Foreign Relations of the United States, 1948, Eastern Europe; The Soviet Union, Volume IV

861.24/1–2948

United States Minutes of Third Combined Meeting on Lend-Lease Settlement Negotiations¹

secret

[Washington,] January 29, 1948.

Present

u.s.	u.s.s.r.
Mr. W. L. Thorp, U.S. Chairman	The Soviet Ambassador, Mr. Alexander S. Panyushkin
Mr. L. E. Thompson	Mr. A. A. Arutiunian
Mr. W. C. Armstrong	Mr. N. I. Cheklin
Mr. C. E. Truesdell, U.S. Assistant Secretary	Mr. Koulakov, Interpreter

Mr. Thorp expressed to the Soviet Ambassador his regret that the meeting previously scheduled for January 27 had to be postponed because of circumstances beyond his control. The Soviet Ambassador indicated his understanding of the situation and stated that he was ready to proceed.

Mr. Thorp opened the discussion by referring to the eight merchant vessels which the U.S., in its note of December 11, 1947, had requested be returned to the United States by February 9. He stated that the U.S. Side would appreciate being advised of the time and the ports to which these vessels would be returned, since the U.S. must arrange for crews to take them over upon their arrival in the U.S. He said he had not wished to send another note on the subject. The Ambassador replied that it was his feeling also that a note was not necessary and that the U.S.S.R. Side would “deal with” the matter but was not prepared to make a reply at the present moment. He indicated that consideration was required. Mr. Thorp stated that he had assumed the Ambassador would not have the information immediately available, but that the U.S. would require an answer within the next few days. The Ambassador repeated that “we shall deal with” the matter. Mr. Thorp suggested that further discussion might clarify any doubt. He said that, since the opening of negotiations, certain items lend-leased to the Soviet Government were segregated as not being subject to discussion and must be returned to the United States. He emphasized that these vessels were not a subject for discussion and that our notes had requested their return. The Ambassador replied that it would seem proper that the individual topics which the U.S. Side had presented should be considered together with other topics in the over-all settlement negotiations but that the U.S.S.R. Side would “deal with” the question of these eight ships. In principle, he stated that any items delivered under lend-lease should be considered in the whole complex of the lend-lease settlement. Mr. Thorp expressed his regret that this difficulty should have arisen at the opening of the negotiations but he said he could not agree with the Soviet position. He stated that the U.S. has the right under the Lend-Lease Agreement of June 11, 1942, to require the return of articles needed by the United States. He referred the Ambassador to the newspapers which show the need of the U.S. for the eight vessels. He repeated that there is no settlement problem with respect to these eight ships. The problem of settlement is concerned only with items kept by the Soviet Government and not consumed during the war and these are the items for which the U.S. requests payment in the settlement. Our request for return of certain articles is in accord with the provisions of the Lend-Lease Agreement. The Soviet Ambassador reported that the U.S.S.R. Side would consider the question of the eight vessels and “deal with” them.

With respect to the last statement made by Mr. Thorp the Ambassador said that he was obliged to mention that the Soviet note of December 16, i.e. the items in that note, proceeded from the provisions of the Lend-Lease Agreement of 1942. As he had already stated, the Agreement of 1942 was a preliminary one and, in accordance with its terms, the final settlement was postponed until the course of events should make clear the final terms and conditions and benefits which will be in the mutual interests of the U.S.A. and the U.S.S.R., and will promote the establishment of world peace. He reminded the U.S. Side that at the last meeting the U.S.S.R. Side had stated that the U.S. position was not correct in its approach and was not in accord with the Agreement of 1942 since it divided articles into three groups. The U.S.S.R. approach, however, was in accord with this Agreement. The Ambassador referred specifically to the Merchant Ship Sales Act of 1946. He said the Agreement of June 1942 was a bilateral Act but the Ship Sales Act was one of several unilateral Acts on which the United States bases its position. He recognized the points made by the Department of State when it referred to laws and acts passed since June 11, 1942 but the Soviet Side bases its own position on the Agreement of June 11, 1942. He recognized that it was possible for the U.S. to pass laws but lend-lease had stopped by 1946. He said it is necessary for the two Sides to come to a settlement based on the Agreement of 1942. The Ambassador agreed that the approaches of the two Sides differed and that therein was the crux of the problem. He repeated that the Soviet Side was proceeding according to the spirit of the Lend-Lease Agreement and stated that it was desirable that the U.S. proceed in the same spirit. This was all the more important since in the first Article of the Agreement it was stated that the U.S. was assisting in the defense of the U.S.S.R. and in the second Article the U.S.S.R. was assisting in the defense of the U.S.

Mr. Thorp replied that it seemed clear that there was not a meeting of minds and that the difference was probably due to a misunderstanding. Referring to the legislation since June 11, 1942, which the Soviet Ambassador felt was an attempt to modify the Agreement, he stated that in the Agreement there was a specific promise that the U.S.S.R. would return to the U.S. items not lost, destroyed or consumed. At the time the Agreement was signed the U.S. had a large fleet of vessels some of which were turned over to the U.S.S.R., later to be returned to the U.S. The Ship Sales Act of 1946 made it possible for the U.S. to sell certain of these vessels, and were it not for this legislation the U.S. would have been required to ask for the return of all of these ships. The U.S. now has authority to negotiate as to certain of the ships, but this is not complete authority. Not only the eight merchant vessels but the icebreakers and others do not come under this authority. The legislation described as unilateral is beneficial to the U.S.S.R. and without it all ships would have to be returned to the U.S. under the Agreement.

Mr. Thorp stated that the U.S. Side would like to understand the Soviet position and, to that end, would appreciate an explanation of the Soviet interpretation of Article V. He observed that this was the critical point in the discussion and that in English the language reads clearly. He said that because of that Article and the spirit of the Agreement, the U.S. has disregarded a total of more than $8 billion of lend-lease aid to the U.S.S.R. It is also because of that Article that the U.S. states that certain articles must be returned since they are of use to the United States. The U.S. does not propose to use this Article except for those items which are clearly not destroyed, lost or consumed and of use to the United States. Mr. Thorp again requested an explanation of the Soviet interpretation of Article V and expressed his hope that the matter could be settled quickly.

The Soviet Ambassador, in reply, stated it to be his desire also to keep the discussions short, but Article V read just as clearly in Russian as it did in English. However, he did not believe the situation was critical if the U.S. would proceed in the spirit of the Agreement. He said that articles delivered to consumers are articles destroyed, lost or consumed. The Agreement does not subdivide articles into several categories but had the one purpose of achieving the defeat of the common enemy. He stated that the U.S.S.R. understands Article V and then asked for a statement of the intentions of the U.S. with respect to Article VI which also contained promises, that in the final determination, the benefits provided by the U.S.S.R. to the U.S.A. would be taken into consideration. The Ambassador stated that according to the spirit of the Agreement the U.S. note of December [January] 23 was a unilateral act. He observed that this was a résumé of a subject on which he could speak at length but he felt that what he had said was the substance of the matter. He added that the benefits to the U.S. from the U.S.S.R. had been mentioned by high officials of the U.S. Government; for example, President Roosevelt, in the Thirteenth Report (to Congress on Lend-Lease Operations), had said that thanks to the U.S.S.R. the war would be much shorter. This, he observed, was the main benefit to the United States from lend-lease.

The Ambassador reiterated that, if a comparison was made of the advantages to the U.S.S.R. with those to the U.S., it would be clear that the advantages to the U.S. would be much higher than those which the U.S.S.R. received from lend-lease supplies. He said that Article VI of the Agreement clearly states that the advantage to the U.S. of all property and services provided by the U.S.S.R. would be taken into consideration and the Soviet note of December 16 had taken this approach.

Mr. Thorp replied that Articles V and VI were contained in the agreements which the U.S. had executed with other countries. These articles he said represented the fact that assistance flowed in both directions and that there should be an offset. This, as the United States understood it, related to economic considerations which are the substance of the lend-lease agreements. The U.S. is willing to recognize the Soviet contribution as is evidenced by the U.S. estimates presented to the Soviet delegation last spring.² Since there had been so few U.S. troops in the U.S.S.R., assistance received by the U.S. from the U.S.S.R. was smaller than in the cases of other countries where U.S. troops had been present in larger numbers. The actual assistance received by the U.S. from the U.S.S.R. had been calculated as several million dollars. As to whether the contribution to victory of one country was greater than that of the other, was not a question which the U.S. considered wise to include in these discussions. Lend-lease shortened the war for both countries and the U.S. is taking into consideration the U.S.S.R. contribution to the over-all victory.

Referring to the Soviet position that no distinction should be made between military and civilian items, Mr. Thorp said that, in an effort to be as generous as possible in the settlement, the U.S. was not requesting the return of or payment for a very large number of items, even among those not destroyed, lost or consumed. The U.S. realizes that military articles are not easy to assemble and to record and are of use to no one when the war was completed. The U.S. decision in this respect is to be generous to the maximum extent. Mr. Thorp expressed the hope of the U.S. Side that the U.S.S.R. would not insist on identical treatment of military and civilian items as, in this event, the U.S. would be obliged to increase the items not lost, destroyed or consumed, for which payment would be asked.

He said that he was particularly interested in one point made by the Soviet Side: that an item is consumed when it passes to a consumer. He gave as an example a new automobile delivered one week before the end of the war and turned over to an individual in the U.S.S.R. and asked how such an article could be defined as consumed. In some instances automobiles are consumed very rapidly as in a crash, but generally it is difficult to consume such an article until it is used up over a period of time. As to machinery, Mr. Thorp asked who in this case was the consumer. He suggested that the word “consumed” should be discussed thoroughly since it may represent the point of misunderstanding. He said the Ambassador could aid by explaining in terms of detailed items and added that the terms “destroyed, lost or consumed” clearly referred to items which could not be returned. If the Soviet definition were to be accepted other words would have been included in the original agreement. He said that this statement meant that there was no question in the negotiations as to any item which could not be returned to the United States. As an example he said that a ship which had been turned over to a ship’s captain, would not have been considered as consumed, but, if the Soviet definition were followed, it would mean that to be consumed an item would merely have been turned over to someone else.

The Soviet Ambassador jokingly remarked upon the length of Mr. Thorp’s statement, but said that he now understood why the U.S. Side considers the 1942 Agreement an economic agreement. He observed that by its title the Agreement of June 11, 1942 is not economic but an agreement on the principles of mutual aid in the war against aggression. Assistance in the war against the common enemy was not a commercial transaction and neither the U.S. nor the U.S.S.R. intended to trade in men. He said the U.S.S.R. position did not emphasize that point. Mutual aid, which was the goal of the Agreement, was intended to shorten the war and to make human losses as small as possible. Therefore, it is incorrect to consider the agreement as purely economic; it is political, a military-political agreement. If the U.S. considers it a purely economic agreement, it should reconsider its position.

Mr. Thorp replied to the Ambassador stating that, if the agreement had been an economic one, the U.S. would have asked for $11 billion many months ago. Because of this aspect the U.S. request is but a small part of the total. He said that it was interesting to note that, in the cases of all the other Allies, their understandings of the meaning of the Agreement had been the U.S. understanding also. He pointed out to the Soviet Ambassador that the Agreement stemmed from the “Lend-Lease Act” and included both the concept of “lending” and the concept of “leasing”, both of which terms convey the fundamental concepts of returning or of compensation and reminded the Ambassador that in the early days of the war Mr. Stalin had agreed to payment for the first $1 billion of lend-lease aid and later agreed to payment for a second $1 billion before the agreement of June 11 was concluded.³ Mr. Thorp concluded by stating that, if the U.S.S.R. still was thinking in terms of goods undelivered at the end of the war, he would like to have more of an explanation from the Soviet Side as to its interpretation of the word “consumed”. Consumed, he pointed out, could not be related to ownership but referred to the physical state of the goods and the possibility of their return.

After a brief pause the Soviet Ambassador replied that, with respect to the physical state of the goods, in peacetime an auto crashes and is consumed because of drunken driving or for other causes; however, in war, one shell is all that is necessary. He reiterated tersely that all goods transferred to consumers were destroyed, lost, or consumed. Goods received after September 2, 1945 and those received before that date and not distributed, were indicated in the paper submitted on June 11, 1947. The list includes a group of items, including aircraft, tractors, machinery, infantry armament, communciation equipment, railroad rolling stock, medical supplies, naval ships, food, industrial equipment, etc. The answer to the U.S. question of lost, destroyed or consumed is in that document.

Mr. Thorp agreed that goods which had arrived in the U.S.S.R. after September 2, 1945 were not consumed in the war and also that large quantities of articles which arrived before the end of the war were undoubtedly destroyed by bombs or in other ways. However, he said that all items which had arrived before September 2, 1945 could not have been destroyed, lost or consumed. Many items must still be usable and he hoped were still in use in the U.S.S.R., e.g., autos and trucks. He reiterated that the U.S. Side could not accept the automatic notion that all such items had been consumed. He explained that in the case of the U.K., a complete survey had been made of the items which still existed at the war’s end and had been the basis of the final settlement. In the case of the U.S.S.R., the U.S. had requested an inventory several times but had never received it. Consequently, the U.S. had used its best efforts to estimate the time the goods had lasted under war conditions. The figure arrived at was our best estimate based upon the examinations made in other countries. Mr. Thorp invited the Soviet Side to present evidence that the figures were incorrect. He described them as the best that could be arrived at by the U.S. Referring to ships, Mr. Thorp stated that they are not lost or consumed, nor were the refineries, power plants and many other items. Some had seen some destruction, undoubtedly, but the U.S. had made its best attempt to estimate this and had presented the resultant figures to Mr. Arutiunian.

The Soviet Ambassador replied by referring back to the U.S.S.R. document of June 11, 1947 which listed the items received before September 2, 1945 but undistributed on that date. He went back again to the preamble of the Agreement, stating that it indicated the Agreement was one of mutual aid and that it was now evident that the advantages received by the U.S., thanks to the U.S.S.R. war effort, were greater than those received by the U.S.S.R. under lend-lease. He repeated that the Agreement dealt with this aspect and that the defense of the U.S.S.R. was the defense of the U.S. After again repeating this theme, the Ambassador said that the U.S.S.R. must approach the Agreement as a political one and the Soviet position in this respect was correct. He said it was not clear to the U.S.S.R. Side why the U.S. ignored the fact that the Agreement of 1942 was preliminary only. If that fact were not considered by the U.S., it would be a unilateral action. He said the U.S.S.R. would agree to pay for goods in Soviet ports and bases not transferred to final consumers on September 2, 1945 and to pay on long term credits at agreed prices for all merchant ships and for the icebreakers. Also the U.S.S.R. was taking measures to make satisfactory agreements with U.S. holders of patents on processes in the oil refineries and was agreeable to consider the proposal of the U.S. regarding local currency. The Ambassador concluded that this offer covered all the points and reiterated that the U.S.S.R. did not approach the matter as a purely commercial transaction. He noted that two meetings had been devoted to the attempt to clarify the documents.

Mr. Thorp replied to the Soviet thesis that the lend-lease goods provided to the U.S.S.R. were of more benefit to the U.S. than to the U.S.S.R. He said that in meetings with Soviet and American officials on the Protocols,⁴ he had obtained the first hand impression that the items requested by the U.S.S.R. were of tremendous importance in winning the war. The question as to the goods used up in the winning of the war is not a problem. The only remaining problem is that concerned with the items left at the end of the war. Mr. Thorp stated that the U.S. recognized that the Agreement was preliminary but he also pointed out that it spells out the final considerations, one of which was the principle that items not used up are returnable to the U.S. or subject to settlement. While he agreed to the preliminary nature of the agreement, he said it was also obvious that, if the agreement has any meaning at all, these latter provisions contain that meaning and establish the principle of return. A way must be found to arrive at a figure based upon the cost of the residual articles to the U.S. and the value of these articles to the U.S.S.R. Such a figure would be a basis for a lump sum settlement which the U.S. side hopes may be agreed upon.

Before concluding Mr. Thorp again stated that, he was obliged to point out certain items not lost, destroyed or consumed. Ships, he stated, are the items in point. The U.S. expects the return of the eight vessels by the date set and, since these are needed in the U.S., they must be returned as stated in the U.S. notes.

The Ambassador stated that he would “deal with” the question of the ships and, as to the other points, the U.S.S.R. position is clear from the notes and discussions.

Mr. Thorp suggested adjournment and the Soviet Ambassador agreed.

The meeting was concluded at 5:50 P. M.

1. These are not agreed combined minutes. This meeting was held in the Department of State, beginning at 4:00 p. m.
2. See the first estimated inventory handed to the delegation of the Soviet Union at the lend lease negotiations at the meeting on May 13, 1947, and the supplementary memorandum of June 10, handed to the Soviet delegation on the next day; Foreign Relations, 1947, vol. iv, p. 687 and p. 692.
3. Regarding the first loan of one billion dollars for the Soviet Union in 1941, see Foreign Relations, 1941, vol. i, pp. 851–852, 855, 857, and also pp. 654–655. For the second loan of one billion dollars in 1942, see ibid., 1942, vol. iii, pp. 690–691, 691–692, and 693–694. Further see the exchange of notes between Secretary of State Cordell Hull and the Ambassador of the Soviet Union Maxim Maximovich Litvinov on June 11, 1942 at the time of signing the Lend Lease Agreement, whereby these two prior arrangements were considered as being replaced and rendered inoperative, together with a statement by the Department of State issued to the press on June 12, 1942; Department of State Bulletin June 13, 1942, pp. 531–535.
4. For these protocols see Department of State Publication 2759, European Series 22, Soviet Supply Protocols (Washington, Government Printing Office, [1948]), and the press release of April 9, in Department of State Bulletin, April 18, 1948, p. 523.