Foreign Relations of the United States, 1948, Germany and Austria, Volume II

740.00119 Control (Germany)/9–848: Telegram

The United States Political Adviser for Germany (Murphy) to the Secretary of State ¹

top secret

Berlin, September 8, 1948—1 a. m.

2254. Personal for the Secretary and Lovett. Eyes Only. Today’s² meeting with Sokolovsky presiding met at 1600 hours. First discussion was devoted to trade agreement. All items resulted in disagreement. Soviet insisted on exports and imports being licensed by their organization and refused quadripartite control of movements between Berlin and Western zones. Second issue was on quantities involved with Soviets insisting that exports could not exceed raw materials, exclusive of food and power. Obviously this would perpetuate in full the subsidy of Berlin. Sokolovsky under argument did suggest that food and coal brought in specifically to expedite production could be included in the raw imports to be balanced, but this is, of course, a minor concession.

Third issue was method of payment, which Sokolovsky insisted must be through the bank of emission rather than Berlin banks. This item was held in suspense pending report from Truman committee on general accounting later in this meeting.

Fourth issue was Soviet unwillingness to have food, coal, and oil considered as a part of trade agreement which is consistent with their argument that these supplies should be provided without any payment. In this connection, Koenig raised the lifting of restrictions and reminded Sokolovsky that our directives required the removal of all commerce restrictions.

Fifth issue was Soviet demand for lifting of trade restrictions between Berlin and Soviet zone. I said that this was required by Moscow directive but had to be done simultaneously with removal of all restrictions contemplated in directive. Sixth question was the lifting of restriction on interzonal trade and method of payment. This was agreed.

At one point, when Sokolovsky proposed that the Magistrat should be responsible for trade agreements, I said that I would accept this if there were an agreed quadripartite supervisory organization. His reply delivered in his most cynical manner was that the Magistrat was now a tool of the Western powers but this would not last forever. Taken in connection with recent mob denials of use of City Hall by Magistrat and assembly, this may be significant. Also, in these discussions, Sokolovsky on several occasions refused to explain Soviet position and was apparently well satisfied to record disagreement. It was clear he was not interested in finding agreement even when differences were minor.

The meeting then proceeded to consider the report of the Transport Committee.³ Sokolovsky commented correctly that Transport Committee had not completed its work as its report covered only rail transports. He then added there was air, highway, and waterway still to be considered. Koenig then spoke and said he must first know if Sokolovsky was prepared to remove restrictions imposed since 30 March. Sokolovsky evaded reply by stating that this he accepted in as far as what he considered restrictions, but this did not apply to checking of documents, which he did not consider a restriction. Robertson made a useless but sustained effort to obtain an agreed wording. Then Sokolovsky stated his position in full. All restrictions on rail and Autobahn imposed since 30 March would be removed. Rail and highway would be via Helmstedt–Berlin routes. Sixteen trainpaths would be provided daily, of which three would be military. Military personnel, families, and civilian members of military administration may be carried in military train and use Autobahn subject to producing identification cards (this means trains subject to inspection). German employees are not to be carried on military trains. Military freight trains are to carry supplies for occupying powers and train chief is to present way bill at documentation point. German cargo to be verified by way bills of food and coal with licenses to be produced for commercial cargo. (This raises the question of who issues the license.) Marshal Sokolovsky accepts principle to establish bipartite control of checking personnel on military trains and on Autobahn at demarcation points. Please note that this is Sokolovsky’s interpretation of my proposal which was for each zone commander to check his own military trains under agreed regulations.

Sokolovsky then proposed quadripartite order prohibiting military train and auto passengers between Berlin and Western zones from carrying either east or west marks. Air traffic is to be carried out to meet the requirements of the occupying powers under the decision of the Control Council of November 1945. Robertson inquired if allied military missions would be included in those authorized to travel in military trains. Sokolovsky replied in the negative and that they would have to secure Soviet consent. I inquired if American passengers would include all Americans authorized to visit Berlin by American Military Government and his reply was in the affirmative. I then pointed out that there had been difference in interpretation between us with respect to the Control Council air regulations of November 1945, and that my consideration of his proposals was based on my interpretation. However, I do not like his wording. To this, he did not object. The question of waterways was then raised. Sokolovsky agreed to their opening for interzonal trade but would not agree this included food and coal for Berlin. He would consider special agreements for such movements. Sokolovsky has agreed to present his proposal in writing.

This proposal of Sokolovsky after his cynical handling of trade paper comes amazingly close to carrying out the Moscow directive in this field. It is, in my opinion, a last minute device to place Soviet Government in better bargaining position at Moscow to obtain the trade and financial supremacy which is their real aim.⁴

We are still in session and I am sending interim reports as we consider each subject so, that you may have additional time to study them.

The meeting next proceeded to discuss the report of Finance Committee.⁵ First issue was the previous disagreement relative to exchange of D-marks held by Western powers personnel and organizations which was now agreed with maximum amounts to be so converted at 750,000 DM for UK and 1,000,000 DM for US and France. Second issue was exchange of B-marks received by institutions as grants which had hitherto been rejected by Soviets, but was now accepted subject to accounts being used under cash rules of bank of emission. Western powers accepted subject to reservation that Financial Commission would have proper relationship to bank of emission in this respect. Third issue was on conversion of Reichsmarks. Soviet proposed simple 1 to 1 exchange and withdrew completely demand for investigation of accounts in excess of 500 DM.

Fourth issue was the exchange of accounts still in Reichsmarks subject to tax review which Soviets had demanded right to investigate. Soviets agreed to consider Western powers check and to make exchange under Soviet law 111 which was more favorable than western law. However, Soviets reserved final right of investigation and decision land under their law could for instance refuse to convert Siemens–Hoeske account as a war producer. On the other hand, 1 to 1 exchange based on western law would result in substantially less money for these accounts. This question was not agreed as Western powers reserved their position with respect to the investigation, being willing however to otherwise apply Soviet law 111. Sokolovsky was here emphatic that it was either the western law without investigation but discriminatory, or the Soviet law with its more liberal terms but with Soviet investigation and determination of legality of account under the much more restrictive provisions of the Soviet law.

We then proceeded to discussion of the functions of the Finance Commission. Here Robertson raised the question as to the approval of implementing instructions of the bank of emission by the Finance Commission and pointed out that this was the fundamental issue in finance field which must be resolved if we are to reach agreement. Without acceptance of this principle, Robertson stated he could only refer this question to his government. He placed himself in complete agreement with my statement on this subject of yesterday.⁶ Koenig accepted Robertson’s position as approximately his own. He also asked if the decisions of Finance Commission had to be unanimous, what would happen to a ruling of the bank of emission in event of disagreement in the commission which could not be resolved by the Military Governors and/or governments. Sokolovsky had no comment, except to suggest that the experts continue with their study of remaining items such as occupations costs and balancing of budget. Robertson stated this was not feasible since our directive made it mandatory for USLOM [agreed?] report today. Sokolovsky stated that it was manifest that an agreed report could not be submitted today. Robertson said he hoped a joint report could be made listing our agreements and disagreements. Sokolovsky stated that we needed until Saturday to reach an agreement—that he mentioned Saturday and not a date because he did not want to be definite.

We are discussing the report.

I next went back to the air question and asked Sokolovsky if he contended that we could not bring commercial aircraft into Berlin. He replied yes, contending Control Council agreement referred only to military aircraft. I then stated that I had hoped his transport proposal would provide a basis of understanding, but that I could not consider his proposed restriction of air travel. The directive and the discussions which led to the directive indicated clearly that the question under consideration was the removal of restrictions and not the imposition of additional restrictions. There had been no restrictions in our use of airlift at any time and we could not consider such restrictions now. They were clearly not within the purview of the directive. Therefore, I was unable to accept the Soviet proposal.

I proceeded to state that we were also far apart on trade. We were fully prepared to enter into a fair trade agreement and to have it implemented under quadripartite supervision. We were offered a one-sided agreement completely under Soviet control.

I also stated that we could not agree on the functions of the Finance Commission.

I had hoped we would at least make a joint report on our agreements and disagreements. Since this was impossible I must under the terms of the directive, report to my government at the close of today’s meeting and to request further instructions. Until these arrived, I could not agree to further discussions here. I hoped that we could avoid the impression of a break here and suggested that until we had received our instructions, our only comment would be that we are all studying our papers for a few days before meeting again.

Sokolovsky replied to each of my points, misquoting at least the English version of the Control Council air regulation to sustain his position; arguing that the Soviet trade control was merely what was already in effect, and quoting in detail Smith–Molotov exchange on Finance Commission to sustain his viewpoint. I refused to debate the latter, referring briefly to Smith’s talk of 23 August with Generalissimo Stalin.⁷

We then agreed to adjourn subject to further call if and when we receive additional instructions from our governments.

Detailed tripartite agreed report of today’s meeting is now in preparation.⁸ Also, a short 7 September report of the three Military Governors is being prepared.⁹ It will merely point out Sokolovsky’s willingness to yield today on minor points, probably to improve bargaining position. However, there has been no yield on these basic issues: Restrictions on airlift; participation of Western powers in control of Berlin trade with western zones; and power of Finance Commission to supervise issue and regulation of currency. We will add that it does not appear likely that these issues can be resolved except at governmental level. However, if desired to avoid appearance of break here committees can be continued to discuss details.

There is one major question not yet really tackled and that is payment for food and coal in east marks. We must have these east marks or else we will be unable to finance our activities here such as our radio stations. Likewise, we must have access to these marks to protect political parties, trade unions, etc., if trouble develops again. Also, we must have some favorable balance of trade exclusive food and coal to buy paper and other materials for the papers and magazines in western sectors.

I find it difficult to analyze today’s meeting. During trade discussions, Sokolovsky was cynical and his staff, indifferent. Suddenly, as we shifted to transport, he became amiable and jocular which was transmitted to his staff. I can only surmise he believed that his proposal on transport would be so pleasing we would swallow Soviet trade and finance control. In any event, they would claim major concessions on their part in Moscow and demand concessions from us on the real fundamentals. Robertson and Koenig again optimistic. I have my fingers crossed although I rather believe we could obtain substantial trade concessions. Clay.

Sent Department 2254, repeated Paris 598, London 582. Department pass Moscow 493.

Murphy

1. The copy of this telegram in the USPolAd Germany Top Secret Files includes the following additional first line: “Following is Clay’s TT–1171 to Dept of Army for Draper.”
2. September 7.
3. The report of the Transport Committee was transmitted as an enclosure to a letter from Murphy to Bohlen, September 10, neither printed (740.00119 Control (Germany)/9–748).
4. The full text of Sokolovsky’s proposal was transmitted in telegram 2256, September 8, from Berlin, not printed (740.00119 Control (Germany)/9–848).
5. This report was sent as an enclosure to a letter from Murphy to Bohlen, September 10, neither printed (740.00119 Control (Germany)/9–748).
6. See telegram 2251, supra.
7. See telegram 1728, August 24, from Moscow, p. 1065.
8. The text of the report under reference was transmitted in telegram 2255, September 8, from Berlin, not printed (740.00119 Control (Germany)/9–848).
9. Presumably the reference here is to the joint report of the United States, United Kingdom, and French Military Governors, dated September 7; for the text of that report, see Cmd. 7534, pp. 56–57, Documents on Berlin, pp. 84–86, or Berlin Senate, Berlin, Quellen und Dokumente, pp. 1506–1507.