Government Control of Foreign Commerce


By WILLIAM LA VARRE, Director of the American Foreign Service Council

Delivered at Export Managers Club Luncheon, New York, N. Y., September 12, 1944.

Vital Speeches of the Day, Vol. XI, pp. 275-279.

I AM not going to read a speech. I had two years of experience in sitting around in Government circles for hours helping to write a speech that took three hours to write because the job was to write one hour's speech which did not say anything. Then it was cleared with the Office of War Information, after which different cabinet officers could go out and give it.

I am going to see if I cannot give you some facts and make some statements on the record, on my own volition and my own responsibility.

I have one thing to say: there is a little smear campaign in Washington that anything I say is really Mr. Jesse Jones talking through me—which is not true. I cannot speak for the Secretary of Commerce. I am speaking only for myself.

It is difficult to pick out and to present in 25 minutes the things which you gentlemen would think most important, out of 1,002 days in Washington. I want to hit some highlights of things that I saw. Then I will sit down, and, if you have questions, I shall be glad to answer them. I have a little chronology that I would like to run through, first.

I went back into South America in 1936 on a special task, which was to observe from Mexico to Southern Chile, all of the axis activities that had to do with commerce. I had been writing quite a little in the newspapers, and at that time I secured a syndicate which distributed the articles once a week in Europe, and especially in Germany, and even in Japan. The Germans, Italians, and Japanese in Latin America, reading my articles in their country publications, and not knowing anything about the syndicate business, took it for granted that I must be very much on the inside of the Nazi organization and the Fascist organization and very close to Tojo! So, as I traveled in Latin America, I was allowed to go into all the German colonies, to travel on all German airlines, and to make photographs of practically everything that the three anti-American nations were doing in Latin America, in the hope that I would publish them in the German, Italian and Japanese magazines—some of which I did!

In other words, I saw, up through 1938, all of the Aski mark trouble. I saw all of the Japanese flooding of imitation of American trademarks and various other activities which would make a book in themselves. I also put in six months in the Panama Canal Zone in 1939 on maneuvers, when we were trying to train the first soldiers to operate in the jungles. The Army knew the war was coming. But up to April 28, 1940, I cannot find any record of anything official that notified either the Government or Washington or the people that war was coming and that it was almost upon us.

On April 28, 1940, I filed from the Panama Canal Zone a statement to Washington, that two ships had come from Holland to Curacao and had brought over a great many very intelligent Dutch people with their families and all the property they could get out of Holland. In that statement I said that from these sources I and other people in the Canal Zone were convinced that the Germans, as of April 28, 1940, were getting ready to march into Holland. That was denied. But they marched in an May 10th, a few days later. That was the last report I made to the Government of the activities that I had been working on since 1936.

In January, 1941, I came up to Washington to go into the Navy, in charge of Naval Intelligence for Latin America. At that time I talked to Mr, Sumner Welles and a number of other people, including Mr. Jesse Jones in Washington, and they decided that they wanted me in the Department of Commerce, rather than in the Navy, since we happened to have economic warfare, and there would not be much fighting in Latin America and all my experience had been in Latin America.

The Department of Commerce at that time was operating under an Act of Congress which charged the Department, the Secretary of Commerce and the people of the Department, both in the United States and abroad, with two jobs. The first was to protect and promote the foreign commerce of the United States. The second was to give information, collect it from the foreign service, to businessmen, which would be of value in promoting American business.

So that, when I went in with the Secretary of Commerce to organize an inter-American Division and bring people into it who knew Latin America thoroughly, as well as commodity people, we were charged, by an Act of Congress with an appropriation from Congress, to protect American trade and to give information. That was in January, 1941.

We no sooner started to operate, going through the Civil Service people, the foreign offices, and bringing them into Washington to get ready for the coming war, and to set up what would be a counterpart of the British Board of Trade, the Economic Warfare Division, than in July 1941, the President established something which initially was called EDB—Economic Defense Board.

The Economic Defense Board was set up in July, 1941, and into this office came a great many generals, colonels, majors, second lieutenants—and even a few sergeants. They became the Economic Defense Board—Army men who had never had any experience in trade in their life! The head of that organization, as you might faintly remember, was General Maxwell, who, since then, decided that he knew nothing about trade and has become a very good fighting man. But at that time we had a small military clique, you might call it, who were put in. The State Department had nothing to do or to say about it. The Commerce Department had nothing to say. That became the Economic Defense Board.

For some reason, they did not like the location of these letters—and so they changed the name shortly to the B.E.D., which was the Board of Economic Defense. In September, 1941, this board had taken on the job of requiring American exporters to file licenses and to get applications for export permits. In September of 1941 I found that throughout the country people were getting rejected applications wholesale. They would get them back in the mail two or three days after they sent them in—and sometimes in two or three weeks. There were no reasons given why the applications for exports to Latin America were denied.

You have to remember that at that time the war had crept over other parts of the world, and Latin America was the only part that was left for free trade and free enterprise. So, in controlling the export licenses to Latin America, the man who controlled those licenses could control the foreign commerce at that time—the private enterprise of the United States. We were unable in the Department of Commerce to find any example of a reason having been given when an application was turned down. They would give no reason, and would simply say it was "By order of Gen. Maxwell,"—and you got your applications back.

I went over to the State Department, and, with the assistance of Mr. Welles and some of the other people in the State Department, and Mr. Jesse Jones, we persuaded the President to issue a directive that Gen. Maxwell, whenever he returned an application for an export license, would have to mark on it the reason why it was returned. We had that in writing—but, as you know the history, they picked out one reason that didn't mean anything and usually would send back the application with that particular reason stated on it. That was the first battle we had—to make this group of people tell the American businessman why his application for license was rejected. If it was rejected because the addressee was on the blacklist, that was a very simple thing. A man did not have to go all the way from Pittsburgh to Washington in order to find that out. He could be told, and then he would change.

But at that time there was the beginning of this campaign to tell the people nothing:—to reject applications summarily and tell no one anything. It was through the cooperation of all the people in the export business with the 30 officers that we had around the United States that we were able to find out about the situation. We asked all the 30 officers of the Department of Commerce to go through their neighborhoods and, whenever a businessman received an application for license back rejected without reason, to notify us immediately. My office became flooded.

We were able to break that down a little bit. Then we had a Col. Lord in that office, whose foot slipped a little one day—and he gave $5,000,000 worth of licenses to one pharmaceutical house after he had turned down all the others—this being a German firm! I raised quite a to-do about it, and we went to Congress. Col. Lord left. Then the organization quieted down.

The only way we could find out that $5,000,000 worth of licenses had been given to an alien firm, while American firms could not get any, was that we had been able to get the applications that had been turned down to the American firms, and then show all of the applications that had been granted to this one alien property outfit.

We had the SPAB that grew up at the same time. Then there was another merger that put SPAB in charge and did away with the Economic Defense Board and brought in the Vice-President as Chairman. Now, SPAB, was supposed to meet once a month but to have no organization of any kind. It was made up of one representative from each Department, who was supposed to meet with the Vice-President and decide high policy. They met for two weeb and never had another meeting, but they began taking on a great many people. We discovered that in all SPAB had six or seven hundred people.

In December of 1941 the BED was killed and SPAB was split up. The BEW came out of that shuffle with the Vice-President, Mr. Milo Perkins, and a number of other people, still in the same offices but using different letterheads. We went from December, 1941, with the Board of Economic Warfare, of which Mr. Milo Perkins called himself the Czar—the czar of foreign trade. Mr. Perkins is pretty well known now. He gathered around himself two or three quite famous fan dancers. He had one man who went to Washington who said that he had taught foreign trade for 20 years at Harvard—but he had never seen anyone on the foreign trade business and had never been outside of the United States! He had a number of very interesting people who gathered there in the BEW.

At that time the Commerce and State Departments were operating under Congressional appropriations. They could not get any more money until the year was over. But the BEW was able to obtain all the funds it needed from the White House without going to Congress.

In January, 1942, I thought I had solved something. We were trying to go ahead and dig up some loose pieces, when I finally was told that an Executive Order had been drawn up which was going to be announced by the President, prohibiting the advertising or use of any private brand for the duration of the war. Everything from that time on would be made under the label of a Victory label! There was quite a campaign ready to be released to the newspapers telling the people why they ought to go in for Victory Labels

and why they ought to give up their own trademarks, as the document said, "For the duration of the war." This was a plan that was created by Mr. Leon Henderson and Mr. Milo Perkins, with the permission of the .Vice-President. The directive which was supposed to be put into effect was on the President's desk.

You may faintly remember that we came out suddenly with an editorial on the front page of Foreign Commerce Weekly, announcing that the Department of Commerce was in favor of retaining all brand names throughout Latin America and the rest of the world. (We did not say why we were making that statement at that time.)

We were able, with the help of everybody in the business—all of the associations throughout the country, and a great many of the people who are here—to kill that, because we got the publicity on it in a hurry, before they could spring it and make it an accomplished fact. As soon as we were able to kill their wrecking of our private brand names for the duration, then they created another executive directive which prohibited, if it had been signed, any further advertising, either in the United States or outside of the United States, of any product if you mentioned a brand name. You could send it out or stock it on your shelves here, and a department store could carry it, but that department store, for example, could not advertise it by brand name in the newspapers, nor could you advertise it in South America under that brand name.

Well, of course, that would have killed the newspapers and the free press in a hurry. If a department store could not advertise a brand name, then they would not advertise. They would say, "Sheets for sale,"—and let it go at that. That started during March, April, and May of 1942—and it took until July 17th to get in writing from the Secretary of the Treasury (O.k'd by the President), a letter which made it possible for American businesses to continue advertising brand names, to spend money in advertising, and to have that expense considered in filing income tax.

If that proposal had gone through we would have had a condition in which any money you spent for advertising would not have been taken out of taxes and if you wanted to spend money on a brand name you would not be allowed to do it. On July 18th Mr. Morganthau wrote the letter—actually he did not write it but his assistant did—that the Treasury finally "agrees that the expenditures for advertising purposes, if they are not extravagant . . . are considered ordinary and necessary and are deductible for Federal income tax purposes."

Well, the BEW was still in charge, and the next thing that came to our attention was that they had taken on a great number of people, some of whom could not speak English, called "labor consultants." They had been sent to Latin America without the knowledge of any United States ambassador in Latin America. They began to go around among American businessmen and mining people. They told them, among other things, that if they did not sign closed shop labor agreements with labor in their communities they would not be granted export licenses from the United States. Gradually the ambassadors heard about it and when they did hear about it we had a very long fight in Washington behind the scenes, to try to prohibit anyone from going to any Latin American country and threatening a buyer of our products that unless he signed a closed shop agreement with one of the labor movements in Latin America his applications for export licenses for machinery, for example, would not be granted. We finally won that, in a tremendous blowout. It was never announced but the main friction that created it was the big blowout of the development of the BEW and giving the Vice-President full authority without consulting either the State or Commerce Departments, for making known directives. The President delegated the authority to the Vice-President, to let him make the directives he wished.

In October we had a policy and a plan announced by the Secretary of State and by the President that the idle machinery in this country, lying around in little plants that had been closed up because they could not produce during the war, could be sold to Latin Americans who would start up little factories down there, and that machinery would be moved out of the United States and put to work. As soon as the plan was announced and all of the ambassadors of the Latin American countries notified the people there that they could get this machinery, immediately other complications were put in the way and we never did move that machinery out of this country. It has been idle throughout the war. I bring that up because, although we had an order to do it, still each time we would find a little plant or a man who wanted to sell machinery or to take it down there something would happen so that he could not get it out of the country.

In July, 1943, the thing came to a head through the insistence by the Vice-President that he would insist on labor clauses before he would give any export licenses. He insisted also that each of the Latin American countries must set up what was to be known as a "development corporation." In Brazil, for instance, there was to be an Amazon Development Corporation. This corporation would take over a monopoly of all resources, all commerce, all industries, all transportation, all communications, in a very large area of that country. There would be also a Peruvian Development Corporation and a Bolivian Development Corporation. These corporations would be controlled 51 per cent by the United States Government and 49 per cent by the other Government. Each corporation would have a Latin American President but a Board of Directors of the United States Government.

Strangely enough, they almost got that through. At this time they had men suggesting that each of the Latin American countries would form not only this corporation but another corporation which would have a monopoly over all exports and imports. When they explained it to me they said they wanted the Latin American countries to start this first, and then if they had a monopoly of exports and imports through a Latin American corporation we in Washington would have to do the same thing. We killed that, except in Chile. Chile did set up the Fomento Corporation, as you know; but, gradually, since they were alone, they did not make much headway. The idea was to put every agent of an American product down there out of business and to set up a corporation that would do all the business. They made headway. The record is complete, and probably in time the details will come out.

That situation came to a head because Mr. Sumner Welles agreed in writing that this was contrary to the policy of the United States; that we didn't want to take over the sovereign rights of these other countries. It brought on trouble in the rubber industry because all the people down in the Amazon Valley who were deprived of business in rubber were furious at having been put out of business by a corporation which took away their trading from them. Finally, in July of 1943 it blew up in a statement which Mr. Jesse Jones made about the Vice-President—and which resulted in both of them getting fired! Mr. Jones was fired—and Mr. Wallace was sent back to Congress, where he should have been, because under our law, as I understand it, the Vice-President cannot take on any of the executive activities of the Government, (There are some lawyers atthe present time who are going around asking businessmen to give them claims for anything that happened in that period, under the Constitution of the United States; because unless it is changed the Vice-President cannot be put in executive authority). Perhaps for 18 months, up to July, 1943, some of you gentlemen have a good claim against the United States Government just on that one case, when the war is over.

When Mr. Wallace went back to Congress then Mr. Leo Crowley was appointed. The BEW was out, and there was set up the Foreign Economic Administration, of which we have a representative here today. I immediately raised the issue that Mr. Crowley had not only been serving as a $50,000 a year man for a public utility, but had also been the Alien Property Custodian, and his people had been in my office to push alien exports against an American brand name in Latin America! and I did not know how the same man who was the Alien Property Custodian (he called himself "trustee,") could also push American products in the foreign field.

We could not get much done about it. I worked with Congress during the month of January. A good many senators seemed to feel the same way—that the same man could not be building up alien property exports and at the same time building up American brands. Finally I made a signed report which was delivered to the Senate and read in the Senate by Senator Byrd on February 9, 1944. Ten days later the President accepted Mr. Crowley's resignation as Alien Property Custodian. There was another Alien Property Custodian appointed. Mr. Crowley continued then as the Foreign Economic Administrator and took over Lend-Lease, the Export-Import Bank—all of the activities outside of the United States.

Now the FEA has, of course, had some very good people—every agency in Washington has good people. But behind the scenes there is a little definite plan. Sometimes people say to me that they cannot understand why a certain thing is done. It is just one more mosaic in a large plan. The plan was published recently in the Wall Street Journal. The heading was "Super-Sales Agency for Postwar Trade," by a very clever reporter who talked to a gentleman in the FEA, drew him out, and published this article.

I think in time a great many of you would like to read this article. It came out on July 24th. I asked the people at the Wall Street Journal to send the articles throughout the country to many people, to see what the reaction was. The reaction has been that everyone seems to doubt that any such plan as this was afoot. The article will speak for itself.

I want to go into two statements which are being presented to Congress tomorrow—and I think probably we shall have some details on them. There have been three agreements made of which the American people have no knowledge. I am quite certain that American businessmen have no knowledge of them. My thought is that since I am a past official of the Department of Commerce my job is to give out this information. The information has to be given out and I am going to read now an exact copy of the three agreements to which I have referred. These agreements have been made by officials sent from Washington to London, and they have been made with the British Government. These agreements are as follows:

1—"Certain consuming areas of the world have been 'reserved' for the export industries—factory and labor—of Great Britain. Neither American factories nor American labor will be able to participate, for instance, in the profits of foreign trade with India, most of Africa, and with many nations of the Far East.

2— "No American citizen—representative of an American factory or service—will receive a passport entitling him to travel into certain areas of the world or even in transit through British territory until his application for passport has. been presented through Washington to the British Board of Trade in London for the British Board of Trade's approval.

3— "Censorship intercepts—from the foreign mail of American business and citizens—will be regularly routed to his Majesty's censors in Washington and New York."

Now I am going to give you the highlights of a plan which exists. I don't know whether you will like it or not It is up to the people of this country to decide, each man for himself, whether he likes it. In any event, this is a fact;

(1) The present Administration has a plan under which a corporation, established by an Agency of the United States Government, will summarily—when the signal is given—be issued a monopoly "directive" over all the foreign commerce of the United States. The federal corporation will purchase, at special discounts, products of American factories—many of which must be produced according to this corporation's specifications and priorities, for export and sale in foreign markets. No private corporation or citizens in the United States will be permitted to engage independently or directly in any export or import business.

To this Washington corporation, rather than to private industries throughout the United States, must go all orders from foreign customers for products made in American factories or for services to be rendered abroad by American citizens. This Washington corporation will attempt to retain the right of deciding which brand or trademark the foreign customer must accept in lieu, when desired, of any specified brand name. It may also insist upon the manufacture of products for export under new trademarks or brand names which will be the property of the United States Government.

Just before I left Washington I was able to see a comment which had been sent to the President, attempting to answer the fact that this was too harsh a plan and that no American citizen would put up with it. This is a comment by one of the President's advisers, who said:

"As a step toward Government control the Corporation authorized to engage foreign commerce or services can have common and preferred stock. The Government will purchase the preferred stock of the corporation. By limiting the profits to be made by the private interests running such a corporation, and through the appointment of Government directors on the board of such corporation, the Government will be able to determine all polices of the corporation, and undertake what would be tantamount to a quasi-governmental control, which would result in our Government itself having the same general position in the rest of the world as the Government monopolies the other countries Russia, England, France, Holland, and China—would possess."

I have been long enough in Washington as the assistant to Mr. Jesse Jones, and sitting in his stead as an alternate in interdepartmental meetings, to know that there is only one opportunity to kill a program for setting up in theUnited States a Russian Amtorg. I have seen this coming from different directions. The people believe in it. Some of the people in these agencies insist upon it. My thought today, and my desire in coming here at this time, was to see whether the people in the export business might not consider that this was the time for missionary work to be done in the next few months; or whether you consider and will suddenly make up your minds that the export business is too complicated and that you don't want to be in it and that you will perhaps come to Washington and take a job which would be called a lifetime job.

I am certain somebody has to do something about this situation. I hope that this Export Managers Club, together with some of the other associations throughout the United States, and some of our allies, will work out a program so that we shall not be forced to end up doing the very thing that we are fighting this war about.

I spent from 1936 to 1938 trying to see what we could do against the German method of totalitarian sale and the Amtorg method. If we win this war and then end up in 1945 with this corporation, we shall have lost everything we fought this war to win.

I shall be glad now to be shot at by any who wish to ask questions. Thank you.