611.6131/386: Telegram
The Chargé in the Soviet Union ( Henderson ) to the Secretary of State
148. Your 86, June 15, 7 p.m.
1. The following is the translation of a memorandum handed to me today by Neymann and Rosenblum which they stated was the reply to the questions put by me to Krestinski:
“In connection with the questions posed by the American Chargé d’Affaires the Assistant People’s Commissar for Foreign Affairs, Mr. Krestinski, after making appropriate inquiries states that:
- (1)
- Purchases of American merchandise as a result of measures which have been carried out in connection with the agreement of 1935 by Soviet economic organizations will constitute for the period beginning July 13, 1935, to July 13, 1936, not less than $37,000,000.
- (2)
- Mr. Krestinski is of the opinion that the amount of purchases mentioned in the letter of Mr. Litvinov of July 13 [15] 1935,61 might be preserved for the next year.
However, Mr. Krestinski invites the attention of Mr. Henderson to the fact that the question concerning the taxation of Soviet coal, which has served as a subject of several conversations at Moscow and Washington, has not been regulated up to the present time. Mr. Krestinski is of the opinion that this question must be settled in the trade agreement to be concluded. In connection with this Mr. Krestinski proposes to prolong for the next year the trade agreement of 1935 substituting for the formulation of restricted most-favored-nation treatment in this agreement a full formulation of most-favored-nation treatment which at the desire of the American side can be given a bilateral character.
Mr. Krestinski will await from Mr. Henderson information concerning the attitude of the Government of the United States of America to the proposal outlined above.”
2. I pointed out that answer 2 was not a direct reply to my question 2. They said that Mr. Krestinski was not in a position to make any statement other than that contained in the memorandum with regard to the amount of purchases to be made next year. It was possible such purchases would exceed $30,000,000 but the Soviet Government could not obligate itself to buy more.
[Page 331]3. I said that I was surprised in view of my letter of June 16 to Mr. Rosenblum 62 (in this letter was incorporated most of the contents of the Department’s 86, June 15, 7 p.m.) that Mr. Krestinski should again raise the question of coal. Both the Department at Washington and the Embassy at Moscow on numerous occasions have pointed out that the American Government could not in an agreement of this character undertake to lift the tax on Soviet coal. They replied that the matter was of so much importance to them that they felt that a way must be found to settle the matter to the satisfaction of both parties.
4. Rosenblum said that in signing the Swedish agreement the American Government had shown that it had the power to grant full most-favored-nation treatment through an agreement of this nature. He felt that similar treatment should be promised the Soviet Union. If the American courts should later decide that the Government had exceeded its powers, claims could then be made for uncollected taxes. I replied that it was not the practice of the Executive Branch of the American Government to make any promises to foreign governments which it did not believe itself to have the authority to make.
5. Neymann suggested that the Governments might negotiate and submit immediately to the Senate a most-favored-nation treaty of only two or three paragraphs. I replied that this was impracticable for several reasons. In the first place it was physically impossible for the negotiation and ratification of even a short treaty to be effected before January, 1937. In the second place if the contents of the treaty would be similar to those of the existing agreement the treaty could be in force for only 1 year unless the Soviet Government was prepared to state its intentions with regard to purchasing in the United States for a period of several years in advance. The procedure of submitting a trade treaty to the Senate every year would prove burdensome and generally unsatisfactory to both parties.
6. Neymann then suggested that such a treaty might contain nothing except a provision for most-favored-nation treatment on the basis of reciprocity. I replied that I was sure that my Government would not be interested in such a treaty since in view of the existence of the Soviet Foreign Trade Monopoly, a pledge on the part of the Soviet Government to grant most-favored-nation treatment with respect to import duties would have little value.
7. He thereupon suggested that it might be possible for the two Governments to sign at once an agreement similar to that already in force with the understanding that pending the convening of Congress in 1937 they should negotiate a treaty for submission to the Senate containing the following clauses: [Page 332]
- (1)
- The American Government would agree to extend most-favored-nation treatment to the Soviet Government.
- (2)
- The Soviet Government would agree to inform the American Government shortly before the end of each year regarding the purchases of American merchandise which it intended to make during the ensuing year.
- (3)
- The treaty could be terminated if at any time the American Government should feel dissatisfied with the amount of purchases specified by the Soviet Government.
- (4)
- Any other clauses which both Governments might desire to have inserted pending the negotiation at a later date of a full commercial treaty.
This idea he said had just occurred to him and he did not know whether his Government would approve it. In the meantime I might suggest it tentatively to my Government.
8. I replied that if he desired I would repeat his suggestion. I was of the personal opinion however that my Government might be reluctant to submit a Soviet treaty to the Senate in the near future in view of the strong feelings which still prevailed as the result of the failure of the two Governments to come to an understanding with regard to certain outstanding questions.
9. Rosenblum stated that he had been so sharply criticized by officials in other branches of the Government for not insisting upon full most-favored-nation treatment last year that he did not see how he could place his approval on any agreement this year without some assurances from the American Government that the situation with respect to coal would not continue indefinitely. If the American Government was unable immediately to eliminate the taxes in question, could it not agree at least orally to take steps to see that such taxes would be removed before July 1937? An assurance even of this nature would be helpful.
10. I replied that according to my understanding the Executive Branch of the Government could not give any undertaking whatever which would involve action on the part of the Legislative Branch but that I would submit his inquiry to my Government.
11. I have not as yet had an opportunity to discuss the contents of the Department’s telegram 86, June 15, 7 p.m., with officials of the Commissariat for Foreign Trade but expect to see them within the next few days.
12. Le Journal de Moscow of June 16, 1936, publishes a long article regarding the present agreement and its effect on American-Soviet trade. Although generally friendly in tone, it points out that the only advantage of practical importance derived from the agreement by the Soviet Government is the reduction of duties on manganese. After discussing the situation with regard to coal the article states: [Page 333] “…63 The Soviet Union is the only one of the coal exporters which suffers from the effects of the Revenue Act. Thus it has the effect of placing Soviet coal exports in an unfavorable position. Without dwelling on the fact that such a situation is inadmissible in principle, it is impossible not to point out the immediate commercial damage which the discrimination existing in the United States costs Soviet exports.”
In conclusion the article states that the agreement has nevertheless justified itself, it has resulted in an increase of American exports to the Soviet Union and despite the reservations above-mentioned has brought about a certain increase in Soviet exports to the United States. It has, furthermore, furnished a stable judicial basis for the development of Soviet-American commercial relations.
My personal impressions gained from statements made to me by Soviet officials during the last year are that it is possible that they may refuse “on grounds of principle” to sign any agreement unless they can obtain at least some assurances that the coal tax will not be maintained indefinitely. Their attitude causes me to believe that they will feel that insult is being added to injury if the American Government not only fails to give any such assurances but at the same time asks that they promise to purchase goods in excess of $30,000,000.