Foreign Relations of the United States Diplomatic Papers, 1940, The British Commonwealth, The Soviet Union, The Near East and Africa, Volume III

700.00116 M.E./202

Memorandum of Conversation, by the Assistant Chief of the Division of European Affairs (Henderson)

[ Washington ,] April 4, 1940.

Participants:	Mr. Feis, Adviser on International Economic Affairs;
	Mr. Pierrepont Moffat, Chief, Division of European Affairs;
	Mr. Loy W. Henderson, Assistant Chief, Division of European Affairs;
	Mr. Constantine A. Oumansky, Ambassador of the Soviet Union;
	Mr. Andrei A. Gromyko, Counselor, Soviet Embassy.

Mr. Oumansky stated that he had sought the present conference at the suggestion of the Secretary. The conversation, as he understood it, was to be limited for the most part to a discussion of matters of an economic nature. He could not refrain, however, from repeating what he had already told the Secretary; i. e., that in the opinion of the Soviet Government there had been no basis for applying the moral embargo to the Soviet Union since the Soviet military forces had not been guilty of bombarding civilians from the air.

Mr. Oumansky said that the primary purpose of the conference from his point of view was to enable him to ascertain whether or not it would be possible for Soviet-American trade to continue. Soviet foreign trade was of a planned character. During recent years the Soviet authorities had assigned an important place to American manufacturers when planning Soviet purchases from abroad. In planning Soviet economic life the Soviet authorities had acted under the assumption that they would be able to obtain from the United States certain machinery and materials. Recent events have caused them to doubt whether in the future such an assumption would be justified.

According to Mr. Oumansky the moral embargo, while harmful, had not necessarily delivered a fatal blow to Soviet-American trade. That trade, even without the commodities listed under the moral embargo, was extremely important. The Soviet Government, however, was disturbed at the failure of the American Government to lift the moral embargo, now that the alleged reason for its application had certainly ceased to exist, and at the tendency of American authorities and industry to extend the discrimination against trade with the Soviet Union into other fields. Certain circles in the United States had taken advantage of the moral embargo in order to endeavor to undermine Soviet-American commercial relations from various directions. The questions therefore presented themselves as to whether the American Government intended to extend the moral embargo into other fields, and as to whether Soviet-American commercial relations were to continue. The Ambassador stated that having presented the two questions which were uppermost in his mind, he would now lay down a five-point agenda for the continuance of the discussion.

The five points which he intended to take up were:

(1) The extent to which the moral embargo has affected the status of contractual obligations between American manufacturers and Soviet trading agencies;

(2) Various pressures which have been brought to bear upon American manufacturing and commercial firms in order to prevail upon them to discriminate against Soviet business;

(3) The discrimination which is being shown in American plants against the visits of Soviet engineers and technicians;

(4) The discrimination against the Soviet Union in the matter of the chartering of American tonnage in order to ship Soviet purchases to the Soviet Union;

(5) The status of Amtorg and the place of Amtorg in American trade.

Mr. Oumansky stated that as a result of the moral embargo there had been a tendency of certain American manufacturers to treat lightly their contractual obligations towards the Soviet Union. Furthermore, numbers of American firms which in the past had been handling Soviet orders were now displaying an inclination either to refuse such orders or to delay the delivery of orders which had been previously taken. As a result, Soviet-American trade was in a chaotic condition and it was extremely difficult for Amtorg and other Soviet purchasing agencies to carry out the tasks assigned them.

Mr. Feis stated that he was not in a position to discuss the political aspects of the moral embargo and that it was his understanding, as Mr. Oumansky had already pointed out, that the conversations would be limited to matters of an economic nature. With respect to Mr. Oumansky’s remarks regarding the indirect and almost invisible extension of the moral embargo into fields not contemplated in the original announcements, he would like to point out that undoubtedly the same surge of sentiment in this country which had prompted the decision to apply the moral embargo was also responsible for the reluctance of certain American trade groups and manufacturers to carry on business with the Soviet Union. It was his impression that the American public was in general so shocked with the events which have transpired in Finland that many American business men did not desire to furnish material and other assistance to the Soviet Union. Certain American commercial and industrial groups had gone so far as to request the Department that the embargo be extended into their fields.

Mr. Oumansky replied that the information which he possessed caused him to believe that the extension of the moral embargo into other fields was the result of pressure brought to bear upon business men and that American business men in general were reluctant to apply discriminatory measures against the Soviet Union. He said that of course he had not personally come into close contact with American business men, but that he had obtained the distinct impression through sources in which he had full confidence that the pressure for further discriminations against Soviet trade came from above rather than from below, that is, that American officials were attempting to persuade American business men to discriminate against the Soviet Union. This was particularly true with respect to the machine tool trade. If such a regime of discrimination were to continue in this country there was nothing left for the Soviet Union to do except to wind up its business with the United States. The moral embargo policy seemed to be like a snowball rolling down hill; its size and importance increased as time went on.

Mr. Feis stated that it was still his opinion, based on approaches which had been made to him by leaders of American business groups, that certain American business circles desired the moral embargo to be extended to them. Mr. Oumansky asked if he had been approached by American machine tool manufacturers. Mr. Feis replied that according to his recollection most of the American business men who had approached him were connected with the handling of raw materials. Mr. Feis continued that although he personally had little occasion for coming into contact with American machine tool manufacturers, it was his understanding that the American machine tool manufacturing business was in an over-rushed state; that the tool manufacturers were continually being forced to decide between competing orders that were beyond their capacity; and that they themselves were uncertain as to what their own policies should be.

Mr. Henderson stated that during recent months a number of American machine tool manufacturers had either called on him or telephoned him in order to inquire as to what the policy of the Department would be towards their accepting Amtorg orders. Some of them had merely asked if in the opinion of the Department it would be advisable to refuse such orders, whereas others had stated that they would like to refuse such orders and would appreciate it if the Department could authorize them to inform Amtorg that the American Government would prefer that they should not accept such orders. Mr. Henderson pointed out that certain American manufacturers had taken the attitude that in the past they had had satisfactory trade with the Soviet Union; that they did not wish to be placed on Amtorg’s black list by refusing to accept orders at the present time; that in view of what was taking place in Eastern Europe they did not wish to accept orders; and that they would appreciate it if the American Government would extend the moral embargo so as to justify their rejection of Soviet orders. Mr. Henderson stated that so far as he knew the Department had always taken care to make it clear that the moral embargo was limited to the articles listed. He asked Mr. Oumansky if Mr. Oumansky had obtained the impression that officials of the State Department were endeavoring individually and unofficially to extend the moral embargo. Mr. Oumansky replied that he had never received any information which would indicate that officials of the State Department were engaging in such activities. Officials of other Departments, including the Treasury Department, were undoubtedly, however, endeavoring to persuade American manufacturers to discriminate against the Soviet Union. He knew of one instance, for example, in which American manufacturers had been urged to give British and French orders precedence over Soviet orders.

Mr. Moffat suggested that if Mr. Oumansky had any complaints to make regarding the activities of certain officials or Departments of the Government, he should present to the Department a well-documented memorandum on the subject. The Department would then be in a position to give the matter consideration. It would be difficult for the Department to take any action upon general statements of the kind which had thus far been made. Mr. Feis agreed that if Mr. Oumansky desired the Department to give weight to his charges that American officials were endeavoring to persuade American firms to discriminate against Amtorg, he should present his complaints in a documentary form.

Mr. Oumansky stated that he would endeavor to prepare a memorandum on the subject. He said that if it is true that the pressure for the extension of the moral embargo comes from below and that American business men desire to curtail trade with the Soviet Union, the answers to his general questions are apparent. There is little to be accomplished by conversation. The Soviet Union must make plans to trade elsewhere.

Mr. Oumansky added that he would like to kill the myth that the Soviet Union has been purchasing exceptionally large amounts of raw materials in this country. The fact is that it was buying less raw materials than formerly. In order to support this statement, he read certain trade statistics purporting to show that during recent months the Soviet Government had purchased practically no raw materials of a strategic character other than copper. The fact is, he said, that the United States is purchasing more raw materials of a strategic character from the Soviet Union than the Soviet Union is purchasing from the United States. After all, it should be borne in mind that commerce in strategic materials is of a reciprocal character.

Mr. Feis said that he was glad that Mr. Oumansky had made the remark regarding the reciprocal character of the trade in strategic materials, because it afforded him an opportunity to point out that the Soviet Government had often followed the policy of refusing to permit commodities to be exported abroad which were of strategic importance to the Soviet Union. Since the Soviet Government followed such a policy, it should be in a position to understand the desire of the American Government to restrict the export of strategic materials which were needed in the United States. Mr. Feis said that he would arrange to have prepared for Mr. Oumansky a memorandum relating to the American Government’s policy with respect to the export of strategic materials. In this connection he would like to point out that Amtorg had created more difficulties in the enforcement of the embargo upon strategic materials than any other company in the United States. Mr. Oumansky suggested that if such a memorandum should be prepared it should show whether there had been any difficulties created by Amtorg during recent weeks.

Mr. Oumansky said that he wished at this point to state that so far as he was aware the Soviet Union had not engaged in the practice of discriminating against American trade and that it seemed to his Government that the present discrimination on the part of the American Government against the Soviet Union was not in harmony with general American foreign trade policies as enunciated by Mr. Hull.

Mr. Henderson said that the foreign trade policies and methods of the Soviet Union were so different from those of the United States that it would serve no purpose to endeavor to draw comparisons between them. Even the terminology which usually applies to foreign trade practices frequently has a different meaning when used in connection with Soviet foreign trade. It was impossible, for instance, to use the term “discriminate” in its usual foreign trade sense when discussing Soviet foreign trade policies. Through its foreign trade monopoly the Soviet Government was able to buy or sell as it chose without subjecting itself to charges that it was discriminating against one or another country. Nevertheless there could be actual discrimination. It should be recalled in this connection that during recent years the Soviet Government had suddenly decided to curtail its sales to the United States of such commodities as timber, fish and coal. As a result, American firms which had built up a trade in these Soviet products had suffered considerable losses. It was, of course, not possible, in view of the peculiarities of the Soviet foreign trade procedure, to substantiate charges that the Soviet Government had been discriminating against the United States in planning sales of raw materials.

Mr. Feis emphasized the fact that the embargo upon the sale of strategic materials applied to all countries with equal force, and that therefore it could not be said that the inability of the Soviet Government to purchase such materials in this country involved elements of discrimination.

Mr. Oumansky stated that he would like to take the occasion to discuss the status of Amtorg. He hoped that it would be possible to discuss this matter in a non-legalistic manner. Amtorg is a corporation organized under the laws of the State of New York. Its capital, however, is owned 100 percent by the Soviet Government. During its sixteen years of existence it has done more than two billion dollars worth of business, of which probably 80 percent consisted of Soviet purchases in the United States. While it is true that Amtorg is an American corporation, it is nevertheless much more than an American corporation. It is the chief purchasing agency in the United States of Soviet governmental organizations, and for many years it has been recognized as such by the American Government. As the chief Soviet purchasing agency in this country it should have a special position and it has enjoyed a special position. There has been a tendency of late, however, for the American Government to treat it in a narrow, legalistic manner, as being merely an American corporation.

Mr. Moffat stated that he was interested in Mr. Oumansky’s remark, because he had gained the impression during recent years that Amtorg had at times endeavored to have its cake and eat it too. In other words, it apparently desired to obtain all the benefits which could be derived from its status as an American corporation and at the same time it showed a tendency to claim certain exemptions in view of the fact that it was a Soviet purchasing agency.

Mr. Oumansky said that he felt that Mr. Moffat had stated the facts in the reverse; that whenever it served its purposes the American Government treated Amtorg as an American corporation, and that on the other hand the American Government sometimes made demands on Amtorg which it would not make upon an American corporation. He pointed out that, for instance, the Department had just recently demanded that the Soviet Embassy furnish it regularly with lists of Soviet nationals who were employees of Amtorg. It seemed peculiar that the Soviet Embassy should be called upon to give information regarding the employees of an American corporation.

Mr. Henderson pointed out that he had already explained that situation in detail to Mr. Oumansky; that Mr. Oumansky must therefore be aware that the American Government regarded Soviet officials and employees who had been sent to this country to carry out orders issued by Soviet governmental organizations as Soviet governmental officials and employees, regardless of the fact that they may be attached to Amtorg; and that there was nothing peculiar about the request that the Soviet Embassy furnish the State Department with certain information regarding Soviet officials and employees in this country.

Mr. Oumansky said that this matter had already been settled and that therefore he could not go any further into it at the time. He would like, however, to read several letters which had been exchanged recently between the Department of State and Amtorg. He then read a letter addressed to Amtorg and signed by Mr. Green, Chief of the Division of Controls, which informed Amtorg of certain American governmental policies relating to the non-export of certain strategic materials, aeronautical equipment, and so forth. He also read the reply of Amtorg to the effect that it intended as an American corporation to comply with all American laws, and that it had taken note of the Government’s policies outlined in the Department’s letter. Mr. Oumansky then read the reply of the Department to Amtorg’s letter, in which the Department stated that it assumed that since Amtorg had been made aware of the policies of this Government it would adhere to them, and invited Amtorg to confirm this Department’s assumption.

Mr. Oumansky said that it could be seen from this exchange of letters that the Department of State was requesting Amtorg, the Soviet purchasing agency in this country, to state that it would adhere to the policy of the moral embargo against the Soviet Union; in other words, to promise to cooperate with the American Government in discriminating against the Soviet Union. Such a request seemed to him, to put it mildly, most unusual.

Mr. Moffat stated that he saw nothing unusual in the request. Amtorg was an American corporation, and as such should be expected to adhere to the policies of the American Government to the same extent as other American corporations. Mr. Feis said that he agreed with Mr. Moffat.

Mr. Oumansky argued that the fact should not be overlooked that although Amtorg is an American corporation, it is nevertheless a Soviet purchasing agency. Its primary object is to promote trade between the United States and the Soviet Union. How could it, therefore, subscribe to a policy the purpose of which is to strangle that trade? What kind of impression would it make upon an American firm which might approach Amtorg with an offer to sell certain articles listed under the moral embargo, if Amtorg should reply that in view of the policies of the American Government it could not make the purchase? Could Amtorg be placed in a position of cooperating to enforce discrimination against the Soviet Union?

Mr. Henderson stated that in his opinion such a reply on the part of Amtorg would enhance the prestige of Amtorg in the United States, and would cause it to be regarded with more respect even by such firms as might make proposals of the nature described. It was only proper that the State Department should desire to assure itself that Amtorg intended to limit its activities in the United States in such a manner that they would not conflict with policies of the American Government.

Mr. Oumansky asked if all American firms received letters similar to those which had been sent to Amtorg.

Mr. Henderson replied that it was his understanding that the Department had taken care to see that information regarding American governmental policies had reached all interested firms and that in case any particular firm should conduct itself in such a way as to cause the Department to doubt that it thoroughly understood the policies of this Government, special communications were sent to it. He said that it was his impression that the Department had received information which caused it to believe that Amtorg was either not aware of the policies of this Government or did not feel that it was expected to adhere to such policies. Therefore, it was only natural that the letters of the kind which Mr. Oumansky had read should be addressed to it.

Mr. Oumansky said that in his opinion Amtorg should not reply to the Department’s last letter to it, and asked if it would not be better to let the matter drop without the exchange of further correspondence. Mr. Feis replied that he was not prepared to answer this question without discussing it with the Secretary, but that he was inclined to believe that what Amtorg might do was more important than what it might say. He wished to emphasize again the fact that in the past Amtorg, to a greater extent than any other firm or organization, had apparently endeavored to engage in transactions which were not in conformity with the policies of this Government so far as the export of strategic materials was concerned.

Mr. Oumansky said that he would like next to discuss the question of the discrimination which was being practiced in certain plants against the visits of Soviet engineers. The Army and Navy Departments apparently were permitting certain American plants to admit British and French technicians and at the same time were refusing to permit Soviet technicians to enter these plants. He had already discussed at some length with Mr. Moffat⁹⁷ the refusal of the Army and Navy to allow Soviet engineers to visit certain parts of the plant of the Wright Aeronautical Corporation. An explanation had been made to the effect that Soviet engineers were not being permitted to visit those parts of the plants in which French and British engineers were admitted because no Soviet orders were being executed at the time. Mr. Oumansky stated that this explanation in his opinion failed to conceal the fact that an injurious discrimination was being made against Soviet engineers in the Wright plant.

Mr. Feis said that certain urgent matters required his immediate attention, and asked if the discussion could not be continued at a later date. It was decided that another meeting would be held on Tuesday, April 9, at 2:30 p.m.^* Mr. Oumansky said that at that meeting he would like to discuss the following subjects:

(1) The discrimination in American plants against the visits of Soviet employees;

(2) The recall from the Soviet Union of the experts of the Universal Oil Company and the Lummus Company, who had been lending technical assistance in the building of aviation gasoline plants;

(3) The non-granting of passports to new American experts to assist in the construction of these plants;

(4) Discrimination against the Soviet Union in the matter of the chartering of tonnage; and

(5) The status of Amtorg and the question as to whether it would be necessary for Amtorg to reply to the Department’s last communication to it.

97. See memorandum of January 10 by the Chief of the Division of European Affairs, and the Department’s telegram No. 54, January 25, 7 p.m., pp. 245 and 250, respectively.
98. Later changed to 3:30 p.m. at Mr. Oumansky’s request. [Footnote in the original. The continuation of this conversation is recorded in the memorandum of April 9 by Mr. Henderson, p. 277.]