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

711.61/746½

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

[Washington,] August 12, 1940.

Participants:	Mr. Constantine A. Oumansky, Soviet Ambassador;
	Mr. Sumner Welles, Acting Secretary of State;
	Mr. Ray Atherton, Acting Chief, Division of European Affairs;
	Mr. Loy W. Henderson, Assistant Chief, Division of European Affairs.

Mr. Welles and Mr. Oumansky engaged in a further conversation this afternoon regarding various problems of American-Soviet relations. At the request of Mr. Welles, Mr. Atherton and Mr. Henderson were also present.

The Soviet Ambassador stated that he understood that there were four problems to be discussed in this conference—namely, 1) the retention in the United States of Baltic gold; 2) the attitude of the American Government with respect to the issuing of export licenses covering merchandise destined for the Soviet Union; 3) the so-called moral embargo; 4) the difficulties encountered by Soviet engineers in the Wright Aeronautical Plant at Paterson, New Jersey. The Ambassador suggested that these problems be taken up in the order indicated.

Transfers of Assets of Baltic Countries in the United States

Mr. Welles agreed to the Ambassador’s suggestion. He thereupon handed the Ambassador 1) a copy of the memorandum⁷⁹ which Mr. Thurston had been instructed to give to the Assistant People’s Commissar for Foreign Affairs in reply to the Soviet memorandum⁸⁰ protesting at the retention of Baltic gold in this country, and 2) a copy of the first-person note⁷⁹ which the American Chargé d’Affaires in Moscow has been instructed to address to the People’s Commissar for Foreign Affairs informing the Commissar that the American Government was holding the Soviet Government responsible for certain losses inflicted upon American citizens in territories under Soviet control. When giving these documents to the Soviet Ambassador, Mr. Welles suggested that the Ambassador might desire to read them at his leisure; that if the Ambassador cared to discuss them, he could do so at another conference. The Ambassador agreed.

Routing of Mails from the Soviet Union to the United States

Mr. Welles suggested that before passing to the second point on the agenda he would like to reply to an inquiry which the Ambassador had made at the preceding conference. During the course of that conference the Ambassador had stated that recent mails from Moscow had come to him with unusual speed and he would like to know the route over which they had come. Inquiries to the Post Office Department had elicited the information that these mails had passed through Vladivostok and crossed the Pacific Ocean. Mr. Welles said that it would appear that mails were coming with greater speed along this route because there had been better timing of their arrival at various ports with the departure of westward bound vessels.

Export Licenses for Machine Tools

With respect to some of the problems that had been raised involving licenses, Mr. Welles said that he was very glad to inform the Ambassador that in view of the desire of the American Government to demonstrate the friendly spirit in which the present conversations were taking place, arrangements had been made for the immediate issuance of export licenses covering all merchandise ordered by Soviet agencies which was not needed in the United States. In other words, licenses were being granted at once which would make it possible to export without delay various machine tools contained in the list numbered (2) which had been handed to the Ambassador at the last conference.

The Ambassador stated that he appreciated this information very much. The action of the American Government in releasing these machine tools would advance Soviet-American trade.

Mr. Welles stated that in order to expedite the elimination of problems relating to machine tools, he would appreciate having as early as possible such information as the Ambassador might desire to give him relative to the various machine tools contained in list numbered (1) which, in the Ambassador’s opinion, should be released. He also hoped that information would be furnished at once which might be useful in deciding whether orders could be placed for the purpose of substituting new machine tools for those which must be detained.

The Ambassador said that he was afraid that he must disappoint Mr. Welles. He had made a careful study of the list of tools which the American Government proposed to retain. He and his technical advisers had worked very hard on this matter. They found, however, that the picture was such that the ceding of any articles contained in this list would cause heavy losses to certain branches of Soviet industry. These machines had been ordered with much care and at great expense. Each machine was for a definite purpose and the failure of any machine to take the place for which it was destined would be sure to result in considerable disorganization. The fact must not be overlooked that some of this machinery, as a result of certain policies of the American Government, had already been detained in the United States for a period of five or six months. The damage which had already been done to Soviet industry in consequence of the delays encountered in the export of machinery from this country, delays which had not been the fault of the Soviet Government or Soviet organizations, was tremendous.

Mr. Oumansky stated that Mr. Molotov, himself, had suggested that the conversations, with respect to the solution of problems at hand, should be placed on an entirely different basis—that is, that they should follow the lines laid down by Mr. Mikoyan in his conversation of July 30 with Mr. Thurston. It would be recalled that Mr. Mikoyan had made the following proposals: (1) that assurances be given that the United States Government would consider in a favorable spirit applications of firms for licenses for export to the Soviet Union of merchandise ordered after July 2, 1940; (2) that an assurance would be given that manufactured goods ordered by Soviet purchasing agencies prior to the President’s Proclamation of July 2 would be released and that all export licenses issued for goods purchased or ordered after July 2, 1940 would be considered as irrevocable; (3) that assurance would be given that impediments to Soviet-American trade such, for instance, as those obstacles created by the so-called moral embargo, would be removed; (4) that a general assurance would be given that trade with the Soviet Union would not be discriminated against, and, in particular, that the Soviet Government would not be subjected to discrimination with respect to the purchase of gold by the Government of the United States.

The Ambassador recalled the fact that Mr. Mikoyan had asked that exchanges of letters on the subjects mentioned above take place in connection with the signing of the trade agreement. Mr. Thurston had suggested to the Commissar, however, that those subjects be discussed in conversations independent of any trade agreement negotiations. Exchanges of letters were very desirable since they were needed for purposes of precision and in order to restore the confidence of the Soviet authorities in the stability of trade with the United States.

Mr. Welles informed Mr. Oumansky that in principle the American Government would have no objection to exchanges of letters with respect to various points on which they might be able to come to agreement. He felt certain that it would not be possible for the United States Government to give all of the undertakings which had been requested by Mr. Molotov and Mr. Mikoyan. With regard to the first point raised by Mr. Oumansky there could be no difference of minds. The American Government would consider in a friendly spirit applications by Soviet agencies for licenses to enable them to export various machine tools to the Soviet Union.

Mr. Welles said that it was his understanding with regard to point no. 2 that the Soviet Government was asking the Government of the United States, notwithstanding the needs of the United States for certain machine tools, to issue licenses permitting such machine tools to be exported to the Soviet Union. His government could not agree to such a proposal. In his opinion the suggestion which he had advanced in previous conversations was a reasonable one—that is, that Mr. Oumansky and he go with care over the machine tools enumerated in list no. 1 in order to ascertain if any of these tools might be released without severe damage to American interests.

Mr. Oumansky pointed out that the value of machine tools contained in lists no. 1 and no. 2 aggregated roughly $4,000,000. The value of machine tools ordered by Soviet agencies in this country before July 2 which had not yet been delivered, totaled about $10,000,000. (Mr. Oumansky later telephoned that he had under-estimated the value and should have said $15,000,000.) Licenses for all of these machine tools had not been applied for at the time lists no. 1 and 2 had been compiled. Since August 3, applications for licenses had been submitted by Soviet agencies to the Department covering machine tools of a much greater value than the value of machine tools contained in the lists no. 1 and 2 combined. The Ambassador proceeded to analyze the various categories of machine tools for which licenses had been applied. Roughly, there were approximately 925 different items involved. He said that the Soviet Government recognized and respected the needs of the national defense of the United States. It realized that such needs were bound to affect the character and volume of Soviet purchases in that country. Nevertheless, in spite of this fact it seemed certain that if a basis could be found for eliminating present difficulties, Soviet purchases in the United States would increase enormously without in any way interfering with the American defense program. He had gone carefully through each item contained in list no. 1. He must repeat that the loss to the Soviet Union of any one item would create disorganization and loss of production. Furthermore, he was confident that practically all of the items listed could be spared without perceptively affecting the interests of American defense. Soviet needs in comparison with American production were infinitesimal. He had found, for instance, that Soviet orders covering one type of lathes comprised less than 7/10 of 1% of American production. The release of all the machines on list No. 1 would, after all, only partly compensate to the Soviet Government for the millions of dollars which it had lost as a result of delays in shipment.

Mr. Welles stated that he would suspend answer with respect to point No. 2 until the next conference and that during the interim he would give the matter further reconsideration. He said that he must admit that the problem was somewhat confused since the applications for licenses covering all Soviet purchases in this country had not as yet been received. Mr. Welles then requested Mr. Henderson to take steps to have drawn up at once, if possible for consideration at the next conference, two new lists enumerating all the machine tools for which Soviet agencies had applied for export licenses, and which had not been included in the two lists already compiled. The first of the new lists should embrace those machines which could not be released and the second list those which could be exported. He said that it was only fair, however, that the Ambassador should understand that national needs must have first consideration. He still adhered to the conviction that the only proper procedure would be to go over the lists item by item. Mr. Oumansky asked if he could be accompanied at the next meeting by Mr. Lukashev, the President of Amtorg, who could discuss various technical problems. Mr. Welles replied that there would be no objection to the presence of Mr. Lukashev at the conference.

Mr. Oumansky said that in connection with the granting of export licenses covering machine tools, he wished again to emphasize the suggestion made by Mr. Mikoyan that the American Government agree that export licenses issued to Soviet agencies at the time of purchasing of machine tools be considered as irrevocable. The issuance of irrevocable licenses would do much to dispel some of the elements of uncertainty and lack of confidence which at present existed.

Mr. Welles replied that for the American Government to give such an understanding might well be considered as an act of discrimination unless similar assurances would be given to other governments. No sovereign government under present world conditions could promise that regardless of what might transpire in the future, certain machinery which might be of great value to its national defense would be permitted to leave the country. The American Government could not, on August 12, in view of the rapidly shifting world situation, state irrevocably that it would not, say on September 1, be in sore need of certain machine tools.

Mr. Oumansky replied that in view of the exceptional losses which the Soviet Government had suffered as a result of American policies during the last six months, the American Government might find some means of giving exceptional treatment to Soviet orders placed in the United States during the coming year. Mr. Welles said that inescapable facts must be taken into consideration as a basis for any negotiations. One of the facts that must not be overlooked was that the United States must place first the interests of national defense.

Mr. Oumansky pointed out that the American Government seemed to be overlooking the tremendous damages which it had caused the Soviet Union during the past months. It was true that the American Government had assured the Soviet Government that it would reimburse it for any machinery which might be requisitioned. It should bear in mind, however, that the losses to the Soviet Government were much greater than the mere purchase price of the machines.

The Moral Embargo

The Soviet Ambassador said that it was his understanding that the next point to be discussed was that of the moral embargo. Mr. Welles agreed. He stated that the so-called moral embargo had been instituted for the purpose of preventing private industry from implementing by the sale of supplies and technical knowledge certain policies of various foreign governments. Naturally, when the situation which had given rise to the moral embargo no longer existed, the embargo also should cease. In case the two governments should find it possible to solve the various problems in their relations, and if the situation which had given rise to the moral embargo no longer existed, the moral embargo would naturally be lifted. It should be understood, however, that in case the situation continued to exist, the moral embargo must stay in force.

Mr. Oumansky inquired if it was to be understood from the remarks of Mr. Welles that the matter of the moral embargo was to be considered as an organic part of the present conversations. Mr. Welles replied in the negative. He said that the moral embargo resulted from a certain situation which could have no connection with the present conversations and therefore it could not be considered as a part of the present negotiations. Suppose, he continued, that a certain country, which might be referred to as Tasmania, pursued certain policies which caused the American Government to declare that the so-called moral embargo be applied to it. If, at a later date, it should become clear that Tasmania no longer pursued such policies, the moral embargo would be lifted. If, however, after the moral embargo had been lifted, Tasmania should again resort to the policies which resulted in the application of this embargo, naturally the embargo would again be applied.

Mr. Oumansky said that he understood from the remarks of Mr. Welles that the American Government considered that acts of enforcing the moral embargo were of a unilateral, not a bilateral, nature. Mr. Welles replied in the affirmative.

Mr. Oumansky said that the attitude of the American Government with regard to the moral embargo raised important questions which must be referred to his government. In the meantime he wished again to express the hope that the American Government would without delay lift the embargo or take some act to mitigate its effect on Soviet-American trade. Such an act should be of a retroactive nature. He felt that he must also make one reservation—that is, it was the firm conviction of his government, supported by the evidence of American citizens who had been in Finland, that there had been no situation justifying the application of the embargo to the Soviet Union.

Assurances of Non-Discrimination Against Soviet Trade

The Ambassador said that point No. 4 raised by Mr. Mikoyan related to the general subject of discrimination in the United States against trade with the Soviet Union. The Soviet Government felt, in view of what had transpired during the past 12 months, that such assurances were necessary for the stabilization of Soviet-American trade.

Mr. Henderson remarked that in the commercial agreement which had just been signed,⁸¹ there were the usual assurances of non-discrimination. Mr. Oumansky replied that such assurances had been included in the commercial agreement which expired on August 5;⁸² nevertheless, discrimination had taken place. Soviet merchandise, for instance, had been retained by Customs authorities in the United States in accordance with procedures which had not been applied to merchandise destined for other countries. New assurances which were of a more precise and emphatic nature were necessary. Special undertakings were required with respect to the ability of the Soviet Government to charter American vessels and to sell gold in the United States.

Mr. Welles said that he had already informed Mr. Oumansky that it was not the present intention of the American Government to discriminate against any government with respect to the purchase of gold. This matter had been taken up with the Treasury and he suggested that discussion of the subject be postponed until the next morning.

Mr. Welles said it had been his understanding that the question with respect to charters had already been answered. Mr. Oumansky replied that his government felt that more formal undertakings with respect to these matters were desirable. Mr. Welles suggested that these questions be taken up again in subsequent conversations.

The Alleged Discrimination Against Soviet Engineers at the Wright Aeronautical Plant at Paterson, New Jersey

The Soviet Ambassador said that he wished again to refer to the discriminatory manner in which Soviet engineers at the Wright Aeronautical Plant at Paterson, New Jersey, were being treated. Mr. Welles stated that this matter had already been given attention and was to be discussed with the appropriate governmental authorities later on in the afternoon. He therefore would ask that it also be carried over to the next meeting.

The Desirability of an American Consulate in Vladivostok

Mr. Welles stated that during the recent conversations Mr. Oumansky had on several occasions referred to the mutual benefits which could be derived from satisfactory trade relations between the two countries. He said that some time ago the American Chargé d’Affaires at Moscow had asked the People’s Commissar for Foreign Affairs what the Soviet attitude would be with regard to the opening of an American consular office in Vladivostok.⁸³ The American Government was inclined to believe that such an office might be useful in the advancement of American-Soviet trade relations, particularly in case the present conversations should develop satisfactorily. He added that he would appreciate it if Mr. Oumansky would inquire of his government regarding the status of this matter. Mr. Oumansky said he would be glad to do so.

79. The text, which was presented in Moscow on August 12, 1940, was sent to the Chargé in the Soviet Union in the Department’s telegram No. 423, August 9, 6 p.m., vol. i, p. 410.
80. Text quoted in telegram No. 885, July 20, 9 p.m., from the Chargé in the Soviet Union, vol. i, p. 395.
79. The text, which was presented in Moscow on August 12, 1940, was sent to the Chargé in the Soviet Union in the Department’s telegram No. 423, August 9, 6 p.m., vol. i, p. 410.
81. For correspondence concerning the renewal of the commercial agreement by an exchange of notes signed on August 6, see pp. 441 ff.
82. For correspondence on the negotiation of the commercial agreement effected by an exchange of notes signed on August 2, 1939, see Foreign Relations, The Soviet Union, 1933–1939, pp. 809 ff.
83. See telegram No. 995, August 9, 10 a.m., from the Chargé in the Soviet Union, p. 460.