The Chargé in the Soviet Union (Henderson) to the Secretary of State

No. 1612

Sir: With reference to the Embassy’s despatch No. 1425 of February 28, 1936,22 and previous correspondence regarding the efforts of the Soviet Government to transfer to the Soviet Union the negotiations effecting foreign trade transactions involving Soviet organizations, I have the honor to transmit herewith a translation of an article on that subject published in Foreign Trade of the U.S.S.R., No. 5, March 15, 1936.22

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It will be observed from the enclosed article that during the year 1935, 541 export transactions were concluded in the Soviet Union as compared with 7 in 1934, and that in 1935, 76.3 percent of the total value of orders were placed with the import combines (not including orders placed jointly with commissions of principals*) as compared with 8.1 percent in 1934. The writer of the article also states that, whereas during the first 9 months of 1934 only 193 representatives of foreign firms visited the Soviet Union, over 570 visited the country in the corresponding period of 1935. According to the article a great deal has been done in the direction of making the Soviet Union, rather than foreign countries, the place of delivery of export goods. It states that, whereas in 1934 only 19 deliveries of export goods took place on Soviet territory, there were 222 such deliveries in 1935. Even the work of drawing up bills and of making collections is apparently being transferred to the Soviet Union.

Particularly interesting are the writer’s statements with respect to the inclusion in foreign trade contracts of clauses providing that disputes arising from such contracts are to be settled by the Arbitration Commission of the All-Union Chamber of Commerce. He says that of the 461 transactions concluded prior to October 1, 1935, 290 contained such clauses.

Conversations with members of other diplomatic missions in Moscow tend partly to confirm the statements contained in the enclosed article. Soviet export organizations exporting raw and semi-finished products have become particularly insistent during the last year that all transactions effecting the sale of such products should be concluded in the Soviet Union. This applies particularly to purchasers from Northern, Eastern, and Central Europe. These organizations have been somewhat more flexible, apparently, in their treatment of English buyers and decidedly more lenient towards American purchasers who, for the most part, have been considered as belonging to a special class. Nevertheless, a number of American buyers have been warned that next year they will be expected to complete all purchasing transactions, including the taking of delivery of merchandise, in the Soviet Union.

It is understood that most of the foreign import transactions effected in the Soviet Union have been with Northern, Eastern, and Central European firms, although of late more English firms are understood to be concluding transactions in Moscow. According to such information as the Embassy has been able to obtain, however, most transactions involving the sale of complicated merchandise are still effected abroad. So far as is known no American firms have [Page 298] as yet concluded contracts in the Soviet Union providing for the sale of merchandise. Such contracts are still being signed in the United States with Amtorg.

It would be erroneous to assume that Moscow has been or is crowded with foreign business men eager to engage in foreign trade transactions with the Soviet Government. It is, in fact, surprising that a country with a population of 166,000,000 persons should have been visited in the first nine months of 1935 by only 570 representatives of foreign firms. In this connection it should not be overlooked that approximately 50 percent of these visitors were participants in the fur auctions which are held semi-annually in Leningrad.

In previous despatches the Embassy has touched upon some of the motives which prompt the Soviet Government to endeavor to make the Soviet Union the locality of most of its import transactions. Conversations with visiting business men and with responsible Soviet officials lead the Embassy to believe that the following constitute some of the reasons which cause the Soviet Government to desire the transfer of export transactions also to Soviet territory:

The desire to cut down costs, which are in foreign currency, of maintaining sales representatives abroad;
The desire to avoid paying out foreign currency abroad for transferring cargo, warehousing, and so forth;
The hope that if goods are sold f. o. b. production point, or seaport, certain ad valorem duties on transportation costs may be saved;
The desire to transfer to the purchaser all responsibilities connected with tariff increases, ocean freight charges, and so forth;
The desire that disputes arising from contracts be settled according to Soviet law and in Soviet courts or by Soviet Arbitration Commissions:
A feeling that, if prospective purchasers expend the time and money to come to the Soviet Union to negotiate, they will prefer to pay slightly higher prices or to accept somewhat less advantageous terms rather than to return empty handed;
The belief that the position of the buyer will be weakened since he will be cut off from all private communication with his home office and since he will be unable to obtain proper legal advice.

Respectfully yours,

Loy W. Henderson
  1. Not printed.
  2. Not printed.
  3. It is believed that “orders placed jointly with commissions of principals” refers to orders placed jointly by representatives of the appropriate foreign trade combines and members of commissions representing trusts which are clients of such combines. [Footnote in the original.]