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

711.61/743½

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

[Washington,] August 15, 1940.

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

Late this afternoon another conversation took place between Mr. Welles and the Soviet Ambassador regarding certain problems of American-Soviet relations. At the request of Mr. Welles, Mr. Atherton and Mr. Henderson were present. Mr. Lukashev, the President of the Amtorg Trading Corporation, accompanied Mr. Oumansky.

Mr. Welles requested Mr. Oumansky to give suggestions as to the order of subjects to be discussed. Mr. Oumansky stated that it would perhaps be advisable first to discuss the lists of applications for export licenses which he understood Mr. Welles had caused to be prepared; then to take up one by one the questions of future policy with respect to export licenses, to the moral embargo, to assurances of non-discriminatory treatment, and to privileges to be allowed to Soviet engineers in the Wright Aeronautical Plant. After these matters had been examined, there were some additional subjects for discussion, during the course of which the presence of Mr. Lukashev would not be required. Mr. Welles agreed to this procedure.

Export Licenses Covering Merchandise Ordered or Purchased by Soviet Agencies in the United States Before July 2, 1940

Mr. Welles handed Mr. Oumansky four documents,⁸⁶ namely:

1. An amended copy of the list which has been referred to in previous conversations as List No. 1. (This list enumerates the machine tools ordered by the Soviet Union for which licenses have been applied prior to August 3, and which the American Government has decided should be retained in the United States.)

1a. A list supplementing List No. 1. (This list enumerates machine tools covering which, for the most part, applications for export licenses have been filed subsequent to August 3, and which the American Government has decided should be retained in the United States.)

2. An amended copy of List No. 2. (This list enumerates machine tools for which licenses have been applied for prior to August 3 and which the American Government has decided could be exported.)

2a. A list supplementing List No. 2. (This list enumerates machine tools applications for export licenses covering which have been filed for the most part subsequent to August 3. The machine tools on this list may be exported.)

Mr. Welles explained briefly the nature of the lists and pointed out that the American Government had found it necessary to transfer five machine tools from the original List No. 2 to List No. 1 since it had been decided that they were urgently needed in the United States. He said that he understood that these lists contained practically all of the machine tools ordered by Soviet agencies for which export licenses had been applied.

Mr. Oumansky thanked Mr. Welles for having had the lists prepared. He said that Mr. Welles already knew the point of view of his government. This point of view had been expressed in certain instructions which he had outlined during the course of the previous conversations, and with respect to which there had been no change. It would therefore serve no purpose for Mr. Lukashev and himself to endeavor to analyze the lists which had just been given him. He must continue to adhere to the position that without exception all machine tools which had been ordered in the United States prior to July 2 should be released at once.

Mr. Welles replied that certain principles were here involved which he had attempted to make clear during previous conversations. The interests of the national defense must be superior to all other interests. He had devoted much time and energy in endeavors to assist the Soviet Government in obtaining without delay those machine tools which were not necessary for the national defense of the United States. To attain this end he had carried on discussions with ranking officials of the Army and Navy. The lists which he had just given to the Ambassador were the result of careful study by the highest military authorities of the American Government. When these authorities stated that the machine tools set forth in Lists No. 1 and 1a were necessary for the carrying out of the Government defense program, he could not ignore their statements. He was willing to go even further. He was prepared to enter into a careful and friendly study with the Soviet Ambassador and his assistants of the various items contained in Lists 1 and 1a in order to make sure that no machine tools set forth in them could possibly be spared.

Mr. Oumansky replied that he also had tried to make his point of view clear. He suggested that Mr. Lukashev might make a statement on the subject.

Mr. Lukashev said that he, of course, understood that the demands of national defense could not be ignored. He hoped, however, that the State Department could still prevail upon the appropriate American authorities to release all machines ordered by Soviet agencies before July 2. The State Department might explain that each of these machines fitted into a carefully worked out scheme of Soviet industry. The orders for some of them dated back to 1938 and 1939. Many American manufacturers in conversations with him had expressed amazement at the action of the American authorities in withholding machines manufactured for the Soviet Union when duplicates of them could be made almost immediately for the use of the American Government.

Mr. Welles stated that he had already made it clear that he was prepared to receive suggestions with respect to any machine tools enumerated in Lists 1 and 1a which Amtorg had reason to believe could not be used to advantage by the American Government or which could be duplicated for the American Government in a short time. Any information of a specific nature along these lines which could be furnished him would be received in a friendly manner.

Mr. Oumansky replied that it would be impossible for Mr. Lukashev to enter into a factual discussion of the lists which had been submitted to him since his Soviet clients had forbidden him to do so. His clients had taken the stand that there should be no retroactive action, so far as tools destined for the Soviet Union were concerned, in the enforcement of the Act of July 2, 1940. Furthermore, while private American manufacturers might be willing to talk privately with Mr. Lukashev, they would probably be unwilling to permit themselves to be quoted in, or to enter into, official conversations. He must adhere, therefore, strictly to the instructions of his government and request a quite different approach to the export license problem. He again referred to Mr. Mikoyan’s proposals and said that he desired to call attention to the fact that Mr. Thurston had assured Mr. Mikoyan that the American Government would be willing to give friendly consideration to such proposals in conversations not related to the trade agreement. The Soviet Government and Soviet industry as a whole were involved in the discussions. Production schedules had been upset. It was imperative that the element of stability be re-introduced into Soviet-American trade.

Mr. Welles replied that he feared that the Soviet Ambassador and he were going rapidly into the direction of an impasse and that was precisely what he wished to avoid. If the Ambassador continued to insist that the conversations relating to machine tools must follow the lines just indicated, he was afraid the discussions on this subject must cease. He could only repeat to the Ambassador that it was the desire of the American Government to facilitate the granting of every possible license to the Soviet Government. If it should be found that any machine tools, the export of which had been denied, could be duplicated for the use of the American Government within a reasonable time, that information would be helpful. There would be no occasion for embarrassment to the manufacturers. It would not be necessary to quote them or to bring them into the conversations. Statements from the Ambassador or Mr. Lukashev to the effect that certain machines were not suitable for the use of the American Government or that certain machines could be speedily duplicated for the use of American industry would be sufficient to warrant a re-examination of the decisions covering the machines in question. It seemed to him that such a procedure was the correct approach. They could make no progress exchanging statements of principles with each other.

Mr. Oumansky said that he had the displeasure to agree with Mr. Welles that they were rapidly getting into an impasse. His point of view was not merely a matter of principle although it represented the platform of Mr. Mikoyan. It was also a matter of compensation for heavy losses incurred by the Soviet Government as a result of the protracted detention of machine tools which Soviet agencies had ordered in the United States months ago. He suggested that for the time being it be considered that the two governments had reached an impasse in their efforts to solve the problem of the detention of machine tools ordered prior to July 2. In the meantime he would convey to his government the new information which had just been given to him by Mr. Welles and ask for new instructions. He hoped that the American Government would consider again and yet again the proposals which he had made, so that discussion with respect to them could be resumed at a later meeting. It should be borne in mind, however, that hundreds of Mr. Lukashev’s clients were pressing him for the machines which they had ordered through Amtorg.

Mr. Welles stated that he was prepared to postpone discussions of this problem until the next meeting. He felt that he must candidly state, however, that in his opinion the Government of the United States could not recede from the position which he had outlined. He was sure that if the Soviet Union would be faced with a similar situation its position would be no different from that of the American Government.

The Question of the Issuance of Irrevocable Export Licenses for Machine Tools Ordered by the Soviet Government After July 2

Mr. Oumansky stated that he wished at this time again to ask that the American Government would agree to issue irrevocable export licenses covering machine tools ordered by the Soviet agencies in the United States. His government took the view that unless such licenses could be issued at the time of the placing of orders, it could have no assurance that the goods purchased would ever be delivered. He therefore hoped that Mr. Welles could offer some kind of a constructive suggestion with regard to a formula which would meet the desires of the Soviet Government and at the same time be satisfactory to the American Government. If in the future irrevocable licenses would be issued whenever a Soviet order was placed, there would be little cause for new difficulties with regard to the detention of merchandise. The Soviet Government could then have the feeling of security which was necessary in the carrying on of normal trade between two countries.

Mr. Welles said that in the present insecure world situation it was difficult to give assurances which could afford absolute security. It would not [now?] be difficult to state that in the absence of a change in the world situation, licenses would rarely be revoked, In his opinion, a reasonable element of security could be achieved by constant and friendly cooperation between Amtorg and the American Governmental authorities charged with the consideration of export license applications. He could promise the Ambassador that the appropriate American authorities would deal in a sympathetic and cooperative manner with Amtorg. It would be impossible for them, however, to issue irrevocable licenses in view of the uncertainties of the international situation.

Mr. Oumansky said that he appreciated the first part of the statement made by Mr. Welles but regretted that the second part showed that the American position with respect to the issuance of irrevocable licenses had not changed. He hoped that perhaps it might be possible in spite of the difference in the views of the two governments to work out some formula that would be satisfactory to both. Mr. Welles stated that he would discuss this matter with the appropriate governmental authorities. It might be possible to devise a formula to the effect that it would be the policy of the American Government, in administering the export license law and regulations, to cause a minimum amount of inconvenience to Soviet purchasing agencies.

The So-Called Moral Embargo

Mr. Oumansky raised the question as to the manner in which an exchange of statements relating to the so-called moral embargo might be formulated.

Mr. Welles said that he thought that he had made it clear to Mr. Oumansky during the last conversation that any statement which the Government of the United States might make with respect to the moral embargo must be of a unilateral nature. Mr. Oumansky inquired to whom and in what form such a statement might be made. Mr. Welles replied that in his opinion a declaration relating to the moral embargo should be made in a form similar to that of the announcement that such an embargo was in effect, namely, by a public statement. Mr. Welles said that he could summarize the position of the American Government by stating that: (1) any announcement relating to the moral embargo must be of a unilateral nature; (2) it could be made simultaneously with the successful conclusion of the present negotiations; and (3) it could be made only if the conditions which were responsible for the decision to declare such an embargo should no longer obtain.

Mr. Oumansky said that the position of the American Government in this respect was now clear to him.

Assurances of Non-Discrimination in the Purchase of Gold by the Government of the United States

Mr. Oumansky said that in his opinion there should be no great difficulty with regard to the Soviet desire for assurances that the American Government would not discriminate against the Soviet Union in buying gold.

Mr. Welles replied that the Department had prepared a statement relating to its policy with respect to gold purchases. To this statement was attached the text of a speech which had been made recently by the Secretary of the Treasury.⁸⁷ He believed that the contents of the statement and of the speech should assure the Soviet Government that it was not the intention of the Government of the United States to discriminate against any country in purchasing gold. Mr. Welles thereupon read to Mr. Oumansky the statement, as well as certain paragraphs from the speech in which opposition was expressed to discriminating against any country in connection with the purchase of gold. Mr. Oumansky said that the statement and the text of the speech were helpful. He would like to give the matter consideration. It was his suggestion that the points in the statement and speech of importance to the Soviet Government be boiled down and incorporated in an exchange of letters between the two countries.

Mr. Welles said there would be no objection to incorporating what he had just read in a letter to the Soviet Government if the Soviet Government preferred a letter to a statement. A copy of the statement and letter are attached hereto.⁸⁸

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

Mr. Oumansky asked if anything had been done as yet to relieve the situation of the Soviet engineers in the Wright Aeronautical Plant who were unable, because of the attitude of the American authorities, to visit portions of the plant in which processing of airplane motors and equipment was taking place.

Mr. Welles stated that he had personally talked the matter over with the Chief of Naval Operations⁸⁹ and that only this afternoon Mr. Henderson had had a conference with the Naval Inspector of the Wright Aeronautical Plant on the same subject. Both the Chief of Naval Operations and the Inspector had shown an interest in this matter, and it was hoped that within a week arrangements could be made which would remove grounds for complaint.

Mr. Oumansky thanked Mr. Lukashev for his assistance and told him he was no longer needed. Mr. Lukashev thereupon left the conference.

The Attitude of the United States With Respect to the Diplomatic Missions and Consular Offices of Lithuania, Latvia, and Estonia in the United States

The Ambassador stated that there was another very urgent matter which must be discussed at this conference, a matter which he had already mentioned in a tentative manner to Mr. Atherton and Mr. Henderson. Following the incorporation of the countries of Lithuania, Latvia, and Estonia into the Soviet Union, diplomatic relations between those countries and other countries had ceased.⁹⁰ He had been ordered by his government to take possession of the property and archives of the diplomatic missions and consulates of these three Baltic States in the United States. He was, of course, acquainted with the statement which Mr. Welles had made with respect to the Baltic States on July 23, and which he had already discussed with Mr. Welles. This statement had not indicated, however, whether the American Government intended to continue to recognize the Legations and consulates of the countries in question in the United States. He had been unable to find any statement on this subject. In response to inquiries made by himself, Mr. Atherton and Mr. Henderson had replied that so far as they knew, no formal statement on the subject had been made public. He had before him the task of protecting the interests and property of the nationals of Lithuania, Latvia, and Estonia, and of taking possession of the archives and consulates of these States. He asked that the American Government assist him in the performance of this task. In making this request he would like to point out that the situation in the Baltic States could in no way be compared with the situation in certain countries which had lost their independence in an entirely different manner. He would like to suggest Austria as a possible precedent.

Mr. Welles replied that he was sure that the position of the American Government in this matter was clear. The public statement which he had made, as well as his remarks during the course of previous conversations with the Ambassador on the subject of the Baltic States, should leave no doubt that the United States could not recognize the absorption of these States by the Soviet Union. The Government of the United States, furthermore, continued to recognize the Legations and consulates of the Baltic States in this country. He did not consider that the situation of the Baltic States was analogous to that of Austria. He could cite a much more similar situation. He wished to remind the Ambassador that the Soviet Government had continued to recognize the Czechoslovak Legation in Moscow for a long period after Czechoslovakia had been occupied by the forces of another Power.

The Ambassador replied that the taking over of Czechoslovakia could not be compared to the entry of the Baltic States into the Soviet Union. He regretted that the American Government apparently did not appreciate the situation in the Baltic States. There was a difference between the re-inclusion into a great country of smaller countries which were historically a part thereof. The three Baltic States in question had always belonged to his country. In this connection it should be pointed out that the statement of July 28, 1922⁹¹ of the Government of the United States announcing the decision to recognize the three Baltic countries in question contained certain reservations opposing the alienation of Russian territory.

Mr. Henderson remarked that Mr. Oumansky had not given an entirely correct impression regarding the nature of the announcement. Although the announcement did contain a statement of the opposition of the American Government to the alienation of Russian territory, it also stressed the fact that the recognition of the Baltic States was no departure from the American Government’s policy in this respect since the governments of Lithuania, Latvia, and Estonia had been set up by an indigenous population and had maintained stability over a long period.

Mr. Oumansky said that he feared that the attitude of the American Government with regard to the Baltic States would make it difficult to achieve the purpose for which he understood the present conversations were being held—namely, to effect an improvement in the relations between the United States and the Soviet Union. So long as the United States Government addressed communications to the Soviet Government of such a nature as that stick of dynamite on the subject of the frozen Baltic funds which had been given to him at the last conference, an improvement in the relations between the two countries would not be easy to achieve. Those communications in form and content were not the type of communications which friendly governments customarily addressed to each other. He noticed in one of these communications such offensive expressions as “duress”, “force”, etc.

Mr. Welles stated that the communications in question were entirely of a factual nature, and if one considered the charges against the American Government to which they were a reply they could not be regarded as offensive. He pointed out that the Soviet memorandum to the American Government on the subject of the Baltic funds could certainly not be described as a communication of a friendly nature. The American Government was not accustomed to being accused of engaging in illegal acts or of violating principles of international law. Mr. Welles suggested, however, that no constructive purpose would be served by devoting time to matters of this kind.

It would appear that there were some problems between the two countries which it might not be possible to solve for the present. There were other difficulties which it might be possible to eliminate. The purpose of these conversations was to remove, so far as possible, all obstacles to good relations.

Mr. Oumansky stated that he was agreeable to keeping the conversations on the economic level. He could not refrain from adding, however, that differences between the two governments at higher levels might well sag down into the economic level and add to the difficulties of improving even economic relations between the two countries.

It was suggested by Mr. Welles that further conversations be postponed until Monday afternoon, August 19, at 4 o’clock.⁹²

86. None attached to file copy of this document.
87. Not attached to file copy of this document. For the address by Secretary of the Treasury Henry Morgenthau, Jr., on the gold holdings of the United States, given before the National Institute of Government at Washington on May 3, 1940, see S. Shepard Jones and Denys P. Myers (eds.), Documents on American Foreign Relations, July 1939–June 1940 (Boston, World Peace Foundation, 1940), vol. ii, p. 512.
88. Neither attached to file copy of this document.
89. Adm. Harold R. Stark.
90. For correspondence regarding the occupation of the Baltic States and their incorporation into the Soviet Union, see vol. i, pp. 357 ff.
91. For text, see telegram No. 98, July 25, 1922, to the Commissioner at Riga, Foreign Relations, 1922, vol. ii, p. 873.
92. No record of a conference on this date has been found in Department files.