EUR Files

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.

Postwar Credits.

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.

W[illiam] L. C[layton]
top secret


Proposals Made by the Secretary of Treasury to Secretary of State Regarding Postwar Trade With the Soviet Union

During the course of the conversation in Mr. Stettinius’ office on January 17, 1945, Secretary Morgenthau and Mr. Harry White of [Page 320] the Treasury Department outlined the following proposal for postwar trade with the Soviet Union:

Mr. Morgenthau referred to the long delay which had taken place in connection with the negotiations for a 3(c) supplementary agreement to the Master Lend-Lease Agreement by which it was proposed to make available at this time to the Soviet Union certain industrial plants which have both a wartime and peacetime use. He stated that he felt it was too bad more than nine months had passed since negotiations were started and still no agreement had been reached. He attributed this to the fact that we had endeavored to bargain and bicker with the Soviet negotiators instead of making a clear-cut, very favorable proposal which would be considered by the Soviet Government as a concrete gesture of our good will. He added that he did not agree with Ambassador Harriman’s suggestions in his telegram no. 61 of January 6, 1945,3 which recommended that we remain firm in the stand that we have already taken in regard to the 3-(c) negotiations and indicate to the Soviet Government that this continues to be the most favorable offer we could make.

Instead of this course of action, Mr. Morgenthau stated that Treasury experts have been giving consideration to this entire question and have come to the conclusion that we should make new proposals for the 3-(c) agreement which would offer to the Soviet Union the same amount of goods on approximately the same terms except that we should charge them no interest on the credit extended, but on the other hand we should not accept any reduction in cost as proposed by the Soviet Government.

Because of the position we had taken with the Soviet representatives in the 3(c) negotiations, which was to the effect that we could not accept a rate of interest lower than that at which the United States Government could borrow money, and because of the fact that the delays in reaching an agreement with the Soviet Government on this question had been due primarily to the Soviet Government’s reluctance to accept the terms offered, Mr. Acheson pointed out the following facts in regard to these negotiations:

He stated that early last year when representatives of the State Department, Treasury, Foreign Economic Administration, and other interested agencies were endeavoring to work out a scheme by which the Soviet Government could be immediately furnished under Lend-Lease industrial plants which took a long time to produce, had a long life, and which could be used for both wartime and peacetime purposes, it had been suggested that we might be able to offer these plants under Lend-Lease on a deferred-payment basis at no interest. This suggestion had, at that time, been vetoed by representatives of the Treasury Department who stated that we could not offer such long-term credits [Page 321] at a lower rate of interest than that at which the United States Government itself had to pay in order to borrow money. With this criteria [sic] in mind, there had been worked out a proposed agreement which was submitted to the Soviet Government on May 24, 1944. Mr. Acheson pointed out that it was not until the Soviet delegate to the Bretton Woods Conference brought up the subject that we received any concrete indication that the Soviet Government was interested in the suggested agreement. Mr. Acheson then gave a brief summary of the protracted negotiations emphasizing the extremely liberal terms offered in the final agreement proposed by us which, however, the Soviet Government has not seen fit as yet to accept. Mr. Morgenthau indicated that, nevertheless, he felt that it would be advisable, from a good will point of view, to make a new 3(c) offer without interest. It was indicated that this matter would be given consideration.

Apart from this proposal for the immediate extension of approximately a billion dollars credit at no interest, Mr. Morgenthau referred to a memorandum to the President prepared by Treasury which proposed the granting of an immediate credit of ten billion dollars to the Soviet Government in order to finance postwar trade.4 He stated that he felt that we should go beyond the suggestion recently made by the Soviet Government to grant a six billion dollar thirty-year credit at two and one-fourth percent interest by offering them a ten billion dollar thirty-five year credit at two percent interest with the proviso that the United States Government would be given the option to take in re-payment certain strategic materials, a supply of which was becoming greatly depleted in the United States. Mr. Morgenthau indicated that he felt that such a gesture on our part would reassure the Soviet Government of our determination to cooperate with them and break down any suspicions the Soviet authorities might have in regard to our future action.

Mr. Morgenthau suggested to the Secretary that he is of the opinion that they should both suggest to the President that he make such a concrete proposal to Stalin at the forthcoming meeting.

  1. Ribbon copy, bearing the following notation dated January 22, 1945, from Hayden Raynor to Hiss: “I think you will want to have this with you.”
  2. Ante, p. 315.
  3. Ante, pp. 313315.
  4. Ante, p. 315.