Foreign Relations of the United States: Diplomatic Papers, 1942, Europe, Volume III

861.24/871½

Memorandum by the Chief of the Division of Commercial Policy and Agreements (Hawkins)⁷⁷

[Washington,] March 18, 1942.

Lend-Lease Agreement With the Union of Soviet Socialist Republics

In our memorandum of March 5, 1942 (copy attached)⁷⁸ we suggested, for the reasons stated therein, that all lend-lease agreements be substantially similar to the agreement recently concluded with the United Kingdom.

It is believed of particular importance, for the following reasons, that a lend-lease agreement basically similar to the British agreement be concluded with the U. S. S. R. at the earliest possible moment.

1. It is understood that the lend-lease arrangements with the U. S. S. R., as they now stand, envisage the repayment by the U. S. S. R. to this country of two billion dollars, such repayment to begin five years after the war and extend over a period of ten years. These arrangements, in comparison with the terms of the agreement with Britain, appear to constitute a clear discrimination against the U. S. S. R. Removal of this discrimination should have the effect of avoiding Soviet resentment and of greatly strengthening our relations with the U. S. S. R. in the war effort.

2. Repayment by the U. S. S. R. of even one billion, the amount covered by the first lend-lease arrangement with that country, would constitute a very heavy war debt in terms of Russia’s capacity to pay. A war debt of two billion and possibly more would place an unbearable burden on the commerce between the two nations in the postwar period. Normally, Russian purchases exceed considerably our imports from that country. In 1938, our exports to the U. S. S. R. were over $45,000,000 greater than imports. Our imports of goods and gold from the U. S. S. R. would have to be increased tremendously in order to permit the repayment of a debt of such large proportions. Even if they could squeeze out enough goods and gold to meet their payments, it would not be in our interest to have them do so since the goods and gold sent here would provide no purchasing power for American exports during the 10-year repayment period, with the result that American exports to Russia in that period might dwindle to practically nothing. Furthermore, commercial relations between Russia and other countries would be seriously affected. Gold which otherwise would be used to help pay for imports from third countries would have to be sent to this country. An agreement along the lines of the United Kingdom agreement would avoid a settlement Which would severely burden commerce if lived up to, and set the stage for repudiation, with all that would mean in terms of bitterness and recriminations, if not lived up to.

3. There is strong reason to believe that the U. S. S. R. would welcome an agreement Similar to the agreement with Britain since (a) it would remove the above-mentioned discrimination in favor of the British, (b) while not precluding cash payment if later deemed advisable, it would provide a basis for easing or eliminating the burden of an extremely heavy war debt, and (c) it would embody assurances concerning the application of principles which the U. S. S. R. has consistently sought.

4. From our viewpoint the conclusion of such an agreement would achieve a major objective: it would commit the Soviet Government to cooperate in regard to current and future economic action in line with principles advocated by us.

The attached draft of a proposed lend-lease agreement with the U. S. S. R.⁷⁹ is virtually identical with the agreement with the United Kingdom. Only the second paragraph of the preamble, which is intended further to identify the U. S. S. R. with the principles of the Atlantic Charter,⁸⁰ has been added.

I would be glad to discuss this matter with you at your convenience.

Harry C. Hawkins

77. This memorandum was prepared by James C. Sappington, 3d, of the Division of Commercial Policy and Agreements. It was addressed to Charles Bunn, Special Assistant to the Under Secretary of State and Acting Chief of the Division of Exports and Defense Aid; Loy W. Henderson, Assistant Chief of the Division of European Affairs; and James Clement Dunn, Adviser on Political Relations.
78. Not printed; filed separately under 800.24/273.
79. Not attached to file copy of this document.
80. For text, see Foreign Relations, 1941, vol. i, p. 367. For correspondence on the Atlantic Conference meeting between President Roosevelt and British Prime Minister Winston S. Churchill, see pp. 341 ff.