611.5231/973

Memorandum by the Chief of the Division of Trade Agreements (Grady)

The Spanish Ambassador called today at the request of Mr. Sayre because of difficulties that have developed in connection with the Spanish negotiations. These involve the matter of the Spanish concessions on automobile exports to Spain. What is involved is not only a matter of automobiles but of the Spanish attitude toward quotas, and our own. We had thought in the preliminary exchange of notes that it was understood by the Spanish Government that where quotas are imposed by them our share must be the percentage we enjoyed in a representative period. In connection with the discussion of automobiles, however, it developed that the Spanish negotiators had in mind giving us a quota in excess of our share in 1934, but not allocated on the basis of a representative period. Our own negotiators in the discussions insisted that a representative period would be one during which there was no discrimination in the matter of tariff rates against American automobiles. This would entitle the United States to 51.1 percent of the units or 56.9 percent in terms of weight. The Spanish negotiators [Page 707] have considered this impossible. The talk with the Spanish Ambassador was for the purpose of clarifying the issues involved.

It should be borne in mind that Spain had no quota oil automobiles until May 1, 1935, and this quota was put on while our negotiations were in progress. The Spanish Government indicated at the time the quota was imposed that it was for the purpose of regulating French imports of automobiles into Spain. After again discussing with the Ambassador the general principles involved in our whole policy (which we have done on a number of former occasions) it was suggested to him that there were three alternatives—first, the suppression of the quota entirely and most-favored-nation treatment in regard to tariff rates; second, an unallocated quota approximating the number of units imported into Spain in 1934, 13,641 cars. This quota limitation would presumably satisfy the Spanish Government’s desire to prevent undue imports as a protection of their currency and would give those countries with strongest competitive position in their market the opportunity to get a share of the business which their ability to sell against other foreign cars would insure. The third alternative if the Spanish Government insists on an allocated quota would be to give us a percentage based on a representative period. Mr. Sayre explained to the Ambassador that we would not absolutely insist On the representative period being based on those years when we were not subject to discrimination, fair as this would seem to be, but it would have to be some representative period. The Ambassador pointed out that what had disturbed the Spanish negotiators was the suggestion of our negotiators of a quota based on 56.9 percent of weight as against what we actually supplied in 1934, which was 4.7 percent of weight. The Ambassador said that the increased imports resulting from this change in percentage would be difficult for his Government to contemplate. He suggested that we pass over the automobile item and continue negotiations on other items. Mr. Sayre replied that because this item involved a basic question of principle that we had wished to discuss it.

Finally it was agreed that negotiations would continue and that the Ambassador would give consideration to our suggestions regarding the automobile schedule and that we might take that up later. He pointed out the difficulties which Spain is experiencing in making an agreement with us because of quota commitments to other countries. He added that Spain had recently suppressed a number of quotas and indicated that it was the desire of the Spanish Government to relax quota controls as much as possible. He indicated a very great desire to successfully conclude the negotiations for an agreement and urged expedition. Mr. Sayre said that we were equally anxious to expedite negotiations, but the Spanish negotiators were taking a great deal of time to urge concessions on items of which they were insignificant suppliers, and that this was delaying negotiations. It was pointed [Page 708] out to the Ambassador that on these lesser items Spain will get the concessions through generalization of concessions to other countries. The Ambassador expressed fear that in making concessions to other countries there would be break-downs of classifications and definings of commodities that would prevent Spain getting the benefit of generalizations. Mr. Sayre replied with the assurance that it was our intention not to defeat the purposes of the most-favored-nation principle by refinements of subclassification. It was finally agreed that the negotiations would continue tomorrow and that the Ambassador would take up with us later the matter of what his Government is prepared to do on automobiles.

Henry F. Grady