611.6131/557: Telegram

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

105. Your 400, July 22, 4 p.m.

1. You may inform the Soviet authorities that a commitment to modify a rate of duty can be given only in connection with the negotiation of an agreement under the Trade Agreements Act. The negotiation of such an agreement requires certain procedural steps, including public notice and hearings. In order to avoid the taking of such steps without assurance that there is a reasonable prospect for successful negotiations, it is our practice to attempt to reach, in advance of giving public notice, an understanding with the government concerned as to the general basis on which an agreement might be concluded, although no commitment can be given as to the concessions which we might grant in an agreement.

In view of the interest of the Soviet authorities in an agreement involving duty concessions on the part of the United States, we are at present actively looking into the possibility of a basis being found for undertaking trade-agreement negotiations with the USSR. However, we see no possibility of going into this matter with the Soviet authorities thoroughly before the/expiration of the present agreement, and the procedural steps involved in actual negotiations would require a considerable period of time.

2. In the circumstances it would appear essential to proceed with the renewal of the present agreement immediately and you are accordingly authorized to effect an exchange of notes renewing the current agreement for 1 year with no change in the minimum guarantee of purchases by the Soviet Government.

3. As was pointed out in paragraph 2 of the Department’s telegram 84, July 8, 3 p.m., the substance of which you may communicate to the Soviet authorities, this Government would not be in a position to make any such commitment with respect to its foreign purchases of manganese ore as the Soviet Government desires.

4. With reference to the volume of imports into the United States from the Soviet Union, it may be pointed out that American imports as a whole showed a considerable decline (of over 35%) in 1938 as compared with 1937. Despite this fact, imports for consumption from the Soviet Union in the first 10 months of the current agreement [Page 827]year amounted to $21,672,000 and at the present rate are likely to exceed United States imports from the Soviet Union in each of the previous agreement years. Moreover the size of the Soviet import trade balance with the United States is not entirely due to a lack of demand for Soviet products in the United States. You may indicate it is your understanding that the Soviet Government has curtailed the exportation of certain commodities to the United States, despite the fact that the American importers have apparently been prepared to purchase as large—and in some cases larger—quantities than those purchased in previous years. For your information, the foregoing statement applies particularly to anthracite, timber and timber products, various types of skins and furs, magnesite, etc. The Embassy may be aware of further products falling into this category.

5. The text of the principal exchange of notes renewing the current agreement would read as follows:

“In accordance with the conversations which have taken place, I have the honor to confirm on behalf of my Government the agreement which has been reached between the Governments of our respective countries that the agreement regarding commercial relations between the United States of America and the Union of Soviet Socialist Republics recorded in the exchange of notes between the American Ambassador and the People’s Commissar for Foreign Affairs on August 4, 1937, which came into force on August 6, 1937, upon proclamation thereof on that date by the President of the United States of America and approval thereof by the Council of People’s Commissars of the Union of Soviet Socialist Republics on the same date, and which was renewed for 1 year on August 5, 1938, shall continue in force until August 6, 1940. This agreement shall be proclaimed by the President of the United States of America and approved by the Council of People’s Commissars of the Union of Soviet Socialist Republics.”

If it is desired by the Soviet authorities as an indication that consideration will be given to the possibility of trade-agreement negotiations, you are authorized to add after the words “until August 6, 1940” in the above note the words “unless superseded by a more comprehensive commercial agreement.”