o. 414.
(W 6230/14/49)
,4
FOREIGN OFFICE, 3.   W. 1.
22nd April, 1940,
'at
^ may 40
My Lord Marquess,
In my despatch No. 78 of the 23rd January
transmitted to Your Lordship copy of a further note which I
had received from the United States Charge d'Affaires in
London on the subject of the Reprisals Order-in-Council of the
27th November, 1939.      I now transmit to you the draft of a
reply to Mr. Herschel Johnson's note, and should be glad of
your comments upon it, together with any amendments which you
may consider desirable.     At the present moment the difficulties
which have arisen with the United States Government over the
statement to be issued by you in V/ashington on this same question
appear to me to make it desirable to delay the despatch of this
note until some suitable opportunity presents itself when undue
public attention is unlikely to be aroused by it.      If, however,
unexpectedly rapid progress is made in removing the existing
causes of misunderstanding with the United States Government,it
is possible that His Majesty's Government may desire to
communicate their note to Mr. Kennedy without awaiting your
comments.
I am, with great truth and respect,
My Lord Marquess,
Your Excellency's obedient Servant,
(For the Secretary of State)
His Excellency
The Most Honourable
The Marquess of Lothian, C.H.,
etc.,     etc.,     etc.,
Washington.
s?02
ycmi&t g?pios, s.w.i.
Liarch, 1940.
United ;tatee
Aafeaaeador.
Your .xoolloney,
I hive the honour to invito reference
to tlie further not© ilo. 1Q1Q of the 17th January
on the subject of the Reprisals Order la
Council of the 27th :ioveaber last, addressed
to rae by Mr. lloroohel Johnson during Your
Jxoelionoy1 ¦ aboence   ron this country.
3«   Hie Majesty's Government note that
tho United States Government, while continuing
to reserve their position with regard to the
principle of the Order* ore concerned in the
present instance with its a plication. :-ie
Majesty* s Government must equally maintain
that their action is fully Justified on grounds
of reprisal for the illegalities aonmittea by
the German Government,   ttich fere intended to
inflict, and but for the unceasing efforts of
His/
His Majesty's Forces would Inflict, upco all
IWwl ooaasroe with %\m United 1..
damage at least as serious as thext
*« the Order.   ITevexithelose, ilia Marty's
Government cannot eisphaaise to-, strongly
that the Order io direoted^^alnat uerraan
caaserce and that it is their firm intention
to cause the minlnum of inconvenience *nd
loss to neutral countries consistent with
proper retaliation against the German
Government,   ^or this reason they will always
be willing to consider any representations
made by the United States vovcrntnent, or any
other neutral ^ovornnent, with regard to the
application of the Order, and to do their
best to alleviate oases of hardship attribution
to it.
3.   In this connexion His Majesty's
Government have observed from nr. Horeohel
Johnson's note that in the opinion of the
United States Government the "Notice to
"Traders" losued at the saje time as the
Order/
Order in Council, and Lord Jrogheda's letter
of the 2 th Deoentoer involve an unduly
. restrictive application of the announced
policy of Hie Majesty's ooveroment to have
rofjnxHi to tho interests of neutrals. They
are pleased to be able to explain that In faot
the "notice to Traders" waa not in any way
designed to be exhaustive of tho grounds on
which exemption from the provisions of the
Order would be granted.   It was not intended
to relate to exemptions as euoh at all, but to
the ;,roun;o upon 7hioh *;oods actually placed
in tftfli would bo released by the Court or with
the consent of the . roper Offioor of the orown
and ite main purpose was to afford some
reassurance to traders with regard to the class
of case which would clearly be most prominent
in the early stagee of the Order's applieation.
The grounds on which exemption is at present
beirifc civen arc rather to be found in
considerations
considerations of special hardship arising out
of the dislocation of established channels of
trade which ore unfortunately inevitable ae
the result of the application of the order.
"herever
been occasioned, v,lt houtaay-'oontributcry
negliuence^rrthe part of thp traders
KmJc QtuJid Kaa^ xvotdsLd
CCaaiiwt^your   .^Honey's Government may
be confident that the Ministry of TJoonoraie
arfare has full discretion to make any
concessions which may bo ;*ouuible Jo u^lfc^
4.   At the earns time while it is as
indicated the deal 1*0 of ilia Ma ©sty's
Government to deal with a-:pliontionB for
exemption from the operation of the Order in
Council in a sympathetic manner, they roust
make it clear that eases of exemption are
bound of their nature to be exceptional. It
will therefore be impossible without vitiating
Hie Majesty's Government's control to give
any/
ivy lienerol indication of a binding oharaotor
aa to oases in which exemption will bo
allowed, and eaoh application i;iuot be
considered ao an individual case eupr>orted bjr
the noooootiry details uid document**, iiis
Majesty* a Oovernraont have been at pains to
render the necessary procedure as simple and
expeditious ae possible and they have been
gratified to find that judging from
applications hitherto received by the li in is try
of ::oonomio   arfaro ahippere do not a vyear to
have experienced difficulty in completing
the required forma.
&•   as regards the specific points
which Mr. Johnson advunocci. Hie ooty's
Government   re of course familiar with tho
difficulties created by the German exchange
regulations*   ?he variety of tho points
raised, however, and the raiaif ioations of
the German exchange control system render
this/
thie question an extremely difficult one, in
which it ia not possible for ilia Majesty*¦
Government to oive any definite undertaking
as to their attitude.   The eye ten in foroe
in Germany lends itself, ae the United States
attornment will no doubt be aware» to the
conoenlment of any transactlone whioh the
Gemon Government taay thin!: it desirable in ite
own interests to hide.   Hie Majesty's
Government furthemwro have the beet reasons
for :aiowing that exports from Germany are not
in practice sanctioned against payments in
blocked narks alone but involve, in practically
all oases, further substantial payments in
foreign currency, so that funds which have been
attracted to Germany in i-ast years and which
are lonoblliaed there ae a result of German
legislation are actually made the decoy for
the attraction of further eurao in foreign
exchange, a process whioh raey well be oontinued
indefinitely.   His ttajeetr'* Government do
not/
It
not deaire to give the impression that thla
olaea of case is   ot one to which they are
inclined to give consideration, since
In foe* from m*m& thlt eiaas thai uftrlalfl
?ror
the ulveiveul uussb for uxbiu. tlon feOTV Uueu
tahen3 but they are unable to regard purohaeee
in blocked marks ae toeing automiaiually ¦ 0
wtebjfrctiiannfrle.
G«   Aa regards the nore detailed points
in connexion with bloclaed balances put forward
in £5r« Johnson's note, it is not clear whether
tho United ^tatee Government intend to claim
exertion with reference only to goods ordered
before the 27th Ncvenfcer, m% or whether they
desire to give t;is claim on indefinite
extension.    :ven on the more restricted
interpretation, Your Excellency will no doubt
appreciate that it would be inpoceible to
explain satisfactorily to iiritish and allied
pitolic opinion tho reasons   why, in spite f
the embargo, German exports should nevertheless
continue regularly to roach overseas
countries./
countries.   Moreover, If purohneeo in blocked
taarka wore to receive exceptional treatment
under the Crder in Council, it ie clear that
an immediate premium would be   laced upen the
acquisition of blocked work credito, and the
German Government may be relied upon, in the
opinion of Hie Majesty's Government to exploit
such a situation to the fullest possible
extent by the creation of fraudulent balances
said other expedient| which the German
financial system renders easy and unobtrusive.
?he door would than bo opened to an indefinite
continuation of Uernan exports, from which it
may be taken as cortaln that the uen:ian
Government could contrive to draw very
considerable profit.   Ai regards the
suggestion which Uio lijesty's Government
understand to be current that, where a United
States citizen has at some date in the past
obtained a blocked balance in L-orraany and has
had the Intention of buying g^oda there over a
period/
period of yeara» b© should be regarded as
bavlng ordered the aoode when the balance
arose. Hie Majesty's Government do not feel
that this argument can bear scrutiny even by
the standards of ordinary ootacnrolal practice,
HI available balance In oermnny ray be
evidence of the existence of a clain but it
cannot be said to create of ltoelf a
proprietary interest in specific tioods. ?he
case also Inevitably suggests it3©lf of
countries which have a clearing agreement with
Germany, and which have sent goods to Gorraany
in the expectation of receiving Geman ex orts
against the balance In the clearing thus
created.   Any generul licence, **i&oh wnui
oencoded on thie ground, would equally involve
an indefinite extension of facilities for
German exports, such as it is not possible
for ale Majesty's Government to admit.
7*   At the eano tine the question of
standing contracts mentioned by Mr. Johnson is
one which ilia Uajeoty's Oovorniwnt naturally
have/
have in mind as constituting in certain cases
a distinct element of hardship. Appropriate
consideration will alv/nys be given to such
cases.   WWWW Hia Majority's Government
cannot be held responsible for the fact that
value for goods sold or money lent to Germany
is receivable only in goods against blocked
marks*   This situation exists because German
oconoriy has been planned on that basis,
and that Germany, having deliberately uraued
a policy which has roaotod nost adversely upon
international oormorce in general, should be
permitted to trade upon the position thus
oreatad in order to maintain heroelf in a war
of her own choosing, is a contention which
His Majesty's aovernrrwnt could not admit.
Intrinsically tiie roaeat for (iormnny's
unwillingness to pay In gold or foreign exchange
for coeds Imported by her is her practice,
adhered to for many years, of devoting all hor
resource!}
resources of forei#i exchange to finanoine
extraordinary imports of war materials* It
can hardly be suggested that the refusal
of Cerraany to adopt normal methods of trade
ie a valid reason for the relaxation of His
Majesty's Government1 e policy, nor can iile
Majesty's Government bear the responsibility
for any damage to that country or its credit
which may result from the hostilities which it
has forced upon owat -agitato, fa^^"*^/ -
8.   There is a further case which the
United States Government may have in r.iind.
naasly where goods were ordered before tho 27th
£fove;-lber laet and have already been partly paid
for in blocked WMM| payment to be completed
aubGequontly.    ^very such case will be treated
on its raerite, exemption depending so far as
this point is conoex*ned on the fact whether
the purchaser can be Gaid under the oontraot
to have become the owner of tho goods on part
payment/
17
payment only,   in all caeee, however, it la clear
that much must depend upon the particular
circumotancee and the tome of the contract.
9.   Hie Majesty's Ooverruaent ore not
entirely clear aa regards the nature of the
c:v:..;f;  -uotoO. on  ;M;.,o 0 of        Muicon*:? note,
in which   ftit^d states nationals are stated
to have had contracts obliging them to accept
and pay for goods either at the port of
shi ;Riont in Europe or at the port of destination
in the United States.   It appears to His •
Majesty*a Government that in the latter case
¦ -rr—¦. .'t  u-:u-tr-t,——     w>; " .... —-—rr- L'\
imfltrr n r;.1«f« ormtrnnfi and the obligation to
accept and pay v/ould be dependent on delivery
at the port of destination being effeotod. If
the goods we.e intercepted, there would be no
delivery, obligation to pay would not ariae and
the importer would suffer no 1003.    »o far,
therefore, ae an obligation to pay on delivery
18/
J
lo concerned, such a case could hardly bo
considered as Justifying exemption.
10#   Xa general, ills Majesty's
Government would invite the attention of
the United states Qovernraont to two
oonsidorationE in this connexion.   In the
first place, the United states ooverniasnt
will of ooui'st; ¦•   -jci-.to thvt neutral
ownership of, or intoroot in, coode of German
origin le not of iteelf any ground for
exemption from the provisions of the Order
in council, v.hich are specificall/ aimed at
goods of enony origin, irrespective of
ownership.   It is only as a concession that
Goods which have been paid for before a oertain
date oan be easopted.    jooonaly this exorptlon
le Iteelf based on the as exaction that the
£oodo at any mordent on order from a given
country do not normally oxooed certain average
ouantitlee.   Hie Majesty*e Government could not
therefore/
therefore aocept interpretntiono of this
ground for exemption which would enable goods
to be exported from Germany, through allied
control, for an indefinite period, particularly
since In their view those ox.orte would In foot
greatly strenethon Oorraany'e position, however
rrtuch it rd ht superficially be made to appear
that she was merely discharging pre-exiotinc
obligations without receiving any added
consideration.
!!•   In conclusion, Mr. Johnson rofere
ee.-.tfeif.lly to certain classes of ehipflHMM ."hi oh
in the opinion of the United   tatea Government
fhould not be intex*fered with* whether purchased
before or after the date of the Order in Oounoil,
including corn loditiae not obtainable elsewhere
than in Qemany, which ore conoidorcd essential
to industrial, agricultural or ocientifio
pursuits in the United   tatea, and aleo to
commodities not obtainable elsewhere than in
Germany/
%0
Qnrmany, which contribute* to humanitarian ends.
The special points^ raised by this olaaa of
goods have already been discussed in Hie
Majesty's Government's reply to the United
I t»t«s aovernrnent's note of December 9thf but
Kit Majesty's Government desire to emphasise
that any exemptions they way be willing to
gvent muat In general be based upon grounds
of necessity or at any rate of real hardship.
Thus cases where alternative sources of supply
are known to exlat or whex-e the product In
question could be easily dispensed v.lth would
raise especial difficulty*   His Majesty's
Oovcrnnont have given careful consideration
from this or»int of view to the various
nr   'icto listed In   r. I hnson's note as being
unobtainable elsewhere thnn In Germany, but
they feel bound to etete that according to the
befit of their Information and belief all of
then are either obtainable from other sources
or/
or can be replaced by substitutes or can
be produced locally.    ,hHB9 ho ever, they
would therefore find it difficult to grant
execution to any one of these products ae
a «aatter of course, they n:*tur&lly remain
prepared to consider any request put forward
as a special ease and to give due weight to
difficulties arising out of particular
circumstances.    More eopeolally, i;is
ftajesty'p Government will al ays be reedy to
give particular att rition to any coses
where impoxtunt hu»fuinit^rian considerations
can 'oo adduced.
18.    As regards the third category
mentioned on page 7 of ;-r. Johnson's note.
Ills Majesty's \iovernraent, while they cannot
expressly adnit that goods purchased on
Government or municipal uocount are entitled
per se to e>eclal treatment, will always be
prepared to grant the.-n the v-idest measure of
consideration consintent with the
maintenance/
taalntensnce of their oontroj.   Soofcs and
periodicals ..ill  i«L>Areceive generous
treatment, a* will any special canoe which may
Ml oxxt forward under the 6tfc category of Nft
Johneon'a note«   as regards the 6th category.
however. Hits   e^eaty's governments though they
e^nnot for obvious rewsona admit fiu&h a
criterion aa being of general ap lic^tion. will
naturally ;>uy full regard to thia consideration
lii whatever connexion it may arise, #nd it le
indeod one to which th| gret teat weight la
given in dealing with the ap '.licatlone for
exemption nade to them.
15.    In conclusion. X trust that Your
Xxoellenoy ViU NfMMM to your Government the
seriousness of the consideration* which have
led Sis Majorty's Government to *doot the
meoBurea wh'.ch are the subject of Hr» Johnson'a
note*   In imposing their enbargo on German
exports. Hie     jesty'a Government have been
actuated* aa I cannot too often repeat, by the
enormity of the German 11legalities practised
i.j/t ln;,t ¦¦      >U'h ¦ n—t-      ,;on ...re.
the/
the struggle In ..nich they are eng^ed. Ills
treaty's Government are botftd, while aylng
iue regard to the rights and welfare of
friendly neutral count.' U's. to protect
themselves a ** lne\t the assaults of an
un&crtnulous sassy, and it h. a manifestly
oecone impossible for them to   emit the series
of war to i>e weltshted against them by the
lmounlty of the illegal Gersan attacks u;>on
their vital cora: unic tions»   the Ssprlaals
Order In Council was designed to redress to
sue extent the balance of advantage wantonly
destroyed by Oeraan action and ae such it rests
uoon the indefeasible right of the u ferer to
retaliate for the unlawful assaults of the
aggressor*   In   pite, ho aver, of the necessity
in which they thus find themeelvoe for taking
action which mut t Inevitably react upon neutral
countries. His Majesty'^ Government have not
descended and will not descend V>\even an
approximation -e? German methoda. and I shall oe
glad if /our   xeellency will convoy to your
Government/
Government an assurance ihut they will oontinua
to have before then as one of their principal
objectives in the present struggle, the
maintenance of the gener»l system of
tnt rri -tto: n l com eroo uoon v/hloh they believe
not only their own prosperity but that of all
other peaceful nations to be based*
§
i.