891.77/10–1144

The Counselor of the British Embassy ( Wright ) to the Director of the Office of Near Eastern and African Affairs ( Murray )

Ref. 131/46/44

Dear Wallace Murray: Since Mr. Lee and I first raised with you some weeks ago the question of the incidence of freight charges in respect of lend-lease goods to Russia carried on the Persian railways, we have been endeavouring to obtain certain additional information from London in the hope of clarifying the position. There has, too, been an informal meeting between Mr. Goschen, of the United Kingdom Treasury Delegation, and Mr. Landis,68 together with a number of representatives of F.E.A.69

At the conclusion of that meeting it was agreed that the matter could now most appropriately be carried forward by the communication to the State Department of a memorandum setting out the general view taken by the United Kingdom Government of this matter. Accordingly I enclose a copy of such a memorandum. We shall, of course, be happy to discuss this further with you should you wish to do so.

I enclose copies of this letter and of the memorandum in case you wish to send them to Mr. Denby70 of F.E.A. and to General Richards of the War Department.

Yours ever,

Michael Wright
[Annex—Memorandum]

Incidence of Cost of Transporting Goods on the Persian Railways

1.
The Persian railways have been operated under Allied control since the early days of the Allied entry into that country, but hitherto there has been no formal agreement with the Russian Government governing the Allied use of the railway. It is now hoped to conclude such an agreement on a tripartite basis (i.e. between the United Kingdom, Russia and Persia) in pursuance of Article 4(ii) of the Anglo-Soviet-Persian Treaty of January 1942. It is understood that [Page 388] the United States Government does not wish to become a party to such an agreement.
2.
The proposed agreement will provide for an Anglo-Russian guarantee, under certain conditions, of a minimum revenue for the Persian Railways, but the United Kingdom and Russian Governments will remain responsible for paying freight charges to the railway in respect of the carriage of goods and personnel for which they are responsible. Thus there is no question of either the United Kingdom or the Russian Government taking over the railway financially, in the sense of being entitled to an agreed share of the profits or receipts of operation. It remains, so far as both the United Kingdom and Russia are concerned, a foreign owned railway in a foreign country, to which both Governments have to make payments for services rendered. Similarly the fact that, under a directive from the Chiefs of Staff, the railway was operated before April 1943, by the British and after that date by the Americans, has made no difference to this fundamental position.
3.
Nevertheless an anomalous position has been allowed to come into existence as regards the payment for the carriage on the railway of American lend-lease goods going to Russia, and it is desired to agree upon a rectification of that position without delay. Although the bulk of the goods carried by the railway has consisted of American lend-lease goods consigned to Russia, the United States Government has so far paid no bills in respect of the freight charges on such goods. The cost of such bills has in fact been financed by advances made to the railways by the United Kingdom Government: in December 1943 it was estimated that 80% of the bills against which payments were being made by the United Kingdom were in respect of the cost of transporting United States lend-lease goods.
4.
The burden of this temporary financing has imposed a heavy strain on the United Kingdom Government, especially as the rial payments which are involved necessitate an outlay in gold of 60% of their value. Accordingly the United Kingdom Government consider that the present arrangement should be brought to an end as soon as possible and an appropriate adjustment made which will give effect to the principle (which it is assumed is fully accepted by the United States Government) that the United States and the United Kingdom Government are each responsible for meeting the cost of the carriage to Russia over the Persian railways of United Kingdom “aid to Russia” goods and, American lend-lease goods respectively.
5.
It is thought that an attempt to secure an adjustment ante-dated to the beginning of the traffic to Russia would involve elaborate calculations which would be rendered very difficult by the virtual impossibility of producing accurate records of the exact origin and [Page 389] nature of goods carried on the railways in the early days. Accordingly the United Kingdom Government has put forward the proposal for adjustment summarized in the following paragraph in the hope that this will provide a simple and equitable division of financial responsibility.
6.
The proposal is that we should obtain from the Persian Railways a complete record of the total railway bills to date and we should then divide these in the same proportion as arrivals of American goods in the Persian Gulf bear to arrivals of British goods. It is appreciated that this division will not be strictly accurate, but it is thought that it would form a reasonable basis for division. Indeed, it would appear to favour the Americans somewhat since British goods have latterly tended to be sent via the Iraq and Khanaqin routes.
7.
It would not be proposed that a settlement on the above lines would affect (i) the incidence of cost of the carriage of goods to Russia by United States and United Kingdom road transport organizations operating in Persia; (ii) the right of either the United States or the United Kingdom Governments to recover from Russia the whole or part of the respective sums expended under the above arrangement by either Government on the carriage of goods to Russia; (In practice any United Kingdom claim would be confined to one in respect of civilian goods carried to Russia); (iii) the incidence of the cost of transporting on the railway goods required by the United States and United Kingdom military forces in Persia.
8.
The United Kingdom Government hope that the United States Government will be prepared to accept and to implement an arrangement on the lines summarized in paragraph 6 above.
  1. James M. Landis, Director of American Economic Operations in the Middle East.
  2. Foreign Economic Administration.
  3. Charles Denby, Director, General Areas Branch, Foreign Economic Administration.