Foreign Relations of the United States, The Soviet Union, 1933–1939

611.6131/445: Telegram

The Ambassador in the Soviet Union (Davies) to the Secretary of State

Moscow, July 6, 1937—10 a.m.
[Received July 6—9 a.m.]

150. Reference my 144, July 2, 6 p.m.

1. Representatives of the Embassy had a conference yesterday evening with officials of the Foreign Office during which the officials suggested the following changes in the text of the principal notes proposed in your telegram 77 of July 1, 3 p.m.

(a) That the granting of most-favored-nation treatment be on a bilateral basis; that is, that the Soviet Union also agree to grant most-favored-nation treatment to the United States.

(b) That in place of the first paragraph of the first section of the Department’s draft, a paragraph almost identical with the first four paragraphs of article No. 1 of the American-Netherlands agreement be substituted.

(c) That in place of second paragraph of the first section of the Department’s draft a paragraph similar to the fifth paragraph of article 1 of the Netherlands agreement be substituted; the last sentence of the latter having been changed to read somewhat as follows:

“If it should be decided by the appropriate authorities of the United States of America that the law of the United States of America would not permit the complete operation of the above provisions with respect to the above-mentioned products, the Union of Soviet Socialist Republics reserves the right within 15 days after such decision has been put into effect to terminate the agreement in its entirety on 30 days notice.”

(d) That in addition to the third paragraph of section 1 of the Department’s draft making exceptions with regard to American territories, possessions, et cetera, the paragraph usually found in Soviet most-favored-nation agreements making exceptions with regard to certain countries of Central Asia and the Baltic States be inserted.

(e) That the fourth paragraph of section 1 of the Department’s draft be omitted since in an informal agreement of the kind contemplated it is unnecessary to list such exceptions; if, however, a paragraph of the kind is insisted upon that it be drafted along the lines of paragraph 3 of article 12 of the American-French agreement of May 6, 1936,⁶⁵ which they preferred because of its bilateral and more liberal nature.

(f) That the first sentence of section 3 of the Department’s draft be altered to read somewhat as follows: “This agreement shall be proclaimed simultaneously in both countries and shall come into force on the day of its proclamation.”

2. They asked that at the time of the signing of the notes the Embassy present a letter to the Commissariat, not for publication, (a) assuring the Commissariat that in view of the manner in which the notes were worded, the United States Treasury authorities would issue a ruling to the effect that Soviet coal would be exempt from excise tax, and (b) pointing out, if desired, that, of course, there was a possibility that this Treasury ruling might later be reversed by the courts.

3. They suggest that although not yet prepared definitely to say that the Soviet Government was willing to obligate itself not to export more than 400,000 tons of coal to the United States, they would prefer, in case it was decided to give such an undertaking that it be in the form of a letter addressed to the Ambassador by the People’s Commissar similar in tone to the Soviet note to the Embassy of July 13, 1936, that is, that it be more an expression of intention rather than a concrete assurance. Such an expression they pointed out would, of course, be equivalent to a concrete assurance.

4. They stated that they felt that by virtue of the two previous agreements Soviet coal was entitled to the same treatment as Netherlands coal and should not therefore have been subjected to excise tax and they requested that the Embassy ascertain from the Department (a) whether there was a possibility that the importers of Soviet coal would be able as the result of governmental executive action to obtain a rebate for the excise taxes paid during the last 2 years or whether it would be necessary for such importers to go to the courts; (b) whether the Executive Branch of the American Government was disposed to lend any assistance in the obtaining of such rebate and what might be the nature of such assistance.

5. With regard to 1 (a) above, it was pointed out to the Soviet officials that the American Government was not requesting most-favored-nation treatment from the Soviet Government in view of the peculiarities of the Soviet foreign trade monopoly. The officials insisted, however, that the Soviet Government was accustomed to grant most-favored-nation treatment whenever such treatment was accorded it. The impression was obtained that they were anxious that the agreement should be so worded as not to make it manifest that the American Government was not interested in obtaining Soviet promises of most-favored-nation treatment. The Department is aware that the Soviet Government has always endeavored to make it appear that such promises had distinct advantages. The Embassy sees no reason why the Soviet offer to make such promises should be rejected.

6. With respect to 1 (b) above, the Soviet officials said that they had two reasons for desiring to follow the text of the Netherlands agreement; namely, the bilateral nature of that text and their feeling that its terms were broader.

7. With respect to 4 above, it was pointed out to the Soviet officials that the questions raised by them were not directly pertinent to the negotiation of the present treaty and if pressed at the present time might perhaps retard such negotiation. It was suggested that matters relating to possible rebates might more advantageously be taken up by American importers of Soviet coal direct with the appropriate American authorities. The officials, nevertheless, insisted that the question raised by them be put to the American Government.

8. The Soviet officials said that no decision had as yet been made with regard to the amount which they should agree to purchase during the coming year. It was again made clear to them that, in view of the distinct advantages which the Soviet Government would gain from an agreement such as that proposed, the American Government would riot be satisfied with a pledge of less than $40,000,000.

Davies

65. For text of this agreement, see Department of State Executive Agreement Series No. 146, or 53 Stat. 2236.