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

711.61/743¼

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

[Washington,] August 1, 1940.

Participants:	Mr. Constantine A. Oumansky, Soviet Ambassador;
	Mr. Sumner Welles, Acting Secretary of State;
	Mr. James C. Dunn, Political Adviser;
	Mr. Loy W. Henderson, Assistant Chief, Division of European Affairs.

In pursuance of the understanding reached between Mr. Welles and the Soviet Ambassador during the course of their conversation on July 27, the Soviet Ambassador called upon Mr. Welles this afternoon for the purpose of discussing certain problems affecting relations between the United States and the Soviet Union. At the request of Mr. Welles, Mr. Dunn and Mr. Henderson were also present.

The Ambassador announced upon his arrival that he had come at the invitation of Mr. Welles to discuss various phases of Soviet-American relations in the hope that the conversations may aid in the settlement of certain problems outstanding between the two governments.

Mr. Welles stated that it was his understanding that one of the chief problems in the Soviet-American relations at the present time arose from the situation with respect to machine tools which the Soviet Government had ordered in this country, and suggested that this be the first problem discussed.

The Soviet Ambassador replied that the difficulties which the Soviet purchasing agents were encountering in this country in obtaining the right to export machine tools which they had purchased was one of the outstanding problems in the relations between the two countries. He dwelt in some detail upon the great amount of inconvenience and the heavy losses which his government had incurred as a result of the refusal of the American authorities to permit machine tools ordered for the Soviet Union to leave the country. He pointed out that the machine tools under detention fell into several categories. In the first category were those which representatives of the Navy had, before July 2, the date of the passage of the Export License Act, set aside as needed in this country. A second category were those which prior to July 2 the Navy had released to Amtorg for export but which, for various reasons, including the lack of shipping facilities, Amtorg had not been able to get out of the country before the passage of the Act. A third category were those ready for shipment which Navy had apparently not examined before July 2, some of them apparently having been completed only after that date. Another category were those which had been ordered but which had not yet been manufactured or were still in certain stages of manufacture.

Applications for licenses had been made for the first three categories and applications had also been filed for the export of certain of the machine tools falling in the fourth category. Since the entry into force of the export license system, the American authorities, however, had not issued any licenses for the export of machine tools to the Soviet Union. Some 218 applications pertaining to some 327 tools were still pending. About 4,400 tons of machine tools valued at more than $4,000,000 were lying in docks and warehouses waiting export license permits. It was the understanding of the Ambassador that export license permits were being issued daily covering machine tools destined for countries other than the Soviet Union. It seemed, therefore, that the export license law was being used as a weapon against Soviet-American trade.

At Mr. Welles’ request, Mr. Henderson stated that during the latter part of May it became apparent to this Government that in order effectively to carry out its preparedness program it must take over for the use of American defense industry machine tools available in the country of which that industry might be in urgent need. In order to ascertain what tools might be needed, most tools ready for export were detained until technicians could be given an opportunity to examine them and to determine their utility. For a brief period following the decision to examine these tools, there was a certain amount of confusion arising from the fact that it took some time to prepare the facilities for such examination and to train the personnel for the rather exacting work. Unfortunately, foreign purchasers of American machine tools suffered considerable inconvenience during the period of examination since it was impossible to state, until the examination had been completed, which machines would be permitted to leave the country and which would be detained.

Mr. Henderson pointed out that it was the desire of the American authorities that no machine tools be held up unless they were essential for the national defense. In order to make sure that the Governmental authorities would not make the error of taking over machine tools which were not needed, it was eventually decided that each machine detained would be assigned to a specific American firm engaged in carrying out various phases of the defense program. The Government, instead of taking title to these machines, followed the practice of requesting the purchasers to sell them to the American firms to which they had been assigned. This procedure was in general working out satisfactorily. Difficulties had, however, arisen with respect to the machine tools destined for export to the Soviet Union. It appeared that title to most of these machines had already passed to various Soviet importing organizations and that these organizations were unwilling to conform to the suggestions of the American authorities that they sell their machines to the American firms designated. In view of the failure of the principals of Amtorg to cooperate with them, the authorities responsible for the distribution of machine tools among American industry and for the issuance of export licenses had taken the position that they could not facilitate action upon the various applications for licenses which had been made by Amtorg in pursuance with the provisions of the law of July 2. The present situation, therefore, was that practically no licenses were being issued to Amtorg and that the export of machine tools and other equipment which could be shipped only under license to the Soviet Union was at a standstill. Mr. Henderson was of the opinion that the best way to break this jam and to permit the resumption of the natural flow of trade was for the Soviet Government to issue instructions to its importing agents to sell such machine tools as were needed in the United States to American firms as suggested by the appropriate American authorities. If this should be done, it seemed certain that the jam would be broken and that almost automatically hundreds of licenses which had been held up would be released and the export trade to the Soviet Union would become as nearly normal as could be expected in the present world situation. Mr. Henderson stressed the fact that the sale to American firms by the Soviet importing agencies of the machine tools for the export of which licenses were being refused would do much to eliminate the present unhappy situation.

The Soviet Ambassador replied that instructions which he had received from his government were to the effect that he should request an undertaking from the American Government that all machine tools which had been ordered in the United States on behalf of Soviet importing organizations be granted export licenses at once, and that irrevocable licenses be issued in the future before the negotiations for purchases would be concluded. He had no authority to accept, even as a basis for discussion, a proposal for any arrangement which would be less favorable than that requested by his government. He would, of course, convey any suggestion to his government which the American Government might desire to make. Before conveying the suggestion which had just been made, however, he would like to have a more definite idea regarding the number and type of machine tools which this Government would agree to release, and the same information with respect to those which it proposed that the Soviet importing agencies should sell.

Mr. Welles suggested that perhaps the Department might have two lists prepared—one setting forth the machine tools which this Government might be willing to release, and the other a list of those which it could not permit to leave the country. These lists might be submitted to the Ambassador at the next meeting, and after examining them the Ambassador might be in a better position to discuss them with his Government.

The Ambassador agreed to this proposal provided it should be understood that he was not receding in the slightest degree from the request which his government had instructed him to make.

Mr. Welles stated that he would give instructions at once to have the two lists prepared. The Ambassador again made the plea that the State Department impress upon the authorities charged with the issuance of licenses the fact that since most of the machine tools manufactured for Soviet use were equipped with instruments of the kind suitable to a country which employed the metric system and a 50 cycle electric current, they must be considerably altered and in some cases entirely rebuilt if they were to be adapted to American industry. He said that he wished again to emphasize the point that he did not know whether his government would be willing to permit Soviet importing organizations to sell any machine tools to American firms. He felt certain, however, that if the list of machine tools which the American Government wanted the Soviet organizations to sell was not exceedingly small, his government would not listen to the suggestions which had been made.

Mr. Welles replied that the Ambassador could be sure that the list would be as short as the needs for national defense would permit. The Ambassador should understand, however, that the American Government at the present time must give first consideration to its preparedness program and that it could not, of course, take any action which might seriously affect that program.

Mr. Welles said that he understood that the Ambassador on several occasions had complained to the Department with respect to difficulties encountered by Amtorg in chartering American vessels for the purpose of transporting merchandise from the United States to the Soviet Union.

The Soviet Ambassador replied that the question of obtaining tonnage had been indeed a very serious one. Since the Maritime Commission had recently permitted Amtorg to charter an oil tanker in order to carry gasoline from an American Pacific port to Vladivostok, he had some ground to hope that these difficulties were not [now?] at an end. Nevertheless, he wished to emphasize the fact that during the last six months the Maritime Commission had clearly been discriminating against the Soviet Union by refusing to approve Amtorg applications for charters of American vessels to Vladivostok, while at the same time it had been freely approving charters for American vessels to transport merchandise to Japanese ports. As a result of this discrimination the Soviet Government had suffered losses amounting to hundreds of thousands of dollars, in addition to inconveniences arising from the failure of needed machinery to arrive on scheduled time at plants in the Soviet Union.

The Ambassador mentioned in particular the incident of the steamer Wildwood. This American vessel, he said, was loaded with machinery and other merchandise bound for Vladivostok. In the middle Pacific the vessel suddenly turned around and went back to an American Pacific port. The operators of the vessel claimed that they had received orders from the Maritime Commission to return to the United States. He was not sure whether such orders had actually been given. In any event, the losses arising from loading and unloading and storage of the cargo amounted to more than $260,000. Amtorg was suing the owners of the Wildwood for damages and was confident that it would win the suit.⁶²

The Ambassador added that he hoped that such incidents would not occur in the future and that the American authorities would find it possible to permit freighters and tankers to proceed from American Pacific ports to Vladivostok under charters from Amtorg. He said that according to information which he possessed there was plenty of tonnage available and certainly American steamers were safer on this route than on the Atlantic Ocean.

Mr. Welles stated that he would undertake discussions on the subject with the Maritime Commission. He wished to point out, however, that the Maritime Commission, in passing upon applications for charters usually considered the circumstances surrounding each individual case.⁶³ It would therefore be difficult for it to give any undertakings of a general nature for the future. He would probably be prepared to discuss this matter in more detail at the next meeting since by that time he hoped to have had an opportunity to go into it with the Maritime Commission.

Mr. Welles referred to the request which the Soviet Government had made through the Soviet Embassy in Washington to the effect that mails from the United States to the Soviet Union be routed across the Pacific Ocean and Siberia rather than across the Atlantic Ocean and through Western Europe. Mr. Welles said that after giving the matter careful consideration he had come to the conclusion that the request of the Soviet Government was reasonable and that he would be glad to ask the appropriate postal authorities to accede to it. He pointed out that he would take the matter up with the postal authorities regardless of the fact that it would probably cost the American Government much more to send mail by the Pacific-Siberian route than by the Atlantic-Western European route. Mr. Oumansky said he was happy to hear this and added that if proper arrangements could be made, he thought that his government would not be adverse to sharing the additional cost involved. Mr. Welles informed the Ambassador that he would notify him of the outcome of his conversation with the postal authorities at the next conference.

Mr. Welles said that it was his understanding that the Soviet Embassy had made some complaints with regard to the difficulties which the Soviet Union has encountered in obtaining gasoline from the United States. He did not believe, in view of recent events,⁶⁴ that it would be worthwhile to discuss this subject at the present time. Mr. Oumansky stated that he agreed with Mr. Welles as far as gasoline was concerned but that he felt that he must at this point stress the losses which the Soviet Government had suffered and was still suffering in consequence of the so-called moral embargo which the American Government had placed upon the lending of technical assistance and upon the export of materials to the Soviet Union which would enable the Soviet Government to enlarge its aviation gasoline industry. As a result of the manner in which this embargo was enforced, American engineers who under contract had been assisting in constructing aviation gasoline plants in the Soviet Union had been called home, and the American firms which had entered into the contracts with Soviet organizations had been forced to break their agreements. Thus far, the firms in question had refused to send American engineers back to the Soviet Union to finish the construction of the plants on the ground that the State Department would not grant the requisite passports. He said that he hoped that arrangements could be effected which would make it possible for the American engineers to return to the Soviet Union in order to complete their work and for the firms to go on with the contracts which had been breached.

Mr. Welles said that it seemed to him that two questions were involved here. One question related to the moral embargo and the other to the refusal of the State Department to issue passports to American engineers which would enable them to go to the Soviet Union. Mr. Oumansky agreed, adding that these two questions, however, were interlocked; that the contracts for technical assistance would have no value if the American Government did not permit American engineers to go to the Soviet Union to assist in the erection of plants, and that on the other hand it would be useless for American engineers to go to the Soviet Union unless their employers were allowed to extend technical assistance.

Mr. Welles said that Mr. Oumansky, in raising the questions of the visits of American engineers to the Soviet Union, forced him to refer to the treatment which the Soviet Government had been giving to American citizens in the Soviet Union and in Eastern Poland. The Under Secretary stressed the fact that so long as American citizens in the Soviet Union were not given freedom of movement and were not allowed at will to appear at the American Embassy at Moscow, this Government did not feel that it could afford to facilitate the visits of American citizens to the Soviet Union by the issuance to them of passports. According to his understanding the Soviet Government was making it impossible for American citizens in Soviet-occupied Eastern Poland to report to the Embassy at Moscow in order to register or to have their citizenship papers put in order. Furthermore, he had been informed that in some instances the Soviet authorities were endeavoring to prevail upon the American citizens in Eastern Poland who did not have access to the American Embassy to accept Soviet citizenship. Other instances had also come to his attention in which American citizens in the Soviet Union proper who desired to report to the American Embassy at Moscow had been prevented from doing so by local authorities. Mr. Oumansky said that the difficulties encountered by American citizens in that part of the Soviet Union which formerly had belonged to Poland in reporting to the American Embassy at Moscow had not previously been brought to his attention. He would be glad, however, to report the matter to his government and to inquire with respect to it. He said that he wondered if the persons who were being detained were really American citizens in possession of documents evidencing their citizenship. Mr. Henderson stated that it was his understanding that the refusal of the Soviet authorities to permit American citizens in Soviet-occupied Poland to go to the American Embassy at Moscow was not based upon any doubts regarding the American citizenship of the persons in question. He believed that the Soviet Government had given the Embassy to understand that American citizens in Eastern Poland could not go to Moscow in any circumstances.

Mr. Oumansky said that he would take up the matter at once with his government. It would be of assistance to him, however, to have the names and addresses of the various American citizens who had been prevented from appearing at the American Embassy at Moscow.

Mr. Welles suggested that the conversation end for the time being and be resumed during the early part of the following week. Mr. Oumansky replied that before the conference terminated he wished to raise one point which was first in order of importance, namely, the freezing of the gold in American banks which the Baltic States had sold to the Soviet Union.⁶⁵ The Soviet Government regarded with extreme seriousness this act on the part of the American Government. It was his understanding that the People’s Commissariat for Foreign Affairs had handed Mr. Thurston a note on the subject.⁶⁶ He had nothing to add to the note other than to say that it deserved the full consideration of the American Government.

Mr. Welles replied that this matter was being given consideration and that a reply would probably be ready for the Ambassador at the next conference.⁶⁷

Mr. Oumansky said that he had been working on a memorandum which would set forth 15 points of issue between his government and the American Government. He hoped to be able to present this memorandum at the next conference. It was his suggestion that it be studied and replied to either in the form of a memorandum or orally. Mr. Welles stated that it had been his experience that the exchange of memoranda was not the best method for composing differences. It seemed to him that informal discussions such as the conversation which had just taken place were more likely to be fruitful of results. Mr. Oumansky said that he would be glad to have the conversations conducted in such a manner as would be agreeable to Mr. Welles.

It was decided tentatively that the next conference would take place on Tuesday morning, August 6.⁶⁸

62. The Amtorg Trading Corporation brought a libel for breach of contract against the American steamship Wildwood for $350,000 in District Court, Western District, State of Washington, Northern Division. The decision of this Court of November 13, 1941 (41 F. Supp. 956), was appealed by the owners of the Wildwood to the Circuit Court of Appeals, 9th Circuit, which reversed the decision of the lower Court on February 23, 1943 (133 F. 2d 765). The case was closed when the United States Supreme Court denied a writ of certiorari on June 14, 1943 (319 U. S. 771).
63. See memorandum of March 14 by the Assistant Chief of the Division of European Affairs, p. 253; and memorandum of May 13 by the Chief of the Division of International Communications, p. 295.
64. See Proclamation No. 2417 by President Roosevelt and the regulations of July 26, 1940, Department of State Bulletin, July 27, 1940, p. 49.
65. For text of Executive Order No. 8484 issued July 15, 1940, see 5 Federal Register 2586; for correspondence on this subject in connection with the forcible occupation of the Baltic States by the Soviet Government, see vol. i, pp. 357 ff.
66. See telegram No. 885, July 20, 9 p.m., from the Chargé in the Soviet Union, vol. i, p. 395.
67. See telegram No. 423, August 9, 6 p.m., to the Chargé in the Soviet Union, vol. i, p. 410.
68. The next conference was held on August 7; see infra.