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

711.61/776

Memorandum by the Assistant Chief of the Division of European Affairs (Henderson) to the Adviser on Political Relations (Dunn)

[Washington,] July 26, 1940.

The situation with respect to our trade with the Soviet Union has become so critical that I feel that I should call it to your attention. The facts are as follows:

1. During the months of May and June the Navy began to inform certain American manufacturers, who were producing machine tools for Soviet purchasing organizations, that these machine tools were required by the Navy and should not be delivered. They even went so far as to order machine tools removed from Soviet vessels in our harbors. The number of machine tools thus detained is not ascertainable. It appears, however, that almost a thousand were involved. (Apparently approximately another 2000 which had been examined were released for shipment.) These figures I wish to emphasize are subject to considerable correction.

2. The Soviet Embassy in Washington and the Minister for Foreign Affairs in Moscow complained vigorously at this action. The Soviet Ambassador, after instructions from his government, wrote a strong note on the subject.

[3?] The appropriate officials of the Navy Department informed us that the machinery in question was being requisitioned by the Navy since it was needed for the carrying out of our national defense program. They further stated that naturally the purchasers of the machinery would be compensated for what had been taken. This information was conveyed to the Soviet Government both in Washington and in Moscow orally, and similar statements were incorporated in a note on the subject to the Soviet Ambassador.³⁷

4. The Naval authorities gave us to understand that there was no doubt about the Government’s right to requisition this machinery. Officials of the Navy furthermore informed us that legislation which would take care of the whole matter was being enacted.

5. A short time ago we were told by Captain Almy of the Navy, who is now working with Colonel Maxwell,³⁸ that the Navy has no authority to requisition the machine tools until the President first issues a proclamation stating that we are on the verge of war. Captain Almy also has pointed out that the new legislation which has been enacted gives the Government the right to refuse to permit certain machinery to be exported; it does not, however, authorize the Government to purchase machinery thus detained.

6. There are, therefore, in this country several hundred machine tools which have been bought by Amtorg for Soviet purchasing organizations. Title to them has already passed to the Soviet organizations. Navy has asked Amtorg to sell these machine tools to various American manufacturers who need them in the carrying out of the defense program. Amtorg has replied that the title to the machinery rests not with it, since it acts merely as an intermediary, but with the Soviet purchasing organizations, and that these Soviet organizations have no authority to sell machinery which they have purchased in this country.

7. In addition to machinery ordered for the Soviet Government which our Government wishes to keep here permanently, there are several hundred machines which Navy detained only long enough to examine and which it returned to Amtorg for export. However, the new law demanding licenses for the export of machine tools came into effect before shipping space for these tools could be found. Therefore, these tools are also being held up pending the issuance by the Government of the appropriate export licenses in spite of the fact that we do not need them.

8. Navy has taken the position that it will not now approve the granting of licenses permitting the release of any machine tools whatsoever for the Soviet Union until such time as the Soviet export agencies are willing to sell the machine tools which are needed here. Navy has also suggested that the Department approach the Soviet Ambassador on the subject and inform him that if he or his government can prevail upon the appropriate Soviet purchasing agencies to sell to various American firms the machine tools which they want, other machine tools in this country destined for the Soviet Union will be released.

9. In view of the repeated statements which we have already made to the Soviet Government that our Government was requisitioning the machine tools which it was holding up, and in view of the present state of relations between the two governments, we have grave doubts that an approach along the lines suggested to the Soviet Ambassador would be wise or successful.

10. After discussing the matter with Mr. Grady³⁹ I suggested to Mr. Green that the recommendation be made to Colonel Maxwell that an amendment be made at once to the recent export license act which would give the Government the right in certain circumstances to purchase such commodities and materials, the export of which it has forbidden.⁴⁰ Mr. Grady thought that perhaps such an amendment might go through without any great loss of time. Mr. Green apparently acted on our suggestion and such a memorandum went over to Colonel Maxwell two days ago.

11. In the meantime, the export trade of machine tools of all kinds to the Soviet Union is at a standstill; Soviet irritation with us is growing; we are in a position of having informed the Soviet Government that we were requisitioning tools, whereas now we are asking Soviet export agencies to sell them to American private companies; Colonel Maxwell’s organization is telling American firms that none of the machine tools which they have manufactured for the Soviet Union can be released until the Soviet organizations sell us machines which we want. Moreover, dozens of American firms are losing money and are being handicapped in producing machine tools to be used in connection with our preparedness programs because the floors, stockrooms, and shipping rooms of their factories are chocked with tools made for the Soviet Government.

12. I feel that every effort should be made by the highest officials of the Department to insure the swift passage of an amendment to the present law which will give the Government the right to requisition and to sell materials and machinery which have been produced in this country but which the Government will not permit to be exported.

37. Dated July 1, p. 323.
38. Lt. Col. Russell L. Maxwell, Administrator, Office of Administrator of Export Control.
39. Henry F. Grady, Assistant Secretary of State.
40. An act for the requisition of certain articles and materials for the use of the United States, with provision for payment for property taken, was approved on October 10, 1940; 54 Stat. 1090.