditors. In effect it is argued that a country can pay foreign debts only to countries to which its exports exceed its imports, and, therefore, that it is impossible to pay debts to Americans. The fallacy is in exaggerating the importance of the direct balance of trade between each two countries, and in excluding the normal triangular and multi-angular trade and payment relations. The Bill, H. R. 2051, would seem to be in line with this fallacy, although the Bill would operate in practice to decrease the exports of debtors to the United States and therefore their capacity to pay.
Imports from all countries to the United States are subject to high non-discriminatory duties. The Bill proposes to increase these duties on goods from debtor countries, and to apply on the debts any amounts collected in excess of the present duties. However, it seems probable that the increased and discriminatory duties would almost destroy exportation from those countries to the United States and would seriously impair their capacity either to buy American goods or to pay their debts. There might be a decrease rather than an increase in the revenue collected.
Our debtors, in correspondence which has been published, have continued expressly to recognize their obligations even while stating that they do not feel that they can wisely undertake to make the current scheduled payments. There seems no occasion for American legislation which might decrease or take over in whole or in part their responsibility for the discharge of their obligations and which might result in a further reduction of international trade at a time when the total value of the world’s exports and imports is about one-third of the 1929 value.
The provision in the final section of the Bill that the United States should disregard any agreement or treaty which might be construed to prevent the operation of the proposed legislation, would be inappropriate in any legislation but is particularly inappropriate in the present connection. The United States and the world have an overriding interest in preserving the sanctity of international [Page 601] obligations and the capacity of governments to conduct their relations with one another on the basis of friendly negotiation and binding agreements. A smaller consideration is that these agreements of the United States which contain mutual assurances against trade discrimination have been made in order to protect the interests of the United States and cannot be violated without danger to the trade of the United States.
Apart from the particular merits or demerits of any piece of proposed legislation, the adoption of any permanent measure embodying a policy of retaliation requires the most careful and responsible consideration on broad grounds. The trade of the world has already suffered greatly from the effects of policies of retaliation which countries have adopted in one connection or another during the past few years. Retaliation begets counter-retaliation—all hurting not only the country against which resentment is directed but also the volume of general trade. The countries of widest interest, such as the United States, are those which suffer the most from this unfavorable atmosphere. It will be difficult indeed to foster recovery as long as the processes of trade are subordinated to a spirit of mutual reprisal. The Government of the United States in its relations with foreign governments will not fail to safeguard American interests and to support definite American rights in every appropriate way, but it has never been clearer that the cultivation of the widest cooperative relations in working for economic recovery is itself one of the greatest of American interests.
Sincerely yours,