The Acting Secretary of State to the Chargé in the Soviet Union (Kennan)
183. We will send you copy of Department’s reply4 to note of January 4 from Gromyko concerning Fourth Protocol. Gromyko is being advised that we will shortly deliver to him the U.S. schedule to the Protocol in anticipation of signature in Ottawa in the near future. He is being further, advised that we do not understand his request that [Page 969] industrial equipment for which the Soviet Government agrees to pay under the terms of long-term credit be put into production, since no agreement has yet been reached with the Soviet Government concerning the credit terms already offered in the proposed amendment to the Master Agreement. We are also advising him that the Soviet proposals made through you for a long-term credit are being considered and a reply will be given through you as soon as possible to the Soviet Government.
With respect to Molotov’s proposals regarding arrangements for postwar credits, you are authorized to reply as follows:
- Lend-Lease can be used to finance projects which are a part of the war supply program of this Government, but it is necessary to segregate and finance such projects entirely apart from the financing of projects for purely postwar requirements under long-term credits.
- This Government is now studying ways and means of providing long-term credits for postwar projects. It will be some time before the necessary legislation can be enacted and a determination made with respect to the amounts we can make available for this purpose. Until this can be done, no definite agreement can be formalized with respect to a credit for supplies of a purely post-war nature. It is the definite opinion of this Government that long-term postwar credits constitute an important element in the postwar relations between our two countries. Pending the necessary legislation, we will be pleased to receive at this time from the Soviet Union all possible information concerning the repayment terms which the Soviet Government is prepared to offer and the size and scope of their requirements.
- The only legal authority which this Government has at the present time under which it could finance supplies for the Soviet Union from this country is contained in the Lend-Lease Act. The only method now available by which this Government can furnish greater aid to the Soviet Union than is being currently furnished under Protocol arrangements is by the proposed amendment to the Master Agreement which we offered some months ago to the Soviet Government.
- In the proposed amendment we offered the maximum program of projects which we could undertake to satisfy the Soviet Government’s requirements within the authority of the Lend-Lease Act and taking into account the amount of lend-lease appropriations available at that time. We arrived at the credit terms, the prices of goods and the further conditions provided in the amendment after giving full consideration to Mr. Stepanov’s, the Soviet Representative, views. At that time he stated his non-concurrence. That the terms we offered were final was indicated to Mr. Stepanov on several occasions.
- This Government can take no other position than that agreement is necessary with respect to the credit terms proposed in the amendment before any additional long-range industrial equipment (that is, the items contained in Schedule 2) can be put into production under the Lend-Lease Act. To avoid delay in initiating production on such industrial equipment which we offered under the proposed amendment to the Master Agreement, and to avoid any implication that our failure to agree to the Soviet proposals might interfere with the Soviet war effort, if you think it desirable you are authorized to express the [Page 970] willingness of this Government to enter into the following interim arrangement within the limitation of the strategic and production situation, this Government is prepared to procure the items in Schedule 2 on the same general conditions which appear in the Protocol, provided the Soviet Government agrees to pay the cost of the equipment to the U.S. upon delivery and agrees to accept delivery. It will be understood that this interim arrangement will not prejudice the terms of payment which may be finally mutually agreed upon. Several other lend-lease countries have entered into a similar kind of interim arrangement with this Government.
- Since we offered to the Soviet Government the amendment to the Master Agreement, many months have elapsed during which period greatly increased demands on our domestic economy in the categories of manpower, raw materials and production facilities have occurred because of the increased tempo in the war in Europe and the Pacific. It has become increasingly difficult to divert our domestic production of completed goods and semi-finished products in order to meet the requirements of our Allies.
- A definite indication as to the acceptance or rejection by the Soviet Government of the proposed amendment to the Master Agreement should be received without further delay in order that we may be in a position to guide our future approach to the problems which confront us. The extent to which it would be possible to include the Soviet requirements in the production program for the next fiscal year and the estimates now being prepared for early submission to the Congress concerning the required funds will depend in large measure upon the answer from the Soviet Government.
The substance of this message is being made available to Ambassador Harriman5 and as he may have discussion on this subject, it is suggested that no action be taken on this message pending further instructions from him or the Dept.