AD
9660
PG 3
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(Printed December 16, 1910.)

EXCEPTIONALLY CONFIDENTIAL.
TO BE FILED AS A CONFIDENTIAL DOCUMENT AND ISSUED ONLY UPON THE
WRITTEN ORDER OF THE SECRETARY OF STATE.
No.
THE GERMAN POTASH LAW.
REPORT OF M. H. DAVIS.
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THE GERMAN POTASH LAW.
REPORT OF M. H. DAVIS.
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THE GERMAN POTASH LAW.
BASIS FOR PROCLAMATION.
[Memorandum by M. H. Davis.]
The present disturbance in the trade relations between Germany and
the United States with respect to the importation of potash salts from
Germany dates from May 28, 1910, the date on which the German Gov-
ernment promulgated the law controlling the production and sale of pot-
ash. The first project of this law was introduced in the Reichstag on
December 17, 1909. It finally passed that body on May 10, 1910.
It is only within the last thirty years that potash has entered to any
considerable extent into the world's commerce. Deposits of these salts in
large quantities were discovered in Germany and the possibilities for the
use of this salt, most valuable for the fertilization of the soil, were rapidly
developed. Since the discovery investments of more than $200,000,000
have been made in the potash-mining industry in Germany. There are at
present about seventy mines in operation. Estimates of scientists as to the
supply under present development are that it is practically inexhaustible.
If potash exists in paying quantities in other countries it has not yet been
discovered, except in limited and unimportant areas in Austria, Holland,
France, Spain, and South Africa. The deposits lie so deep in the earth
that there has been little encouragement elsewhere than in Germany for
the investment of capital in potash mining. The cost of the investment
in the higher class potash mines in Germany runs from $2,000,000 to
$10,000,000 per mine.
Purchases and Uses in the United States.
The United States began buying potash of the German mines about
twenty-five years ago. The commerce, necessarily small at first, has, with
the growth of the fertilizer industry in the United States, increased to large
proportions. About $8,000,000 worth of potash salts in their various
forms and in their raw state are now annually imported by the United
States from Germany. The salts enter the United States free of duty.
More than 27 per cent of the entire German output of potash is used in
the United States. This represents about 70 per cent of Germany's
entire exports of potash.
The uses to which the salts are put in the United States are principally
confined to the admixture with other ingredients for the production of
commercial fertilizer, manufacture of various forms of chemicals, and the
production of dynamite and other forms of explosives. More than
$300,000,000 are at present invested in the United States in manufacturing
concerns more or less dependent upon potash as a needed ingredient.
These manufacturing establishments are to be found in thirty States of the
Union. Several groups have in recent years been consolidated, the prin-
cipal among these being the American Agricultural Chemical Company,
(3)
4
of New York, the International Agricultural Corporation, of New York,
and the Virginia-Carolina Chemical Company, with headquarters in Rich-
mond. Aside from these there are some seventy fertilizer-manufacturing
companies employing from $100,000 up to $6,000,000 each and there are
in addition thousands of small concerns scattered throughout the United
States, all dependent to a great extent on potash for the furtherance of
their various enterprises. Fertilizer containing potash is most largely used
upon the cotton and fruit crops of the South, but in recent years the use
of such fertilizers is being rapidly extended into the Northern, Middle,
and Western States for the conservation of the soil and particularly in its
preparation for grain. Some $25,000,000 or more of investment depend-
ent to a large extent upon potash has in recent years been employed exclu-
sively in the manufacture of chemicals. The investment in the manufacture
of explosives employing potash is also large.
C
German Methods of Sale.
For the last twenty years the German potash mines have sold their
products through syndicates organized for five-year periods. With the rapid
growth of the demand in the United States the desire to control this trade
has disturbed the German potash syndicates. The rivalry for supplying
the United States brought about active competition, which manifested
itself in some bitter jealousies among the German mine owners, particu-
larly in evidence upon the approaching dissolution by limitation of the
selling syndicates. In 1906 one of the largest and best equipped German
mine owners, Hermann Schmidtmann, began an active campaign to in-
crease his sales to this country. He made contracts with some sixty-five
of the American fertilizer manufacturers who were not connected directly
with the consolidated companies in the United States, guaranteeing them
as low prices as would be made by any other German mine or syndicate to
either the American Agricultural Chemical Company or the Virginia-
Carolina Chemical Company, each of which corporations owned some
twenty or more manufacturing plants. This action excited the animosity
of the German syndicate as it then existed, for the policy of the syndicate
had been, as it is to-day, to maintain artificially high prices through the
resources of combination in Germany by which the American trade could
be made to pay enormous profits to the German mine owners.
Syndicate Activities.
When the then existing German potash syndicate expired by limita-
tion at midnight on June 30, 1909, Mr. Schmidtmann made contracts.
with Robert S. Bradley, of Boston, for a supply of some 30,000 tons of
pure potash annually for a period of seven years beginning with January 1,
1910, at prices which on muriate of potash, the salt most largely used, would
average about $14 per ton less than the then current syndicate prices for
delivery at American ports. Under the terms of the contracts of 1906,
above referred to, the American parties to such contracts were therefore
guaranteed as low prices as were made to Robert S. Bradley. The con-
tract with Mr. Bradley was made soon after midnight of June 30, 1909,
upon the expiration of the syndicate, and when it then appeared that owing
ел
5
to internal dissensions the syndicate would not readily reorganize. Many
interested parties were present in Berlin anticipating the dissolution of the
syndicate, and many members thereof were exceedingly anxious to make
contracts far below the previous syndicate prices. This was particularly true
of the largest and best equipped mines. The syndicate members, on learn-
ing that contracts had been placed at a low figure and fearing that the era of
artificial prices theretofore maintained would pass from their control, and
being urged thereto by representatives of Government-owned mines, suc-
ceeded in reorganizing on July 1, 1909. Mr. Schmidtmann, representing
his Aschesleben mine, refused to join the new syndicate. He was also
largely interested in a new and very profitable mine known as Sollstedt,
owned by the International Agricultural Corporation, of New York, and
this mine also declined to enter the syndicate. The mine Einighkit, 70
per cent of which is owned by the Virginia-Carolina Chemical Company,
also declined to enter the syndicate. All other mines were soon brought
into the organization. The new syndicate at once undertook to induce the
American contractors to surrender their contracts so that a much higher
range of prices for the United States might be maintained. Mr. Bradley
and others refused to surrender that which had been secured in the proper
and ordinary course of business for the protection of the American trade,
and Mr. Schmidtmann and the two mines represented by him made other
contracts with Americans during the summer of 1909 on substantially the
same lines as the Bradley contract. Thus, practically the entire business of
supplying the United States with potash salts passed out of the control of
the syndicate into the hands of the group willing and able to make lower
prices and hoping thereby to so enlarge their business by meeting the grow-
ing demand in the United States as would enable them to profitably con-
duct it at the reduced prices of their contracts.
Restriction through Legislation.
The syndicate, being unsuccessful in its efforts to induce cancellation of
the American contracts, determined upon a radical course and announced
in July, 1909, that it would endeavor to have the German Government
levy an export tax upon potash. The American buyers and the independ-
ent mines parties to the contracts did not believe that such a policy would
be sanctioned by the German Government and announced their intention
to stand upon their contracts. On December 17, 1909, a project of law
was introduced in the Reichstag through the influence of the syndicate to
levy a tax of $20 per ton upon exports of muriate of potash and other
potash salts accordingly. The possibility of some such measure had been
threatened by the syndicate members both before and after the execution
of the contracts of June 30, 1909, for the purpose of holding the syndicate
together, but it was not contemplated until long after the contracts were
made that a tax of such magnitude would be imposed.
The proposed export tax of $20 per ton when added to the Bradley
contract price of about $20 per ton delivered New York would have made
the American delivery price $40 per ton, or about $6 per ton above the
German syndicate prices for New York delivery. The American con-
tractors immediately appealed to the Department of State in behalf of
6
consumers of potash in the United States, protesting against the imposi-
tion of the $20 per ton export tax by Germany. It was realized by the
Department of State that the proposed measure for control of the German
potash industry, whether by an export tax or by other device that would
burden the American contracts, would be tantamount to a repudiation of
the contracts, and on January 8, 1910, the American ambassador at Berlin
was instructed to so inform the German Government. On January 15 the
American ambassador, after conference with the German Foreign Office,
cabled the Secretary of State that the proposed potash law would be
amended so as to place no restrictions on prices up to the quota allowed
each mine and also stated that there was no question of an export tax.
Diplomatic Efforts.
In the meantime, in the discussions with the representatives of the
German Government held in December, 1909, and January, 1910, relative
to the possible exchange of minimum tariffs, the question had been raised
as to the possibility of an export tax and verbal assurances were made that
while such tax was possible it was not probable, and that in the event
restrictive measures were applied to the mines these would not be in such
a manner as to involve payments on the part of the American contractors.
Having these assurances in mind, supported by the cable from the Ameri-
can ambassador above referred to, the Department of State was led to
believe that no measures adverse to American interests with respect to the
potash contracts would be undertaken by the German Government and the
commercial agreement between Germany and the United States for the
exchange of minimum tariffs was completed about February 1 and went
into effect as of February 8. In the meantime, efforts had been resumed
in the German Reichstag for the passage of a bill regulating the mining of
potash, and on February 17 the Department sent the following cable to
Ambassador Hill:
The attitude of this Government is that potash contracts with Bradley and
other Americans are entitled to due recognition in legislation now pending in Reich-
stag. Should it appear to you that contract rights are endangered by any form of
countervailing tax or other charges upon buyers, you will advise this Department
without delay. Bearing in mind the Department's telegrams of January 8 and
February 1, again represent discreetly the effect of legislation adverse to American
interests.
The ambassador replied on February 18 as follows:
Your February 17, 1 p. m. On February 4 I asked Foreign Office if proposed
potash law contemplates tax to fall on foreign purchaser, and if American contracts
would in any way be affected. No categorical answer has thus far been received,
but the bill is unanimously interpreted in Reichstag as involving payments only to
and by members of potash syndicate but no Government charges. Minister of
Trade and Commerce has explained in Reichstag that the idea of an export tax was
entertained but has been abandoned.
?
7
Tax Clause in Contracts.
In the course of the negotiations between the representatives of the
United States and Germany the question had been raised as to the possible
tax falling upon the Americans in view of a clause in the Bradley con-
tracts which reads as follows:
Any export or import duties or other governmental charges which may here-
after become effective within the life of the contract shall also be paid by the buyer.
A similar clause had existed in all previous contracts since 1887. It
had always been recognized that the United States might impose a duty or
that Germany might impose an excise or war-measure tax upon potash.
It was designed that the burden of such reasonable and equitable tax
should be borne by the buyers. No such tax had, however, been imposed
up to the time of the Bradley contract of July 1, 1909. The threatened
export tax had disappeared and so late as February 18, 1910, as shown by
the above cable from Ambassador Hill on February 18, no governmental
charges, either in the shape of an export tax or allotment tax, was con-
templated by the Reichstag. As a matter of fact, the members of the syn-
dicate realized that to tax exports in addition to syndicate prices would
ultimately lose them their trade in Europe, equal to 30 per cent of their
exports, because it would lead to rapid development of known deposits of
potash in Holland, Austria, and France, and that an allotment tax applying
to all contracts in excess of allotment then contemplated would materially
enhance certain domestic contracts to the disadvantage of the syndicate.
Thus, those projects of law were withdrawn.
The determination, however, to force the cancellation of the American
contracts or to oblige, by excessive taxation, the repudiation of these con-
tracts on the part of the independent mines continued to absorb the
friends of the syndicate and to a parliamentary committee was delegated
the task of recasting a project of law that would meet the demands of the
syndicate with respect to the American trade. Upon the demand of this
committee the independent mines were obliged to lay before it all their
contracts with American citizens for the sale of potash. This committee
held sittings in March and April and about the 1st of May the redrafted
measure was presented. In the meantime, Ambassador Hill, as shown by
his official correspondence with the Foreign Office, had repeatedly protested
against any measure which would impair the value of American contracts
by the imposition of tax or other burdens that would fall upon Americans.
The potash committee of the Reichstag determined to so shape the law
as to provide a tax which might be construed as a "governmental charge"
and therefore come under the clause in the contracts which was intended
to hold the buyers to the payment of legitimate and necessary taxes. It
therefore worked out a scheme of mining restriction and allotment tax-
ation. This scheme was so devised as to omit from its operation the
members of the syndicate and to do this it was specified that the amount
of potash allotted for export should not exceed in the case of any one
mine the amount of potash which that mine had previously sold in the
domestic markets of Germany. The syndicate members all had domestic
trade. The independent mines which were parties to the American con-
→
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tracts had no domestic trade.
Thus, the independent mines which had
been instrumental in reducing the cost to American consumers to 70 per
cent of what it had heretofore been were to be burdened with an allot-
ment tax of more than double the mine value of the potash they produced.
Indeed, this scheme of the potash committee increased the amount of tax
heretofore proposed so that, at $22 per ton upon each ton of muriate of
potash, it exceeded by $2 per ton the price specified in the contract after
including all charges, inland freight, ocean freight, and delivery at New
York.
Animus of the Law.
The animus of this proposed law was so apparent to Ambassador Hill
that on May 2 he cabled as follows:
Potash committee has passed paragraph concerning governmental charges.
Newspapers state that this was done after Government's representative had
declared that no commercial difficulties would arise with foreign countries.
If present bill becomes law it will greatly impair value of existing contracts.
German Government denies that there is an export tax, since all over-production
is equally charged.
The Department on May 4 cabled the ambassador the following
message:
If the proposed potash law will greatly impair the value of the existing con-
tracts, as stated in your telegram of May 2, you will immediately take up the matter
with the Minister for Foreign Affairs and will inform him that in view of the highly
injurious effects which such legislation will of necessity have upon large American
industries by reason of its effect upon perfectly legal and binding contracts made
by such industries with German miners under and in accordance with German laws
in force at the time of the negotiation and conclusion of said contracts, and in view
of the further fact that although, as the German Government contends, this may
not be in form an export tax, still it appears to the Government of the United States
that it is such a tax in fact, your Government has directed you earnestly to protest
against the enactment of the proposed bill into a law, and to state further that, hav-
ing in mind that all the circumstances of this case have been fully presented to the
German Government, the American Government can not but regard the enactment of
such a bill as indicating such an unfriendly, if not indeed hostile, attitude toward
this branch of American commerce and industry as may give rise to grave appre-
hension. You will add that the Government of the United States must observe
that it does not perceive in this whole matter any question which might not be
properly adjusted by mutual concessions under some such plan as has been already
suggested to the German Government, and you will therefore renew your request
that an adequate effort be made so to arrange this troublesome and, indeed, acute
controversy.
German Official Assurances.
In accordance with the foregoing instructions the American ambas-
sador held a conference with Herr von Schoen, Imperial Secretary of State
for Foreign Affairs, again protesting against a measure which might be
construed as repudiating the American contracts or which would deprive
them of the value of all advantage gained in them, and on May 12, 1910,
sent the following confidential cable to the Department:
Confidential. Your May 11, 5 p. m. Have had conference with Secretary of
State for Foreign Affairs, who assures me that the American potash contracts will
in no respect be invalidated or impaired by the new law, which as finally modified
puts it in the hands of the Bundesrath to fix prices so that the existing contracts
will not be affected.
9
The measure had been passed on May 10 by the Reichstag but had
not yet been acted upon by the Bundesrath and it did not as a fact become
law until May 28. The interview between the ambassador and Herr von
Schoen was held in the garden of the latter's home and the American
ambassador noted in his presence in writing the assurances which the Sec-
retary of State for Foreign Affairs gave him and immediately communi-
cated those assurances in their exact words as stated in his cable of May 12.
In the course of my recent investigations in Berlin the ambassador
communicated this detail to me. To him there seemed every reason to
believe that the German Government, which of itself inaugurates all legis-
lation, contrary to the procedure in this country, had determined that no
injustice should be done to the American contracts and that due provision
had been made in the law by which their integrity would be preserved.
While in Berlin I was surprised to learn unofficially, but coming to me
directly through the president of one of the leading banks who had had a
conference with the then Minister for Foreign Affairs, that that official
had said that there was no written evidence that any assurances of the
character above stated had been made to the American ambassador.
While this is true, there exists no doubt in my mind that such assurance
was made and the fact that it was immediately communicated to the
Department of State by cable is to me sufficient evidence that the German
Government then intended either to free the American contracts of tax
burdens or to deceive this Government as to the actual intent of the law.
Actual Results Under the Law.
All shipments of potash made to the United States on the Schmidt-
mann contracts from the Aschesleben and Sollstedt mines since May 28,
1910, have had to pay a tax the equal of $22 per ton on muriate of potash.
This tax affects purchases of the American Agricultural Chemical Com-
pany, the International Agricultural Corporation, and all the 65 other
fertilizer manufacturers previously referred to, and the thousands of smaller
mixers and users, as well as the manufacturers of chemicals and explosives.
The considerable business done by the Virginia-Carolina Chemical Com-
pany is affected also, but not in the same manner, because this corporation,
having no contracts beyond the 1st of January, 1911, was forced during
the past summer to agree to terms offered by the German syndicate, and
although it has an investment of $4,500,000 in its German mine Einighkit,
its operation would have been reduced to one-fifth its capacity had it not
acceded to the syndicate's dictation.
By reason of the operation of the German potash law the German
syndicate, through its American representative—the German Kali Works—
is enabled to maintain prices for import to and sale in the United States of
about $36 per ton muriate of potash basis, while the American parties to
the Bradley and independent contracts are obliged to pay a basis of $42
per ton muriate, although their contracts call for its delivery at $20 per ton.
These American contractors are now meeting throughout the United States
the syndicate prices at a loss to themselves of $6 on every ton sold.
Through the operation of the German potash law the American con-
sumer of potash must now pay an advance in price that will cost citizens of
10
the United States a sum substantially equal to $5,000,000 annually more.
than if the American contracts had been recognized in the spirit and intent
in which they were written.
The demand for potash in the United States is increasing rapidly and
on a legitimate basis it may fairly be assumed that the consumption in this
country in five years would be double what it is to-day.
The amount of annual loss to American consumers by reason of this
iniquitous law is doubtless more annually than the entire profit accruing
to other American citizens in their export trade to Germany on the manu-
factured articles upon which the minimum rates of Germany were obtained
in the commercial agreement of February last. Thus, the monetary bene-
fits of this agreement are more than offset by the tax scheme of the
German potash law.
The total exports from the United States to Germany in 1909
amounted to $232,797,756. Of this sum $62,828,975 represented manu-
factured products, including lard, oleomargarine, refined mineral oils, oil
cake, and meal. The commodities named aggregated $37,000,000, leaving
$25,000,000 as representing other manufactured products exported from
the United States to Germany in 1909. The major part of Germany's
purchases from the United States consists of cotton, copper, grains, and
tobacco, which are essential and not directly procurable elsewhere to the
extent of causing loss of trade to the United States.
The imports from Germany to the United States in 1909 amounted
to $143,525,828. With the exception of potash salts and a small per-
centage of other crude materials the imports were products of German
manufacture.
The German Position Analyzed.
The claim of the German Government is that the potash law is general
and hence not discriminatory. Its representatives also assert that no
export tax is levied for the reason that if any mine selling to domestic
trade exceeded its allotment for export such mine would also have to pay
the penalty tax.
In view of the fact that the existence of the American contracts and
the knowledge that the American trade would no longer be forced to pay
the artificial basis of the syndicate unless these contracts could be broken
were the actuating causes that brought forth the law, the claims of the
German officials are absurd and are but another form of the subterfuge and
misrepresentation that seem to have characterized German official action
throughout the assault upon the American contracts.
It is true the law is general in terms, and designedly so. But the
point of real interest is whether the practical operation of this law, intended
to fit a particular case the attendant circumstances of which were already
before the designers of the measure, carries with it features which in prac-
tical experience operate to the disadvantage of the United States or its
citizens. An analysis of section 2 of the tariff act of August 5, 1909,
reveals the fact that it was intended as a retaliatory measure for the pur-
pose of avoiding direct or indirect discrimination against the exports of
American citizens to other countries, and it can not be conceived that the
intent of this law was to classify exporters more favorably than other
I I
American citizens engaged in importing from foreign countries. It must
be assumed that the right to import on terms of equality and on a basis
that would be reciprocal and equivalent as between American citizens and
citizens of foreign countries was as jealously guarded as were the rights of
those engaged in exportation. This principle does not have to be read
into the law, for express reference is therein made to the condition that-
Such foreign country pays no export bounty or imposes no export duty or pro-
hibition upon the exportation of any article to the United States which unduly
discriminates against the United States or the products thereof.
The German potash law in actual practice does discriminate against
potash products of Germany which were under contract for exportation to
the United States before the potash law was enacted. This discrimination
takes the form of a tax which in practice will only be levied against the
products for export to the United States of the independent German mines.
The potash law makes it possible for all members of the syndicate to export
without the imposition of the penalty tax.
The mines under contract with
Americans can not possibly export without payment of the penalty. Their
contracts absorb their entire output. The Bundesrath and the Reichstag
knew this when they drafted and enacted the law. The law provides for
the fixing of a domestic price so high and so profitable that no member of
the syndicate will ever be obliged to pay a penalty tax should he desire to
export to the United States. He can well afford to reduce his domestic
output to a point where his export sales, if excessive, would be supplied
by other members of the syndicate whose quota was free of tax.
The practice under the law permits a shifting of sales and purchases
between members so that they can adjust, as between themselves, without
penalty tax payments, the delivery of sales for export or for domestic use.
On the other hand, the independent mines, having contracted their entire
output for export to Americans before the law was passed, and as they had
been accustomed to do for three years before the passage of the law, could,
under the peculiar wording of the law, have no quota free of penalty. The
discrimination against Americans parties to these contracts would exist in
even greater degree had their contracts not been upon a low basis. There
is nothing in the law that would positively have avoided penalty payments.
on the American contracts as they existed, even though the contract price
had been at syndicate figures.
The Bundesrath may or may not under the law grant relief from the
penalty.
An Export Tax.
The conclusion that the penalty tax is an export tax in fact, as applied
to these contracts, can not be avoided in the face of the knowledge that it
is so applied, no matter what the general terms of the law may be. The
legislation gave no recognition to the priority of the contracts, and yet all
the American contracts were in the hands of the legislative committee
when it drew up the final measure that passed the Reichstag on May 10.
I 2
Discriminatory Intent.
The discriminatory intent of the potash law as against Americans is
further evidenced by the fact that whereas in the original draft of the
measure it was intended to impose a penalty tax that should be paid by all
over-producing mines into the general funds of the syndicate, it was found
by the members of the legislative committee that in such an event the
Americans, under their contracts, would be free of payment. Such tax
would not be a "governmental charge" because it would accrue to the
syndicate and not to the Government. And so in April last it was decided
by the officers of the German Government, who so advised the legislative
committee, that the tax should be collected by the Government officers
and paid into the Imperial Treasury. This, in the opinion of the German
officials, met the peculiar wording of the American contracts wherein the
buyers agreed to pay "any export or import duties or other governmental
charges." The Government thus deliberately took advantage of the
apparent opportunity to throw the burden of taxation upon Americans.
The law seems to have been designed as a boycott against independ-
ent potash producers. It is not denied in Germany that the intention was
to break the hold that the independent mines had on the American trade.
and to force the transfer of this trade to the syndicate on a much higher
range of prices than called for in the American contracts. The course of
the syndicate in the recent negotiations in refusing the American offer to
surrender their contracts and to pay a price midway between the former
syndicate prices and the contract prices is sufficient evidence of the syn-
dicate's determination to maintain if possible a high and annually increas-
ing basis of cost to the American consumer. This policy was announced
by syndicate members during the progress of the negotiations.
Action of the Bundesrath.
The Bundesrath on July 12, 1910, in order to make sure that the
Americans would not escape the proposed burden of tax and further to
render practically inoperative article 46 of the potash law which had been
inserted ostensibly to meet the objections of Ambassador Hill, decided the
principles and restrictions upon which a reduction of the tax might be
obtained. One of these principles is as follows:
The buyer must make an application for the reduction of the taxes paid by the
mine and must prove that he was not only obligated to take delivery of the goods
but also to pay the taxes.
Arbitration Estopped.
It was known by the Bundesrath that in the American contracts there
existed an arbitration clause by which the parties to the contracts might call
upon a third person to settle any differences that might arise. It should
be observed that the question of whether the buyer or the seller should
pay the penalty tax or any other charge not anticipated in the contracts
was a creation of the potash law, and as such it affected the value of the
contracts by imposing obligations and expenses that would never other-
wise have existed. The ruling of the Bundesrath above referred to estops
the buyer from the right of arbitration in event he makes application for a
13
reduction of the taxes paid by the mine, because it requires him to admit
and prove that he and not the mine is obliged to pay the tax. If he elects
not to apply to the Bundesrath for relief he may go to arbitration. In this
event, if he be successful, the entire $22 per ton tax must be paid by the
mine. The tax is so onerous that the mine would be forced either into
bankruptcy or into repudiation of the contract.
Optional Rights Denied.
Another ruling of the Bundesrath of July 12, 1910, denies reduction
of the tax upon quantities upon which options were held by the buyers
under the terms of their contracts. It should be explained that some,
although not all, of the American contracts contain option clauses. In
these cases the purchases were for two years outright and with the privilege
of extending the term of contract in consideration of the payment of an
advanced price for a further period of five years, subject to acceptance by
July 1, 1910. In practically all cases the American buyers having options
exercised their rights under them previous to July 1, 1910. These options.
are therefore as much a part of the purchases as are the quantities specified
for the first two years.
The position now taken by the German Government is that the
Bundesrath rulings and the law are final.
Article 46 of the German potash law reads as follows:
The Bundesrath is empowered to reduce the taxes provided for in article 26 and
payable on goods supplied under contracts made before December 17, 1909, to such
an extent that the prices of the quantities delivered after May 1, 1910, including the
taxes, will not be higher than the prices which were in force until June 30, 1909.
The Bundesrath's ruling of July 12, 1910, providing for a reduction
of the tax is as follows:
The Bundesrath have decided upon the following in connection with the put-
ting in force of article 46 of the potash bill regarding the sale of potash of May 25.
The Imperial Chancellor is hereby allowed to reduce the taxes mentioned in
article 26 regarding shipments on the basis of contracts closed before the 17th of
December, 1909, in accordance with article 46 as follows:
The reductions are subject to the following restrictions:
First. On figuring the average cost of salts, taking into account the refund of
taxes, which the buyer must pay, the quantity shipped free of tax, within the free
quota of the mine, must also be taken into consideration.
Second. The reduction is only allowed on quantities for the purchase of which
the buyer can prove that he obligated himself before the law entered in force, but
not on quantities, for the purchase of which he only had an option at that time.
Third. The buyer must make an application for the reduction of the taxes paid
by the mine and must prove that he was not only obligated to take delivery of the
goods but also to pay the taxes.
Section 2 of the Tariff Act.
Section 2 of the tariff act of August 5, 1909, contains the following:
Whenever the President shall be satisfied that the conditions which led to the
issuance of the proclamation hereinbefore authorized (granting the minimum tariff)
no longer exist he shall issue a proclamation to this effect and ninety days thereafter
the provisions of the maximum tariff shall be applied to the importation of articles
from such country.
14
An Export Tax or Discrimination.
The conditions which led to the issuance of the President's proclama-
tion granting the minimum tariff to Germany were the absence of undue
discrimination against the exports and the imports of the United States,
together with the fact that Germany "imposes no export duty or prohibi-
tion upon the exportation of any article to the United States which unduly
discriminates against the United States or the products thereof."
If the present penalty tax is an export tax, then the conditions which
existed in January and February last no longer exist. From the first of
January to the 28th of May, 1910, the importations of potash from Ger-
many under the American contracts bore no duty or tax whatever. This
condition was changed by the law of May, 1910.
If the present penalty tax is not an export tax it does in practice
increase the import cost of potash by more than 70 per cent above the
cost existing under the contracts on shipments between January 1, 1910,
and May 28, 1910, and this cost by operation of the tax is made far higher
in the American markets than the present syndicate prices at which Ger-
man citizens are permitted to sell in the markets of the United States.
Recommendation.
*
In my opinion, the tax in all essential facts is an export tax and it is a
discriminatory tax, both within the meaning of section 2 of the tariff act.
As such it has developed the need of applying the only retaliatory means
within our laws provided for safeguarding the interests of American citi-
zens in their foreign commerce. The stability of our enterprises abroad
depends upon our willingness as a nation to support them so long as they
are rightfully directed. Failure to do this will bring upon us loss of dignity
and deprive us of that measure of respect to which, as a great commercial
people, we should justly feel entitled.
With full knowledge of all the circumstances of this case and with
proper recognition of the effects that may proceed from adopting the only
course that to me seems adequate, the principle involved overcomes con-
siderations of expediency that under less aggravated conditions might have
weight. I see no way other than to recommend the issuance of a procla-
mation by the President withdrawing from the German Empire the benefits
of the minimum tariff.
BUREAU OF TRADE RELATIONS,
December 15, 1910.
MACK H. DAVIS.
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