Memorandum by Mr. Edward Page, Jr., of the Division of European Affairs 77

Your attention is invited to the attached file78 which sets forth the endeavors of the Department to assist American importers in procuring Soviet flax and tow. It will be noted from this file that, notwithstanding surplus stocks of flax in the Soviet Union which the Soviet Ambassador some months ago stated the U. S. S. R. would be willing to sell to American importers, the Soviet authorities continue to refuse to make flax available to these importers unless, as stated in telegram 617 of March 27 (attached),79 “the American authorities will take steps to the end that Soviet importing organizations may receive quantities of Manila hemp and/or jute to the same value”. Furthermore, Soviet trading organizations in the United States have on various occasions offered to procure flax for American importers in exchange for hides, skins, and sole leather. The Department’s position in connection with this barter proposal was fully explained to the Soviet Embassy in Washington and to Mr. Steinhardt for transmission to the Commissariat for Foreign Trade. (See attached memorandum of conversation dated March 28,79a and telegram No. 396 of March 31 to Moscow.)80

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In view of the apparent continued refusal of the Soviet authorities to sell flax to American importers except on a barter basis, and of the attempts of those authorities to bring pressure upon the American Government with a view to obtaining the release for export to the Soviet Union of certain licenseable commodities, it is felt that the time has come for the Department to take into consideration the advisability of adopting more persuasive means in endeavoring to solve the question of Soviet flax procurements. If the Soviet authorities desire under present circumstances to conduct Soviet-American trade in certain commodities on a strictly bargain or barter basis, it is believed that it might well be to the economic interests of the United States to take counter measures. It is understood that the Department adopted a similar course in connection with Spanish potash in return for American sulphate of ammonia.

It is suggested that:

The Division of Controls be instructed to hold up the attached application81 to export approximately three and one-half million gallons of gasoline to the Soviet Union indefinitely, and to inform the American applicant, the General Petroleum Corporation of California, that the application is being withheld (not rejected) for reasons of public interest;
Appropriate officials of the Department be authorized to inform the Soviet Embassy that the export license in question is being withheld until the appropriate Soviet Governmental agencies sell to American importers no less than 3,000 tons of flax of a type acceptable to such importers.

Your views with regard to this matter would be appreciated.82

  1. This memorandum was directed to the Acting Chief of the Division of European Affairs, Ray Atherton; the Assistant Secretary of State, Dean G. Acheson; the Adviser on International Economic Affairs, Herbert Feis; the Chief of the Division of Controls, Joseph C. Green; and the Chief of the Division of Commercial Policy and Agreements, Harry C. Hawkins.
  2. Not filed with this memorandum.
  3. Not printed.
  4. Supra.
  5. Telegram not printed.
  6. This application was returned to Mr. Green, Chief of the Division of Controls.
  7. Mr. Atherton noted his agreement on this memorandum and wrote “I consider this matter urgent.” Dr. Feis also wrote: “I definitely favor withholding all export licenses to U. S. S. R., except such as may be granted in return for exports from there to U. S. of strategic & critical materials, or other commodities for which there is special need.”