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Form F. R. 131
BOARD OF
GOVERNORS
OF
THE
FEDERAL RESERVE
SYSTEM
Office Correspondence
TO
Am
Date
Subject
r.'nci rmpn Annies
Emile Pespres
Private & Confidential
Attached
•which
I
outside
i s a copy
referred.
office
o f t h e memorandum t o
T h ememorandum was
hours
Senator La F o l l e t t e ' s
andon a private
request.
prepared
basis
a t
October I S , 15pQ
October 6 , 1939
MEMOHANDUM
RE:
I.
Proposed Q.uot& Systa;. f o r Ke&yy I n d u s t r i a l Experts
I n t r o d u c t i ;D
I n a d d i t i o n t o tho laaintananee o t the e x i s t i m i ams
oc&argo, i t i s proposed t h a t t h e r e be o s t a b l i a h e d a quota
ays t e n covering othov heavy i n d u s t r i a l exports Ttoil the
United S t a t e s .
1.
2.
This w a s o r a i s proposed i n o r Ler t o
a,
promote t r u e n e u t r a l i t y ,
b,
reduce t h e danger o f Aiaeric&a inyolvss-act i n m r ,
c.
leave a v a i l a b l e a s u f f i c i e n t p r o p o r t i o n o f our heavy
i n d u s t r i a l capacity t o meet the requirements o f our
own n a t i o n a l defense end i n t e r n a l eooncolc gro-ffch,
d.
n i n i i a l z e t h e d i s t o r t i n g e f f e c t s o f f o r e i g n mat upon
our i n d u s t r i a l s t r u c t u r e ,
a.
c o n s e r v o u r n a t u r a l and hmtm resources.
T h i s saeasure provides f o r t h e e«tablioJii<ent o f quotas f o r
heavy i n d u s t r i a l exports t o n e u t r a l c o u n t r i e s as v t l l as t o
b e l l i g e r e n t s . The i n c l u s i o n of n e u t r a l s I s e s s e n t i a l i n
order to prevent the development o f an extensive t r a n s shipment t r a f f i c to b e l l i g e r e n t s through n e u t r a l c o u n t r i e s
as i n t e m e d i a r i e s . Through t h e i n i t i a l g r a n t i n g o f especia l l y f a v o r a b l e quotas and throu^sh p r o v i s i o n f o r a d m i n i s t r a t i v e f l e x i b i l i t y i n t h e subsequent m o d i f i c a t i o n o f quotas,
the d m gar o f i n t e r f e r e n c e w i t h the h e a l t h y development o f
our L a t i n A f r i c a n ecsasaeree i s avoided.
-2-
3.
II*
This zaii&sure imposes no r e s t r i c t i o n s upon the export o f
Jtaariean a g r i c u l t u r a l products o r l i g h t oanufaetured
a r t i c l e s , because no need f o r such r e s t r i c t i o n e x i s t s .
During t h s present European war, O m t B r i t a i n end
Francs may be expected t o o b t a i n nost o f t h e i r esasnt i e ! imports or a g r i c u l t u r a l products froaa. S p i r e and
e i & i l a r sources, i n order t o conserve t h e i r g o l d
reserves f o r use i n purchasing from t h e United States
the h a s t y i n d u s t r i a l .ioods not elsewhere a v a i l a b l e .
Sine® a g r i c u l t u r a l supplies a v a i l a b l e o u t s i d e the
United States are satah l a r g e r than i n 1914-18» United
Statso f a m exports
be expected to d e c l i n e as a
r e s u l t o f war i n f l u e n c e s ; a t b e s t , mien exports should
show no s i g n i f i c a n t increase. H e a t r i c t i o n o f .American
i n d u s t r i a l experts may f r e e a p a r t o f B r i t i s h and t r e n c h
g o l d reserves and shipping f a c i l i t i e s f o r the purchase
o f f a r a products tam us, thus f u r n i s h i n g soaw weleorae
s t i m u l u s t o I t e i t e d States a g r i c u l t u r a l e x p o r t s .
Determination o f Quotas
1«
The subgroups of c o m o d i t i e s t o h i c h i t i s proposed t o
apply quota r e s t r i c t i o n s f a l l > . i t h i n the f o l l o w i n g standard
export c l a s s i f i c a t i o n s o f t h e Bsparteaent o f Comerce;
a*
crude smtespials ( o f no.n-&.jri c u l t u r a l o r i g i n )
b.
se&iisanufacturea { o t h e r than f o o d s t u f f s )
c.
f i n i s h e d i^anufactiires { o t h e r than f o o d s t u f f s )
Ho quota r e s t r i c t i o n s s h a l l he a p p l i e d , batterer, t o th©
subgroups o f commodities l i s t e d i n s e c t i o n IV o f t h i s
lassie randuEt.
2.
There s h a l l he no r e s t r i c t i o n on t h e export o f coss-.-odities
f a l l i n g w i t h i n the f o l l o & d i i g stands d export c l a s s i f i c a t i o n s
o f t h e Bepartioent of Commerce:
a,
crude m a t e r i a l s ( o f a g r i c u l t u r a l o r i g i n )
b,
crude f o o d s t u f f s
c.
BMumfactured f o o d s t u f f s
I n e f f e u t , t h i s i s broadly eq -dvalest t o placing r e s t r i c tloiMi^SpOJi heavy i n d u s t r i a l exports.
%
4.
III.
I n order t o e s t a b l i s h tho quotas f o r t h e oostiodities
s p e c i f i e d i n paragraph "1* o f t h i s s e c t i o n
a.
the Department of CosL^ro© s h a l l be r a u i r e d to
coupute f o r oach country a quota base> represented
by tha annual average assorts of each non-exesaptnd
subgroup ^ d t h i n the three a n l n c l a s s i f i c a t i o n s o f
r e s t r i c t e d coafciodltiee d u x i n ; the period frosa
J u l y 1936 t o Juau 1939, i n c l u s i v e ;
b.
annual export a o f r e s t r i c t e d co-osoditios to each
L a t i n American country and the P h i l i p p i n e Islands
s n a i l he l i m i t e d t o 125 per cent of tha «iu©ta base
f o r each such subgroup;
c.
annual exports of r e s t r i c t e d coi^aodities to ovary
other country s h a l l be U n i t e d t o 100 per c e r t o f
the quota base f o r each such subgroup.
The govenuaent agency established to administer tha Uit
along the l i n e s o u t l i n e d i n the f o l i o ^ i nj, section s h a l l
be granted c e r t a i n d i s c r e t i o n a r y powers to vary these
quotas i n tho l i ;ht o f experience.
A d m i n i s t r a t i o n of the A r t
1.
R e s p o n s i b i l i t y f o r a d m i n i s t r a t i o n of tha Act s h a l l be
vested i n an Export Control Board c o n s i s t i n g of a
Chairmen appointed by the President end of representat i v e s of the Secretaries of S t a t e , G&nNTM, I n t e r i o r ,
A g r i c u l t u r e , and Lcbor and o f the Chairtaan of the
M&ritii&e Coiaaission.
2.
The Board's functions s h a l l consist of
a,
the g r a n t i n g of export licensee w i t h i n t h e l i m i t s
o f established quotas;
b.
the review and r e v i s i o n of export quotas.
•4'
3.
Correspond! ag t o those two timet ions t h e r e s h a l l be eotebl i s h e d d t h i n t h e Board ti*e d i v i s i o n s :
a.
4.
License D i v i s i o n
b . D i v i s i o n o f Benriew
Tha Lice-isa D i v i s i o n s h e l l r e c e i v e a p p l i c a t i o n s and iauue
11causes f o r e x p o r t ,
a.
The D i v i s i o n s h a l l m a i n t a i n a n a i n o f f i c e i n the D i s t r i c t
o f Gal usable, and branch o f f i c e s i n p r i n c i p a l i n d u s t r i a l
canters end p o r t s of © s i t ,
fc*
The D i v i s i o n s h a l l d i v i d e t h e annual export quotas i n t o
f o u r q u a r t e r l y subquotas; these q u a r t e r l y subquotas iiay
be adjusted t o conform t o the customary s e a s o n a l i t y "shich
w i l l be evident i n t r a d e i n c e r t a i n types o f oosayodltiae}
at i t s d i s c r e t i o n , the D i v i s i o n imy adopt seRi-anneal
subquot&s ishenever t h i e eeems d e s i r a b l e f o r purposes o f
flexibility.
c.
S i t h i n the U n i t s established by these .quarterly ( o r
sen!-annual) quotes, t h e D i v i s i o n s h a l l i s s u e licenses
upon, t h e a p p l i c a t i o n of export ore or f o r e i g n purchasing
agents i n the United S t a t e s . Such l i c e n s e s s h a l l be
v a l i d o n l y f o r ahljnagxta e f f e c t e d i n the q u a r t e r l y ( o r
eetti^ennual) period s p e c i f i e d i n the a p p l i c a t i o n ,
d.
The D i v i s i o n s h a l l be a u t h o r i s e d to receive a p p l i c a t i o n s
and g r a n t l i c e n s e s f o r shiaaent i n any one o f the
succeeding e i g h t q u a r t e r l y ( o r f o u r swil*&nnual} p e r i o d s ,
w i t h i n t&e l i m i t s e s t s b l i s h & d by tha r e s p e c t i v e q u a r t e r l y
( o r 0«8i-aB&Bftl) quotas.
e.
Svan though a quote, i s i s i f i l l e d , the D i v i s i o n e h a l l be
r e q u i r e d t o refuse an a p p l i c a t i o n f o r l i c e n s e under e i t h e r
o f the f o l l o w i n g conditions?
(1)
whan, i n i t s o p i n i o n , t h e r e i s i n s u f f i c i e n t evidence
t h a t a fiPTa order ha3 been o r i s about t o be placed
f o r tho shipment i n q u e s t i o n , provided, however»
t h a t t h i s requirement s h e l l not apply whan the a p p l i cant can show t h a t t h e proposed shipment i s being made
and i s o f a type »&ich is n o m a l l y ssade on consignE»nt basisp
-5-
{2}
5.
IVv
Ytrhaa, i n ifc§ opinion,
appl Jb at i o n f o r i i c a n s e
is jein^
f o r the purpose «£ enabling the
applicant to obtain f o r h i n e o l f a disproport i o n a t e share of a quota. This Say he presumed t o
be the o b j e c t i v e o f th® applicant unless he sfan
i h a * t h a t «xlst2 ru, iar oat o r i c e i n the hands o f the
branch, e&cet. s u b s i d i a r y , representative, or
cuatcwar i n the f o r e i g n country i n question, plus
goods i n t r a n s i t or previous!y 11.sensed f o r
shipment, ere not unduly h i g h i n r e l a t i o n t o the
currant r a t e o f f i n a l sale o r u t i l i s a t i o n .
Tl..e D i v i s i o n o f Revie • s h a l l , on i t s own i n i t i a t i v e o r
upon the p e t i t i o n o f an A f r i c a n e x p o r t e r , f o r e i g n importer
or f o r e i g n goveasi^ent, review the quotas and sislce meow^aBdatians to the Board r e l a t i v e to t h e i r increase or decrease.
The l i v i e i c n o f U o i i w t i n aefcir^ i t s recoiKiendations, aad
the Board i n a c t i n g upon th«n, shells
a*
give adequate consideration t o the conservation of our
n a t u r a l rosonrcee;
b.
endeavor to prevent unduly sfcarp dif&wfcanssc t o business
g s n s r & l l y an.;
particular industries;
c.
endeavor to prevent defeat of the purposes of t h i s Let
throu^ai tranaafcipsaeGt o f ^pod? t o b e l l i g e r e n t s ;
d.
xatka due adjustment of quotas i n response t o any i n d i c a t i o n s of genuine growth i n the- i n t e r n a l demand o f
n e u t r a l countries f o r Tfaited States i n d u s t r i a l goods.
Co.a^oditi i-n M m j * Arau ^uattt R e s t r i c t
Tho f o l l o w i n g subgroups o f cooaodities f a l l i n g w i t h i n t h e
standard export c l a s s i f i c a t i o n s entssarated i n s e c t i o n I I , paragraph 1 above s t a l l be exempt fpoei quota r e s t r i c t i o n s :
l e a t h e r and l e a t h a r aaauf.actures; c o t t o n actaifoanufactares
and a&auf^ctures; vegetable f i b e r manufacturesj t»oo1 samiisanufecture.i and saa&f&stures; h a i r ami i t s manufactures;
s i l k aMumfact a r e s ; rayon and e t h e r s y n t h e t i c t e x t i l e s ; miscellaneous
t e x t i l e products; wood aanufact urea; cork m n u f act urea; paper
and i t s laanufactures; stone, send, c a .ent, and l i m e ; ^lass and
g l a s s p r o d u c t s ; c l a y and c l a y p r o d u c t s ; o t h e r nonm a t a l i l o mineral® ( t h i s jpwup i n c l u d e s asbeetoa,
a s p h a l t , $ypsua, s a l t , e t c . ) ; o u t c r y ; i r o n and s t e a l
advanced v.nul 'Otures ( t h i s fjroup excludes s e h i n e r y ,
and i n c l u d e s c u t l e r y , h o l l o w and ena&elee
motel
f u r n i t u r e and f i x t u r e , stoves end f u r n a c e s , househ f s a t i n ; b o i l e r s and r a d i a t o r s , o i l bui-nays and p a r t s ,
t o o l s , hardware, se3*21 a s , e t c . ) ; e l e c t r J c , 1 apparatus
f o r household use; c o n s t r u c t i o n g a c h i n e y y ; m i n i n g
m a c h i n e r y ; pneiia&tic p o r t a b l e t o o l s ; t e x t i l e , eewrlsg
and
' l a e h i r e r y ; miseel l a s eons I n d u s t r i a l a a c h i r e r y
(l»«» c i g a r e t t e a&kin$ machinery, d a i r y equijssent,
r e f r i g e r a t i n g equipment, p a i n t spray i n ; aquipLaent, e t c , ) ;
o f f i c e a p p l i a n c e s ; a g r i c u l t u r a l ssaehinery and i m p l a .ants;
- j e d l c i a a l and p h a m s c e p t i c a l p r e p a r a t i o n s ; che&Je&l
s p e c i a l t i e s ( e x a l u d i r - i n d u s t r i a l che.ileal;' and e x p l o s i v e s ) ; p i g a a n t s , p a i n t s , and v a r n i s h e s ; f e r t i l i s e r s
end f e r t i l i s e r m a t e r i a l s o t h e r t h a n n i t r o g e n o u s ; soaps;
t o i l e t p r e p a r a t i o n s ; photo graphic goods; s c i e n t i f i c
i n s t r u m e n t s o t h e r t h a n o p t i c a l ; m u s i c a l i n s t r u m e n t s ; isia*e e l l a i t a o u s o f f i c e a p p l i e s ; t o y s , a t h l e t i c and s p o r t i n g
^oods; books and o t a e r p r i n t e d s & t t e r ; c l o c k s and 'batches;
a r t ~r>r?cs; J e w e l r y ; and a r t i c l e s under t h a ?3ubgroup
U m a o e l l f i r e o u s , n?1- eleaahere e e ^ r e ^ E t c d * { i . e * b o t t l e t o p a
c o m p o s i t i o n r o o f i n g , matches, snokera* a r t i c l e s , ure?>rellaa
candles, to otn brushes, e t c . )
@FedFRASER