Memorandum by the Assistant Chief of the Lend-Lease Section of the Division of Financial and Monetary Affairs (Ferguson)80

In the light of the discussion on January 16 with Generals Wesson, York and Spalding,81 and the probability of further discussions, I think a summary of the Russian lend-lease situation might be helpful.

It has been the practice for some time for the United States, the United Kingdom and Canada to agree upon Protocols with the Soviet Union covering specified periods of time. Under these Protocols, we agree to supply certain quantities of goods of various types on lend-lease. The last Protocol actually signed was the third, and the fourth has been under negotiation for some time. The latter covers the period through June 30, 1945, and substantial agreement has been reached with respect to the supplies to be furnished from the US. Procurement has not been held up pending signature.

The Secretary of State has received a memorandum from the President directing the early negotiations of a Fifth Protocol and requesting that nothing be allowed to interfere with the flow of supplies to the Soviet Union, so it seems highly desirable for the US to complete its Fourth Protocol negotiations without delay.

Last spring when the Fourth Protocol was being prepared, it was also proposed to the Russians that they agree, should the war end during the fiscal year 1945, to take on credit terms any supplies covered by the Protocol and under contract but not delivered prior to the end of war. The principal advantage to us of such an arrangement is that it provides for the orderly liquidation of the procurement program undertaken in accordance with the Protocol. At the time [Page 955]this proposal was made, it was also suggested to the Russians that we would be willing to enter into an agreement covering certain industrial plants which we were not willing to have covered by the Protocol, provided the Russians agreed to pay in full for such plants on credit terms under Section 3 (c). The exclusion of these plants from the Protocol arrangements was not because of any legal inhibition contained in the Lend-Lease Act. Whether goods are supplied on straight lend-lease or credit is irrelevant for the purpose of determining their legal eligibility under the statute. Whatever the basis of settlement, they can only be supplied if their procurement is found to be in the interest of our national defense. Of course, aside from the legal question involved, it is true that, as a matter of policy, we are inclined to be more generous in our interpretation where repayment is provided than where the supplies are to move under straight lend-lease. In the case of the plants, it was felt that the long procurement period involved and the length of life of the plants would have made them more politically unpalatable under straight lend-lease than the goods covered by the Protocol. This was particularly true viewed from the vantage point of last summer when the war in Europe seemed to be nearing its end.

The credit terms which we proposed to the Russians for the Protocol items not delivered until after the war (which were included in Schedule 1 of the proposed 3(c) agreement) and the plants for which the Russians were to be obligated to pay whenever delivered (which were included in Schedule 2 of the proposed 3(c) agreement) were identical. They involved (1) a thirty-year amortization period; (2) 2⅜% interest; and (3) certain reductions in price because of anticipated savings to this Government from renegotiation as well as willingness to give the Russians the advantage of the prices at which comparable goods were being sold at the time of delivery to the Russians.

The discussions last summer continued for many weeks, and eventually the Russian representatives returned to Moscow with what we flatly stated were our final terms.82 Silence descended on the matter and has been broken only recently by a note handed to Mr. Harriman. This note proposed a $6 billion credit covering the war and postwar periods at 2¼%, and provided that all prices charged the Russians should be reduced by a flat 20% to cover renegotiation, taxes and anticipated drops in prices after the war.

In view of the lack of authority in this Government to make any commitments with respect to postwar credits at this time, it is agreed that such portion of the $6 billion proposal must be separated from [Page 956]the war financing problem. The remaining question is whether we will adhere to the 3(c) credit terms proposed by us to the Russians last summer or whether we shall counter with a new proposal.

The Treasury Department has raised the question of offering the Soviet Government an agreement covering the Protocol supplies undelivered at the war’s end, as well as the industrial plants, on the basis of deferred payments with no interest and no price reductions (one possible exception being the 5% reduction covering anticipated renegotiation savings). The Treasury would probably want to set the period of deferment at less than thirty years so that the saving in interest would greatly exceed the concessions asked for by the Russians in their recent counterproposal.

Because of the history of the 3(c) negotiations with the Russians, any change in proposals involves a question of possible tactics, and if the Treasury suggestion were to be followed, it would be necessary to make it clear to the Russians that we were now willing to proceed on an entirely different basis than we discussed last summer. This might be done by saying that in view of their interest in postwar credits and our desire not to confuse such credits with the furnishing of war supplies, we would like to drop the credit idea and talk about a straight reimbursable lend-lease transaction. We would explain that the Treasury’s proposal differs from other such transactions only in the degree of deferment of payments. We already have cash reimbursable arrangements for North Africa for civilian goods, but repayment is more or less current in that case, and we have arrangements with the South American countries for partial payments with respect to arms shipments deferred over a fairly short period.

  1. Addressed to the Chief of the Division (Collado) and to the Assistant Secretary of State (Clayton).
  2. Brig. Gen. Sidney P. Spalding, Chief of the Supply Division, U.S. Military Mission in the Soviet Union, was returning to Moscow.
  3. See telegram 2221, September 16, 1944, 7 p.m., to Moscow, Foreign Relations, 1944, vol. iv, p. 1135. For text of proposed agreement, see telegram 2226, September 16, 1944, 11 p.m., to Moscow, ibid., p. 1139.