(d)The German Government favour, the matter of limitation of naval armaments, that system which divides naval vessels into categories, fixing the maximum tonnage and/or armament for vessels in each category, and allocates the tonnage to be allowed to each Power by categories of vessels. Consequently, in principle, and subject to (f) below, the German Government are prepared to apply the 35 per cent. ratio to the tonnage of each category of vessel to be maintained, and to make any variation of this ratio in a particular category or categories dependent on the arrangements to this end that may be arrived at in a future general treaty on naval limitation, such arrangements being based on the principle that any increase in one category would be compensated for by a corresponding reduction in others. If no general treaty on naval limitation should be concluded, or if the future general treaty should not contain provision creating limitation by categories, the manner and degree in which the German Government will have the right to vary the 35 percent. ratio in one or more categories will be a matter for settlement by agreement between the German Government and His Majesty's Government in the United Kingdom, in the light of the naval situation then existing.