The Assistant Secretary of State (Clayton) to the Secretary of State 1
Mr. Secretary: I feel that it would be helpful, in connection with any discussions you may have with the President or Secretary Morgenthau, to have the following comments on the proposals recently made by Mr. Morgenthau2 in regard to postwar trade with the Soviet Union:
Proposed 3 (c) supplementary agreement to the Master Lend-Lease Agreement
1. In regard to the Treasury proposal that we should now offer the Soviet Government the proposed 3 (c) agreement without interest charges, it is felt that, if at this time we should change our ground, it, in all probability, would cause definite repercussions in other political or economic negotiations we may have with the Soviet Government. In this connection, we told the Soviet negotiators, in full good faith and with definite Treasury concurrence, that the last 3 (c) proposals we made to them were our final offer, and that because of legal and other grounds, we could not grant them any better terms. If we should now make the same proposals except for the exclusion of interest charges we could not help but give the impression to the Soviet authorities that what we said last summer was not true, and thus we might unwittingly kindle the fire of suspicion which they have had in the past as to our good faith. Moreover, by making this new proposal, we would definitely give the impression that we were most anxious, almost on any terms, to make available postwar goods to the Soviet Union. While we are naturally desirous to increase our trade with the Soviet Union to the maximum, and it is in our interest to do so, it would be tactically harmful to deepen the impression they already have that no matter what happens we are going to have to sell goods to the Soviet Union in order to keep our own economy going.
2. Apparently one of the reasons motivating the Treasury suggestion that the 3(c) agreement should bear no interest rate is tied with certain suggested proposals which may be made to the British and French providing for delivery of certain types of goods on a deferred-payment basis with no interest charges. I understand that in the case of the British these proposals only involve food stuffs which may be in the “pipeline” after the termination of hostilities and therefore would not amount to a great deal, and that the deferred payments, in all probability, would cover a comparatively short period. Moreover, the British are paying for all capital goods now delivered under Lend-Lease including many items offered to the Soviet Government [Page 319] in Schedule 1 of the 3(c) agreement (locomotives, freight cars, machine tools, etc.). In regard to the French negotiations, it is understood that Mr. Monnet has suggested arrangements by which they would obligate themselves on a deferred-payment basis to compensate the United States for all capital goods furnished during hostilities as well as subsequently. It will be seen, therefore, that the propositions which may be suggested to the British and French are not comparable to the proposals made under the Soviet 3(c) agreement. In view of this, the French and British proposals would not appear to be precedents for the Soviet case.
For the above reasons, it is felt that we should accept Ambassador Harriman’s suggestions that the Soviet Government be informed again that the proposals made in our 3(c) agreement are final.
In regard to Secretary Morgenthau’s proposal to offer the Soviet Government at the present time ten billion dollars at two percent interest coupled with an option to the United States to receive in repayment strategic raw materials, it is believed that the following factors make it impossible at this moment to accept the suggestions:
- Because of legislative restrictions, it is impossible to offer postwar credit to the Soviet Union until these restrictions have been lifted by Congress.
- From a tactical point of view, it would seem harmful for us to offer such a large credit at this time and thus lose what appears to be the only concrete bargaining lever for use in connection with the many other political and economic problems which will arise between our two countries. Ambassador Harriman concurs in this opinion.
- The Soviet Government itself has only proposed a credit of six billion dollars, and there is some question as to their ability to pay interest and amortization charges on a ten billion dollar loan as well as finance future trade after the initial purchases are made. Moreover, there is also some question as to the amount of surplus stragetic materials which the Soviet Union will have available for sale abroad, and whether they would be willing to bind themselves categorically to furnish these stragetic materials over a long period. Before making any proposals of this kind, careful studies must be made to ascertain the probable amounts of such strategic materials as might be available.