COUNTERVAILING DUTIES ON IMPORTS FROM GERMANY

The practices and devices of the German Government described herein constitute the paying or bestowing of bounties or grants within the meaning of sec. 303, Tariff Act of 1930, and it is the duty of the Secretary of the Treasury to impose countervailing duties upon articles affected thereby.

The proposed Treasury decision is appropriate in form to carry out that purpose.

The SECRETARY OF THE TREASURY.

MARCH 18, 1939.

MY DEAR MR. SECRETARY: Reference is made to your memorandum to the President, dated November 28, 1938, in which you outline certain practices now prevailing in Germany, and to your recent informal request for my opinion as to whether those practices require the imposition by the Treasury Department of countervailing duties under section 303 of the Tariff Act of 1930.

You state in your memorandum that the following practices now prevail in Germany:

"(1) The prospective American importer of German goods 'buys' one of a limited number of kinds of merchandise (cotton or copper in most, if not all, cases) for dollars at the world price. The kind of merchandise to be admitted into Germany for the purpose of the 'barter' must be approved by the German import control authorities, and such approval is strictly limited to a very few kinds of goods.

"(2) The merchandise is shipped into Germany, having theretofore been sold to a German purchaser for free marks (which, as appears below, are immediately blocked) at a price substantially higher than the mark equivalent of the total cost to the vendor, if such cost is calculated at the current official rate of exchange. This spread or 'uberpreis' (over-price) is uniformly 3313 percent in the case of cotton. It has been less uniform but usually greater in amount in the case of copper. In every case the price to be paid by the German vendee must receive prior approval by the German import control authorities.

"(3) The marks paid by the German vendee are required to be paid into special accounts in German banks, where,

as mentioned above, they are held as 'blocked' or controlled funds for the account of the prospective American importer mentioned above.

"(4) Whatever the formal limitations upon the use of such controlled funds by their American owner may be, their only practical use is in payment for German goods to be shipped to the United States. The kinds of goods for which such payment may be made are restricted to those set forth in detail in a list published by the German exchange control authorities on July 19, 1938. Excluded from this list are, in general:

"(a) Articles and commodities in which Germany has a virtual international monopoly to such extent that their export at the current high German prices requires no assist

ance.

"(b) Goods of which there is a shortage in Germany so that their export is not favored by the German Govern

ment.

"(c) Goods composed of foreign materials to such a large extent that their export is objectionable to the German Government because of the drain on Germany's foreign balances which would result from the purchase of the materials used in their manufacture."

From a subsequent memorandum, dated January 20, 1939, it appears that the following example will serve to illustrate how the present German practices operate:

An American importer desires to import into the United States from Germany certain German cameras. Before this can be done approval of the transaction must be obtained from the German exchange control authorities, without whose approval nothing can be exported from Germany. This approval is obtained, and under an arrangement approved by the German import control authorities, without whose approval nothing can be imported into Germany, a German agent acting for the American importer buys American cotton at the world price for $1,000 and sells it in Germany for 2,500 Reichsmarks (the world price at the prevailing rate of exchange of 40 cents), plus a premium of 33% percent, making a total sales price of 3,333 Reichsmarks, the

equivalent of $1,333. This sales price has been fixed in advance by the German import control authorities, and the German purchaser of the cotton is required to pay it into a special account in a German bank in free German marks, which immediately become blocked and frozen and thereafter, for all practical purposes, are usable only by the American importer in the purchase of cameras which the German exchange control authorities have authorized to be exported from Germany. The American importer thereupon buys cameras for $1,333 (3,333 Reichsmarks) and imports them into the United States. Thus, for cameras which cost the American importer $1,000 the German exporter is paid $1,333; with the result that the German exporter is enabled to compete unfairly with, and probably to undersell, American camera manufacturers, while the exportation to Germany of American cotton is correspondingly restricted or curtailed.

Section 303 of the Tariff Act of 1930 (46 Stat. 687; U. S. C., title 19, sec. 1303) reads:

"Whenever any country, dependency, colony, province, or other political subdivision of government, person, partnership, association, cartel, or corporation shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture or production or export of any article or merchandise manufactured or produced in such country, dependency, colony, province, or other political subdivision of government, and such article or merchandise is dutiable under the provisions of this act, then upon the importation of any such article or merchandise into the United States, whether the same shall be imported directly from the country of production or otherwise, and whether such article or merchandise is imported in the same condition as when exported from the country of production or has been changed in condition by remanufacture or otherwise, there shall be levied and paid, in all such cases, in addition to the duties otherwise imposed by this act, an additional duty equal to the net amount of such bounty or grant, however the same be paid or bestowed. The Secretary of the Treasury shall from time to time ascertain and determine, or estimate, the

net amount of each such bounty or grant, and shall declare the net amount so determined or estimated. The Secretary of the Treasury shall make all regulations he may deem necessary for the identification of such articles and merchandise and for the assessment and collection of such addi tional duties."

In an opinion, dated June 2, 1936 (38 Op. 489), the Attorney General had occasion to consider certain practices then prevailing in Germany, including that of currency manipulations by the German Government through "controlled," "frozen," or "blocked" mark accounts known as "Aski mark accounts" and "Barter mark accounts," and held them to constitute "the payment or bestowal, directly or indirectly, of bounties and grants upon German exports" within the meaning of the above-quoted section of the Tariff Act of 1930, "calling for the imposition by the Treasury Department of countervailing duties" under that statute.

*

Comparison of the present German practices and those considered in the above-mentioned opinion of the Attorney General shows that they are identical in purpose and effect. Adopting the language of that opinion (pp. 497–498), the present practices, like the former "are *** for the benefit of German exporters and enable them to export their goods so as to be in a position to compete with our domestic products * *"; under them, "export transactions are completely controlled by the German government which permits only such exports as it deems to be in the German interest, and the devices described are means by which the German government enables the German exporters to export without incurring loss"; "the German authorities also completely control imports into Germany, permitting only those which are deemed for the benefit of that country"; and, manifestly, "the whole policy indicates a desire to encourage exports from and discourage imports into Germany."

The same opinion, after discussing the facts there involved, continued in part:

"I have no doubt that the script and bond practices and also the currency manipulations constitute the payment or bestowal, directly or indirectly, of bounties and grants upon

German exports calling for the imposition by the Treasury Department of countervailing duties.

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the whole aim seems to be to vest in the German government absolute control over exports; the determination of whether the particular export is to the best interests of Germany, the determination of how much depreciated currency is required by the exporter in order to enable him to place his goods in this country in competition with similar goods here, and the necessary manipulation to accomplish the end desired. The intent of the practices is to assist German exporters and the results carry out that intent. However the same be paid or bestowed' it is plain that there is a bounty or grant paid or bestowed 'directly or indirectly' by the German government which has established the machinery for the benefit of the German exporter and which assists him in the operation of it."

*

Since the German practices now prevailing are identical in purpose and effect with those discussed in the abovementioned opinion of the Attorney General, it follows that they likewise call for the imposition by the Treasury Department of countervailing duties.

From other data available, it appears that in December 1936 the German Government was advised, with your approval, that certain practices then proposed by the German authorities to govern the exchange of proceeds of American goods sold to Germans for German goods sold to Americans would not call for countervailing duties. An examination of those practices, however, shows a fundamental difference between them and the practices now under consideration. The former contemplated that both the sale of the American goods and the purchase of the German goods concerned were to be upon an uncontrolled market "at the current fair German open-market prices for such goods," while the latter involves a controlled market for both American and German goods and, as to American goods, prices arbitrarily fixed by the German Government. The practical effect of the present practices is the same as that which would flow from the imposition and collection by the German Government of a special duty or impost upon American goods and the subsequent use of the funds thus derived to sub

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