Foreign Relations of the United States, 1946, Council of Foreign Ministers, Volume II

C.F.M. Files: Lot M–88: Box 2063: US Delegation Minutes

United States Delegation Record, Council of Foreign Ministers, Second Session, Thirty-Fourth Meeting, Palais du Luxembourg, Paris, July 4, 1946, 5 p.m.⁴¹

Paris, July 4, 1946, 5 p.m.

secret

Report of the Deputies

M. Bidault requested the Chairman of the Deputies to make his report.

M. Vyshinsky stated that the Deputies, according to their instructions, had endeavored to find out how long it would take them to complete the work in preparing the five draft treaties. They had examined the scope of all the outstanding questions before the Ministers and the Deputies and had found that there were a large number of subjects still to be examined by the Deputies or by the various committees. They had then proceeded to investigate how long it would take to terminate their work and in discussing this question, three proposals had been made, as follows:

(1) The U.S. and U.K. Deputies believed that the Council of Foreign Ministers could complete its work on the treaties by July 6, that the Deputies could complete their work by July 8, and that the final drafts would be completed by July 13;

(2) the French Deputy believed that the Ministers could complete their work on the treaties by July 6, the Deputies by July 14, and the finished treaties by July 20;

(3) the Soviet Deputy did not believe that the Ministers could terminate their work until July 8, the Deputies by July 16, and that the treaties would not be completed until July 25.

The Soviet Deputy considered that five days more than the French Deputy had figured would be needed to give time for the final preparation of the treaties, that is, to check the texts and the translations. According to the Soviet Deputy, there were still twenty-one unsolved questions which needed examination. All the four Deputies had proceeded upon the fact that some questions would still remain outstanding, but their main tasks would be terminated.

The Deputies, after discussing this matter, had studied the report of the Economic Committee (C.F.M.(46) 174)⁴² and had made a number of decisions.

M. Bidault thanked M. Vyshinsky for his report. He inquired whether it might not be advisable to adjourn the meeting for about half an hour in order that the Ministers might come to agreement on the date of the Peace Conference.

Mr. Byrnes then inquired whether M. Bidault suggested that the Ministers meet in his office.

The Ministers decided to hold a restricted meeting in M. Bidault’s office.⁴³

Date of Peace Conference

M. Bidault, after the Ministers had reconvened at 6:50, stated that according to the Ministers’ agenda, the subject of the Peace Conference would be discussed first, to be followed by the subject of Italian reparations. Each Minister had expressed his determination to reach agreement on both questions today. With respect to the date of the Peace Conference there had been a prolonged exchange of views. On behalf of the French Delegation M. Bidault wished to suggest July 29 as the date of the Peace Conference. The most important point was to fix a date that would not be too distant.

The Ministers agreed to July 29 as the date for the Peace Conference.

M. Bidault suggested that the Deputies draw up the text of the invitation to all the states participating in the Peace Conference and not represented at the present table.

The Ministers agreed that this should be done.

Reparations

M. Molotov stated that he would like to recall the Soviet proposal of June 30 on reparations.⁴⁴

Mr. Byrnes stated that he had a suggestion to make. He thereupon circulated the following proposal:

[Here follows the text of C.F.M.(46) 188, July 4, 1946, printed on page 774.]

Mr. Byrnes explained that heretofore the United States had taken the position that the difference between the $100,000,000 requested by the Soviet Union and the value of the assets transferred to the Soviet Union should be met by the value of certain war vessels transferred to the Soviet Union. The proposal he had just circulated contained U.S. agreement that the deficit should be made up by deliveries from current production rather than by war vessels. The language of the other paragraphs required no explanation. The only new proposal was contained in 1(c) concerning Italian assets in Germany. Subparagraph (e) stated that the quantities and types of goods to be delivered to the U.S.S.R. should be the subject of an agreement between the Italian and Soviet Governments. It was also proposed that the U.S.S.R. should furnish Italy free of charge materials for the production of reparation deliveries, the cost to be deducted from the value of the goods delivered. The deplorable economic situation in Italy was known to all. Italy was unable to secure materials to furnish the goods mentioned in the U.S. proposal. M. Molotov would recall that whenever the question of Italian reparations had been discussed, the U.S. Delegation had taken the position that it did not wish to furnish financial help to Italy in order to enable that country to produce goods for reparation accounts. The Soviet Government, by agreement, could furnish raw materials to Italy. But more than raw materials were needed. Food was also required for the workers in the factories producing reparations. The U.S. proposal did not guarantee that the Soviet Union would not receive reparations to the value of $100,000,000 from the sources outlined therein. It left to the Soviet Union and Italy to work out an agreement on the deficit between the specific proposals and the $100,000,000. In a former French proposal it had been stated that deliveries from current production should not commence earlier than two years after the coming into force of the treaty. This period was stated as three years in the U.S. proposal, for the U.S. Delegation was anxious that democratic Italy should get on its feet, and it was thought that a period of three years would be more helpful to Italy in this connection. However, Mr. Byrnes was willing to leave the question of this period to the judgment of the Council of Foreign Ministers.

M. Molotov stated that he was unable to express any final views on the U.S. proposal since he had not yet obtained a Russian translation. He would like to express, however, some preliminary remarks. First of all, he believed that the Council of Foreign Ministers should draw up today some definite principles on reparations and instruct the Deputies to elaborate the actual formula. M. Molotov stated that the Soviet Delegation felt that the U.S. proposal was acceptable as a basis. He wished to call attention to the fact, however, that reparations from Italy might cause difficulties in connection with reparation deliveries from Rumania or Finland. The present U.S. draft admitted the principle of reparations from current production. This principle was contained in the other peace treaties, but the U.S. draft contained certain reservations and proposals which were contrary to the reparation clauses in the Finnish, Rumanian, and other treaties. The reparation deliveries from current production would amount to a negligible sum of about $10,000,000 annually, but the U.S. proposal stated that these deliveries would only start three years after the peace and would be completed in six years. No such principle was provided for in the Finnish or Rumanian treaties, and if adopted in the Italian treaty, difficulties might be caused. As a last resort, reparation deliveries might be made over a period of six years. But it would be preferable not to make the three-year exemption for Italy. Furthermore, it was foreseen in the U.S. proposal that the Soviet Union should deliver raw materials to Italy. No such provision was contained in the other peace treaties. M. Molotov did not exclude that the Soviet Union would provide Italy with such raw materials on commercial terms. But it would be undesirable to record this fact in the treaty. It would be a pretext for other countries to raise this question, and this would cause complications. The Soviet Delegation also deemed it inadvisable to make mention of such items as Italian assets in the U.S.S.R. since they did not exist. Subject to these observations, M. Molotov suggested that the C.F.M. adopt the following principles:

(1) paragraph 1 of the Soviet proposal on Italian liability to pay reparations be adopted;

(2) a statement be made that Italy was liable to pay reparations to the Soviet Union in the amount of $100,000,000 over a period of six years from the date of the coming into force of the treaty;

(3) reparations would come from the following sources:

(a) Italian factory and tool equipment (following the language in 1(a) of the U.S. draft),

(b) Italian assets in Rumania, Bulgaria, and Finland,

(c) current production;

(4) the paragraph in the U.S. draft reading, “The quantities and types … with the economic reconstruction of Italy.” be included.

Mr. Byrnes stated that he hoped that the Soviet representative would bear in mind that there was a great difference between Italy on the one hand and Rumania, Bulgaria, and Hungary on the other. The draft treaty with Rumania provided for reparation deliveries of oil, grain, timber, river vessels, et cetera. Italy had no oil, grain, or timber. It had to import raw materials and export manufactured products.

M. Molotov stated that Finland had no oil or food, but Finland was paying reparations and was importing raw materials. The Soviet Union was selecting reparation goods from Finland so as to be helpful to that country. It could do the same thing with Italy.

Mr. Byrnes stated that he did not know how the Finns were arranging for reparation deliveries. He understood that they had obtained Swedish credits in order to finance ship construction. Finland had timber. According to his information, Italy, with the execption of sulphur, had practically nothing left. Its mercury and bauxite were being taken away. Nothing but sulphur and fruit were left. It had no coal. No matter what was contained in other treaties, it would be unwise to insert in the Italian treaty provisions or conditions with which Italy could not comply. In the Rumanian treaty it had been stated that deliveries would take place for a period of eight years from September 1944, but Mr. Byrnes did not care about the date. He just wished to be sure that the Council of Foreign Ministers did not endeavor to make Italy attempt to do something impossible, and something which would require the Allies to come to Italian aid.

Mr. Bevin stated that the U.K. Delegation was agreeable to assigning reparations to the value of $100,000,000 to the U.S.S.R. He was in favor of the three-year moratorium since the U.K., as well as the U.S.A., were sending relief supplies to Italy. It would be difficult for them to continue to do this unless the moratorium period were agreed upon. Mr. Bevin was especially concerned as to how the Italian assets were to be valued. He suggested that a reparations commission of the Four Powers be set up to which the Italian Government could go and lay before it information and data on the value of the assets. Mr. Bevin had been struck by the difference between the value of the Italian assets as given by the U.S., U.K., and Soviet Delegations. An exact figure must be set in order that the global figure for delivery from current production be known. When this figure was fixed, agreement should be reached between the Italian and Soviet Governments on the per annum deliveries.

Mr. Bevin suggested returning to Mr. Molotov’s proposal. Mr. Molotov had said that there [were?] no Italian assets in the U.S.S.R. Were there any such assets in the ceded territories, in the Baltic, in Poland, Bessarabia, or Ruthenia? According to his information there were some such assets. Furthermore, Mr. Molotov had not mentioned Italian assets in the Soviet Zone in Germany. If the total Italian losses should be taken into account, if the exact amount of Italian external assets were known, and if it were known precisely how much would be required from current production, then the U.K. Delegation would suport the principle of deliveries from current production. There were, of course, reparation claims on the part of certain other states, such as Greece, Yugoslavia, and Ethiopia. Other countries might also make claims. He would agree, however, to allow that subject to be considered at the Peace Conference. Although reparations for the Soviet Union might be fixed, the other claimants could not be excluded. For this reason he wished to circulate a proposal, which he suggested might be placed at the end of the Soviet proposal, regarding other claimants. This was in conformity with what he thought had been agreed upon some days ago. If such claims were made, it might be necessary to use current production to fulfil them. A global sum would have to be fixed for this production. But that was a matter for the Peace Conference to study, and it did not require discussion now. He believed that the wisest course would be to accept the U.S. proposal as a basis, to take into account the opinions expressed by the Ministers and to ask the Deputies to furnish the Council of Foreign Ministers tomorrow a new draft on the reparation question.

M. Molotov stated that the Ministers had agreed to make a definite decision on this question this evening.

Mr. Bevin stated that he thought that by taking the U.S. proposal as a basis such a decision had been reached. He believed that the agreement to meet the demand of the Soviet Union for $100,000,000 was a point on which Mr. Molotov desired decision tonight, as well as a decision on current production. Some of Mr. Molotov’s proposals were in contradiction to the U.S. proposal. It would be difficult for him to accept them immediately. However, he would have no objection to studying them now.

M. Molotov inquired as to the period of delivery.

Mr. Bevin stated that he would accept a period of eight years as long as a moratorium of two years was provided for. Thus payment would be made over a period of six years. This would not conflict with the difficulties the U.K. was encountering in supplying relief to Italy. All he asked for was a moratorium on the first two years during which period Italy would not be required to make deliveries out of current production.

M. Molotov stated that no moratorium had been provided for in the other treaties.

Mr. Bevin stated that the United Kingdom was not supplying the other countries with credits or relief. He said that he could not go to the House of Commons and explain why he had agreed to reparations going to the Soviet Union during a period when the U.K. was supplying relief to Italy. He requested Mr. Molotov to recognize his difficulties in solving this question.

Mr. Byrnes stated that first of all he wished to explain why Italian assets in the U.S.S.R. had been included in the U.S. draft. He had been informed that there were Italian interests in the timber lands in Ruthenia. These interests should be transferred to the Soviet Union. Secondly, he would be willing to agree to a two-year moratorium instead of a three-year period. He called attention to the fact that the physical external assets would be immediately transferred from the Balkan countries and the Soviet Zone in Germany to the U.S.S.R. There might be a difference among the Ministers as to the value of these assets, but nonetheless the assets would be immediately transferred. According to his information these assets were two or three times higher than according to the figures given by the Soviet Delegation. This figure must be determined, and for this reason the four Ambassadors in Rome had been assigned this task. He had suggested the four Ambassadors because he believed that M. Molotov would prefer this course. However, the important matter was the subject of raw materials, and he hoped that his proposal in this connection would be acceptable to the Soviet Delegation. If the Soviet Delegation did so, it would be possible for Italy to deliver manufactured products to the Soviet Union, and the Soviet Union would be paid for the raw materials.

M. Bidault stated that he wished to sum up the various proposals made and to make two suggestions. If the other Ministers could not agree to his second suggestion, he proposed that they return at eleven o’clock and continue their discussion. He must excuse himself now as he had to meet a chief of state from the French Union.⁴⁵ He suggested that the Ministers take note of the agreements reached and that they refer the outstanding points to the Reparation Committee. According to his understanding, the agreements reached were as follows:

(1) reparations should be paid by Italy to the Soviet Union in the amount of $100,000,000;

(2) reparations payments should come from Italian factory and tool equipment, assets in the Balkans (Hungary, Bulgaria, Rumania, and Finland), and two Italian vessels;

(3) the balance should come from current production under conditions to be subsequently determined.

M. Bidault stated that the outstanding questions, which were not unsurmountable, appeared to be the period of delivery, the question of raw materials and other technical matters, and reparations to Greece, Yugoslavia, Ethiopia, and perhaps France. He inquired whether the Ministers did not consider that agreement had been reached on the three points he had just stated, and whether they could not ask the Reparations Commission to report tomorrow in detail on the outstanding points.

M. Molotov again stated that the delivery period should be fixed at seven years without a moratorium.

Mr. Bevin stated that he could not be a party to paying one penny while the U.K. was borrowing money to send relief supplies to Italy. He could not agree to Mr. Molotov’s proposal until the U.K. had surmounted its own difficulties. He had tried to reach a compromise by agreeing on current production.

M. Bidault stated that he was sorry, but he must leave. The chief of state had been waiting for him over one-half hour. He therefore must revert to his former proposal. He suggested that the Ministers return at eleven p.m. If they believed that they could settle this question in a few minutes, he would be prepared to stay.

Mr. Byrnes stated that the U.S. Delegation believed it essential that a moratorium be established for two years. The Soviet Delegation had suggested setting the period of deliveries at seven years. He was willing to agree to this on the condition that a moratorium for two years be accepted to be followed by a delivery period of five years. He wished to remind M. Molotov that the United States had directly and indirectly advanced approximately nine hundred million dollars to Italy. He also wished to recall that according to Soviet information, the U.S.S.R. would receive 25–27% of their reparations in Italian assets. According to the U.S. figures they would receive 50–60%. These reparations would be received immediately.

M. Molotov stated that the point was that those who had been pillaged by the Italian armies could not admit the principle of a moratorium. It was difficult for the Soviet Delegation to agree to this principle, especially as it was a question of such a small amount.

Mr. Bevin stated that if Italy were paying reparations only out of her own resources and not because of U.S.–U.K. assistance, he would not object. However, in the long run, the U.S. and the U.K. would be paying for the reparations.

M. Molotov stated that the Soviet Delegation had desired to receive reparations from Italy and from no one else.

Mr. Bevin inquired whether Mr. Molotov would not face the fact that Italy did not possess any raw materials, and that such raw materials must be supplied by the Allies.

M. Molotov stated that such matters could be arranged on commercial terms.

Mr. Byrnes inquired whether Mr. Molotov would not agree to the raw material proposal contained in the U.S. draft.

M. Molotov stated that the Soviet Union did not refuse to furnish raw materials to Italy on commercial terms, but it would be incorrect to insert a clause in the treaty in this respect. The Soviet Union would certainly export raw materials to Italy on commercial terms, just as it had exported such materials to other countries.

Mr. Bevin inquired whether Mr. Molotov would agree to the establishment of a reparations commission to ascertain the value of the Italian foreign assets and to investigate the conditions concerning current production deliveries. Mr. Bevin stated that he was willing to accept the four Ambassadors in Rome for this function. This would give the Italian Government a chance to be heard.

M. Molotov stated that he would not object to the four Ambassadors being informed of these assets.

Mr. Bevin stated that he desired some machinery to be set up which would inform the Allies of the value of the assets, that agreement be reached on this value in order that the value of current production be ascertained.

M. Molotov suggested that the value of current production be set at seventy million dollars, i.e., ten million dollars annually.

Mr. Bevin stated that according to his information the value should be just the other way around.

M. Molotov stated that the remaining assets should be left to Italy since the Italian Government was very reluctant to agree to the transfer of external assets over the value of thirty million dollars. The four Ambassadors at Rome would determine the value of these assets. He suggested that the Ambassadors limit this figure to thirty million dollars and that the surplus be left to Italy. If the other Ministers so desired, this amount might be increased to approximately forty million. He had no information that the value of such assets was any greater.

Mr. Bevin inquired why the Soviet Union was willing to throw away these assets. Had they already disappeared?

M. Molotov stated that he had no information in respect to them. Perhaps they did not exist.

M. Bidault inquired whether the Soviet Delegation was interested in the two Italian vessels.

M. Molotov stated that the vessels were completely unsuitable for passenger service. The Soviet Government did not wish to include them on the reparations account.

Mr. Byrnes proposed that the Ministers recess for about half an hour.

Mr. Bevin suggested that a clean draft of the Soviet proposal be drawn up so that he might study it.

Mr. Bevin, after half an hour’s recess, referred to the first point of the Soviet proposal (see below)^* and stated that one of the principal points of disagreement concerned the period of seven years. Could not agreement be reached on that point?

M. Couve de Murvelle, who had taken Mr. Bidault’s place, inquired whether the one hundred million dollars was to be paid in seven years in equal installments. If so, the first few installments would be paid by Italian assets in the Balkan countries. Later payments would come from current production.

M. Molotov stated that it was an established practice that deliveries should be made annually out of current production. The assets would be transferred at once, and Italy should be required to supply goods to the value of ten million dollars a year for seven years.

Mr. Bevin stated that that was the great difficulty. Whenever one tried to satisfy the Soviets it was found to be impossible. He had thought that Italian external assets might be used to cover the payments for the first few years, and that current production might be used for the last five years.

M. Molotov stated that he would like to recall that under another article, external assets under the control of the Allies were placed at their disposition immediately. The Soviet Union should not be singled out, notwithstanding the fact that it had less foreign assets than others.

Mr. Bevin referred to paragraph 2 of the Soviet proposal and inquired whether M. Molotov would not agree to the U.S. wording as contained in paragraph 1(a) of the U.S. proposal.

M. Molotov stated that the Soviet Delegation agreed to that wording.

Mr. Bevin stated that Mr. Molotov had referred to external assets in Finland.

M. Molotov stated that the Soviet Government did not claim these assets, which amounted to eighty or ninety thousand dollars.

Mr. Bevin stated that the Soviet proposal did not mention Italian assets in the Soviet Zone in Germany.

M. Molotov stated that the Soviet Delegation had no information regarding such assets. In any event, they did not put forward any claim to them.

Mr. Byrnes referred to paragraph 1(c) of the U.S. proposal which made Italian external assets subject to the exceptions specified in paragraph 5 of Article 71.

M. Molotov suggested that the Deputies study this language. He did not object to it if the other Ministers considered it necessary.

Mr. Bevin stated that there was no reference in the Soviet proposal to Italian assets in the U.S.S.R.

M. Molotov stated that if any such assets existed, they would come within the article on Italian assets in Allied territory. This article provided for the same treatment for all the Allies.

M. Molotov stated that paragraph 3 of the Soviet draft had been taken from the U.S. draft.

Mr. Bevin stated that the U.S. draft had mentioned the two Italian merchant vessels.

M. Molotov stated that the Soviet Government did not claim the vessels. For this reason they were not included in the Soviet proposal. It would be better to leave the ships with the Italians.

Mr. Byrnes stated that he did not object to the elimination of the ships.

Mr. Bevin stated that paragraph 1(e) of the U.S. draft had not been included in the Soviet draft.

M. Molotov suggested that the Deputies discuss this question.

Mr. Bevin inquired whether Mr. Molotov would agree to it subject to drafting, or should it be deleted?

M. Molotov stated that he was prepared to include in his proposal a sentence to the effect that the four Ambassadors should be informed of the agreement between the Italian and Soviet Governments on the reparation deliveries. The remainder of 1(e) should be referred to the Deputies for study.

Mr. Bevin referred to paragraph 4 of the Soviet draft. He said that it would be very difficult for him to accept the principle that the four Ambassadors should determine the value of Italian assets to be transferred to the U.S.S.R. within the limits of thirty million dollars.

Mr. Byrnes stated that it would be impossible to work out a plan of reparation deliveries unless the value of the assets turned over to the Soviet Union from the several sources mentioned in paragraph 2 of the Soviet draft and in several paragraphs of the U.S. draft were determined. When this question had first come up, Mr. Byrnes had stated that according to U.S. estimates, Italian external assets amounted to approximately fifty to seventy million dollars. M. Molotov had stated that according to his information they would not amount to twenty-two million dollars. Mr. Byrnes proposed that these assets be turned over promptly to the Soviet Union. However, the four Ambassadors should determine their value. If they were valued at twenty-two million dollars, then there would be a deficit of seventy-eight million dollars. If they were valued at sixty million dollars, then deliveries from current production to the amount of forty million dollars would have to be made. Whatever the difference was, it should have to be determined in order to know the amount which would be required from industrial production. Mr. Byrnes did not like the idea of stating a definite amount as contained in the Soviet proposal. Suppose, for example, that the Italian external assets were worth sixty million dollars. Who would determine and pick out the assets to the value of thirty million dollars?

Mr. Byrnes stated that the most important question in the U.S. proposal was that providing for the supply of raw materials to Italy. If Mr. Molotov would agree to that, then the question of the moratorium was not important. The reason the U.S. Delegation was advocating a moratorium was because Italy did not have any money to pay for the raw materials to produce the goods to cover the reparations payments. It was impossible to compare Italy with Rumania and other countries having raw materials. Italy could not furnish manufactured goods without such raw materials. Someone had to put up the money to finance the purchase of such raw materials—the U.K. did not wish to, and the Soviet Government did not desire the U.S. or the U.K. to do so. The Soviet Government had raw materials, they could provide them. These raw materials could be manufactured into finished products which would be sent to the Soviet Union, and the Soviet Union would be entitled to deduct the value of the raw materials from the price of the goods delivered. The Soviet Union could begin furnishing raw materials promptly, and this was the best way to obtain reparations for the Soviet Union.

M. Molotov stated that the Soviet Union did not refuse to furnish raw materials to Italy on a commercial basis, but would it be right to suggest that a devastated country like the U.S.S.R. should advance credits to Italy in order to receive reparations? M. Molotov pointed out that the Soviet Delegation had adopted the paragraph from the U.S. draft which referred to the concluding of an agreement between the Italian and Soviet Governments on the understanding that reparation deliveries would be scheduled in such a way as to avoid interference with the economic reconstruction of Italy. This was sufficient, and the Soviet Delegation could not go beyond it.

Mr. Bevin inquired whether the Soviet Delegation would agree to the addition of the words, “or to cause additional liability to the other Allies” after the words, “in such a way as to avoid interference with the economic reconstruction of Italy”.

Mr. Byrnes stated that he wished to make sure that the Soviet Delegation understood that under the U.S. proposal that the Soviet Union would be paid for the raw materials. He suggested that provision be made to the effect that the Soviet Union would also receive interest on the value of the raw materials while they were in the custody of Italy and until the goods had been delivered.

M. Molotov stated that the following words might be added to paragraph 3 of the Soviet draft: “The delivery of goods will be facilitated by the fact that the Soviet Union would make available to Italy certain types of materials on commercial terms”.

Mr. Bevin stated that he preferred his additional words.

M. Molotov stated that he did not object to them and suggested that they be adopted.

Mr. Byrnes maintained that this would only cause difficulties. The United States Government had extended credits to the Italian Government in the amount of nine hundred million dollars. The Soviet Government might say that the Italian Government in the future might be able to make certain deliveries, the Italian Government might state that it could not, and who would settle this question?

M. Molotov inquired whether Mr. Byrnes would agree to the replacement of the words “free of cost” with the words, “on commercial terms”.

Mr. Byrnes stated that he was trying to find an acceptable phrase. He inquired whether Mr. Molotov would agree to some language to the effect that the Soviet Union was entitled to interest at commercial rates on the value of the raw materials. He was endeavoring to express more clearly the Soviet phrase concerning commercial terms. He inquired exactly what Mr. Molotov meant by this phrase.

M. Molotov stated that he meant terms of normal trade relations.

Mr. Bevin stated that the phrase, “commercial terms” was subject to a broad interpretation. Would Mr. Molotov agree to the words, “at world prices”? It was only fair to Italy to pay for these goods at the normal world prices.

M. Molotov stated that if the Ministers continued arguing, they might in the last analysis say not that Italy should pay reparations to the Soviet Union, but vice versa. He continued that paragraph 3 of the Soviet draft was sufficient since it provided for commercial agreements between the Soviet Union and Italy concerning which the four Ambassadors would be informed. He continued that the Soviet Government could not grant credits to Italy in order to obtain reparations.

M. Couve de Murville proposed that paragraph 1(e) of the U.S. draft be examined by the Deputies.

M. Molotov stated that the Soviet Delegation had not accepted this paragraph.

M. Couve de Murville suggested that paragraph 3 of the Soviet draft be supplemented in such a way as to avoid a moratorium and yet at the same time meet the wishes of the U.S. and U.K. Delegations. Could not this paragraph be complemented to read to the effect that deliveries from current production should not compel Italy to use raw materials purchased on credit from a third country. He was referring to those raw materials which were normally imported from foreign countries into Italy.

Mr. Bevin stated that he would be willing to accept a paragraph reading as follows:

“The quantities and types of goods to be delivered shall be the subject of agreement between the Italian and the Soviet Governments and shall be delivered on schedules in such a way as to avoid interference with the economic reconstruction of Italy or to cause additional liabilities to the other Allies. Agreements made under this article shall be reported to the Ambassadors.”

M. Molotov stated that he would agree to this suggestion.

Mr. Byrnes stated that he had no objection to the proposal on condition that the entire paragraph be subject to a moratorium.

Mr. Bevin stated that he also would insist on a moratorium.

M. Molotov said that if Mr. Bevin’s proposal were acceptable, and if there were no other amendments, the Soviet Delegation would agree to a moratorium of two years out of seven.

Mr. Bevin stated that in such a case Mr. Molotov demanded acceptance of his fourth paragraph concerning the limitation of thirty million dollars on Italian assets.

M. Molotov replied in the affirmative.

Mr. Byrnes suggested that the words, “free of cost” be replaced by the words, “at commercial costs” in the U.S. paragraph on raw materials, and that this paragraph be included.

Mr. Bevin stated that he wished to clear up paragraph 4 of the Soviet draft. According to this paragraph the four Ambassadors would determine the value of assets to be transferred to the Soviet Union within the limit of thirty million dollars. Did this mean that all assets not exceeding thirty million dollars would go to the Soviet Union?

M. Molotov stated that this was correct, and that the remaining assets would go to Italy.

Mr. Bevin stated that this paragraph was bound up with paragraph 1(e) of the U.S. draft, which Mr. Molotov had not agreed to. He would like to have the Italian Government consulted on this question in order that it might be ascertained which assets the Italians wished to surrender, and which assets she wished to hold.

M. Molotov stated that according to the Soviet draft the four Ambassadors would determine the value of the assets to be transferred to the U.S.S.R. This would assure a fair solution of the question since there were four and not one representative dealing with this question.

Mr. Bevin stated that there appeared to be one further point which had not been discussed. He referred to the last paragraph of point 1 of the American draft to the effect that the Italian Government might make payments in convertible currency.

Mr. Byrnes stated that he was willing to eliminate this paragraph in order to narrow down the difficulties.

M. Molotov agreed that this paragraph be eliminated.

Mr. Byrnes inquired whether Mr. Molotov would accept the principle of a moratorium for two years, the paragraph on raw materials with the words “free of cost”, the elimination of the thirty-million-dollar limitation, and the retention of the liability clause.

Mr. Bevin stated that he wished to preserve the right of other nations for reparations. He would circulate tonight a draft on this question, and he suggested that Albania be included.

Mr. Byrnes agreed.

M. Molotov agreed. He then stated that he would like to know where the Ministers stood on the whole question.

Mr. Bevin stated that he understood that parts of the Soviet and U.S. proposals had been accepted. It was his understanding that the following agreement had been reached:

1. Italy shall pay reparations to the Soviet Union to the amount of $100,000,000 over a period of seven years. Payment from current production shall not be made during the first two years.

2. These reparations shall come from the following sources:

(a) Italian factory and tool equipment (this paragraph to follow the U.S. draft contained in 1(a));

(b) Italian external assets in Rumania, Bulgaria, and Hungary;

(c) current industrial production.

3. The quantities and types of goods to be delivered shall be the subject of agreement between the Italian and Soviet Governments and shall be selected and deliveries scheduled in such a way as to avoid interference with the economic reconstruction of Italy or to cause additional liability to the other Allies. The agreements made under this Article shall be reported to the four Ambassadors.

4. The U.S.S.R. shall furnish Italy on commercial terms the materials needed for the production of these goods which are normally imported into Italy, the value of which shall be deducted from the value of the goods delivered to the U.S.S.R.

5. The four Ambassadors shall determine the value of the Italian external assets which shall be transferred to the U.S.S.R.

6. A paragraph protecting the other Allies. (Mr. Bevin had circulated a proposal reading as follows:

“The claims of Greece, Yugoslavia, Albania and Ethiopia and those put forward by any other Allied or Associated Power will be considered at the Peace Conference. They will be met in part by the value of State and parastatal assets in the ceded territories and, subject to the provisions of Article 71 (Italian external assets) from the assets of Italy and Italian nationals in those countries. The value of these assets will be determined by the Reparation Commission who will also determine the conditions under which the balance, if any, of outstanding reparation shall be settled.”)

M. Molotov stated that he agreed.

M. Couve de Murville stated that the raw materials paragraph, as amended, meant that the raw materials would be paid for twice.

Mr. Byrnes stated that he did not believe that this was correct since the value of the materials would be deducted from the value of the goods delivered. The materials would not be paid for until the goods had been delivered to the Soviet Union, althought interest would be paid on them. If necessary, he suggested that the Deputies might improve the wording of this paragraph. In order to avoid any confusion, the final part of this paragraph might read, “the payment for which materials shall be made by deducting the value of the materials furnished from the value of the goods delivered to the U.S.S.R.”

M. Molotov stated that this would mean that the Soviet Union would grant credits to Italy. He suggested that the last part of this paragraph be deleted.

Mr. Byrnes suggested that the Deputies be instructed to clarify this point.

Mr. Bevin stated that since all the Ministers had the same idea in mind, it appeared to him to be only a question of drafting the paragraph.

Mr. Byrnes stated that the paragraph referred to commercial rates and then spoke of the value of the goods delivered to the U.S.S.R. Prices and interests would be calculated at commercial rates. The actual payments for the raw materials would be made by deducting their value from the value of the goods delivered. This would not affect the amount of reparations delivered.

M. Molotov again maintained that under Mr. Byrnes’ proposal the Soviet Union would be obliged to grant credits to Italy.

Mr. Byrnes stated that it was not correct to say that Italy would be obliged to pay twice for the raw materials. He had suggested his change in the language in order to make it clearer. He urged acceptance of his amended text to the effect that the value of the raw materials should be deducted from the value of the goods delivered.

M. Molotov stated that he would accept this language.

The Ministers agreed to refer the text adopted by them to the Deputies for final drafting.

Peace Conference

Mr. Byrnes stated that according to the language creating the Council of Foreign Ministers the Council, when it had prepared the draft peace treaties, would convoke a peace conference to examine these treaties. He wished to call attention to the fact that the Council was composed of five members and not four. The invitations to the Peace Conference should be issued in the name of these five members. The Chinese Government should be included, and he suggested that Mr. Bidault should advise the Chinese representative in Paris accordingly.

M. Molotov stated that he could not agree with Mr. Byrnes, but suggested that the matter be discussed tomorrow.

Mr. Byrnes agreed to discuss this question on July 5.

The meeting adjourned at 1:00 a.m.

41. For a list of persons present at this meeting, see the Record of Decisions, infra.
42. Not printed.
43. The United States Delegation Record of the Council’s 14th informal meeting is printed on p. 771.
44. The reference here is to C.F.M.(46) 176, June 30, 1946, p. 697.
45. Presumably, the reference here is to Ho Chi Minn. President of the Provisional Government of Viet Nam, who was making an official visit to Paris. For a report on the opening of French-Vietnamese discussions at Fontainebleau in July 1946, see telegram 3323, July 7, 1946, from Paris, printed in volume viii.
46. • “1. Italy shall pay reparations to the Soviet Union to the amount of 100 million dollars over a period of seven years.
    • “2. These reparations shall he covered from the following sources: equipment of war plants, external assets of Italy in Roumania, Bulgaria and Hungary, current industrial production.
    • “3. The quantities and types of goods to be delivered shall be the subject of agreement between the Italian Government and the Government of the USSR and shall be selected and deliveries scheduled in such a way as to avoid interference with the economic reconstruction of Italy.
    • “4. The 4 Ambassadors shall determine the value of Italian assets to be transferred to the USSR within the limits of 30 million dollars.” [Footnote in the source text. The Soviet proposal quoted here was subsequently circulated to the Council as C.F.M.(46) 195, July 4, 1946, in a more precise translation into English.]