The Ambassador of the Soviet Union ( Panyushkin ) to the Secretary of State

No. 121

The Government of the Soviet Union has carefully considered the proposals set forth in your note of May 7, 1948 and has instructed me to communicate the following:

I. In the note of the Embassy of the USSR of December 16, 1947 addressed to the Department of State of the United States, considerations were set forth which, in the opinion of the Government of the Soviet Union, should serve as a point of departure in the settlement of the lend-lease account between our countries.

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These considerations were based both on the general content and aims of the agreement of June 11, 1942 between the Soviet Union and the United States and on the text and sense of the separate protocols to this agreement.

The Soviet Government continues to maintain the principles set forth in the preamble to the above-mentioned note of the Embassy of December 16, 1947 and cannot recognize as correct either the statements made in your letter of January 23, 1948 to the effect that these principles have no relation to the question of the settlement for the lend-lease articles remaining in the USSR or the view expressed in your note of May 7, 1948 with reference to the legal status of these articles.

However, desiring to facilitate the attainment of an agreement, the Soviet Government does not propose to engage in a further discussion of the principles which should serve as a basis for the lend-lease settlement and is prepared to continue to assist in finding a practical solution to the questions in dispute on conditions acceptable to both countries.

The Government of the Soviet Union, like the Government of the United States, is not satisfied with the results attained thus far in the negotiations. In this connection it should be noted that until recently no proposals were put forward from the American side which could serve as a basis for a satisfactory settlement of the questions which are the subject of the negotiations.

Moreover, the Soviet side in the course of the negotiations met the views of the American side on such questions of substance as the return to the United States of seven tankers and one dry cargo vessel before a general agreement for lend-lease settlement was reached and on the purchase of merchant vessels constructed during the war at prices and on terms which were proposed by the American side.

The attainment of an agreement on these questions already constitutes a certain contribution toward the solution of the problem of a lend-lease settlement.

It should be recalled that the readiness of the Soviet Union to assist in the settlement of this account was manifested even earlier and led to the conclusion on October 15, 1945 of an agreement whereby the Soviet Union acquired, on credit terms, equipment and materials which had been prepared for shipment to the Soviet Union in the United States or which were in the process of manufacture at the end of the war. However, there has been a violation of this agreement on the part of the United States which found expression in the cessation of shipments to the Soviet Union of parts of equipment destined for shipment. These acts which constitute an act of inadmissible discrimination have caused damages to the Soviet Union, in which connection an additional question has arisen which is subject to settlement.

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II. The Soviet Government has given the necessary attention to the proposal contained in your note of May 7, 1948 that, with a view to bringing the negotiations to an early conclusion, it should present an acceptable proposal for the payment of a sum which it considers will reasonably reflect the fair value of all articles of a civilian character which remained in existence at the end of the war, with the exception of articles for which payment was made under credit terms or which were acquired for cash. In view of this proposal from the American side the Soviet Government declares its agreement to settling this question on the basis of the fixing of an acceptable over-all sum as compensation.

At the same time the Soviet Government notes with satisfaction the recognition given in your note to the fact that the value of many of these articles for peace time use, is considerably less than it was for war use, and that the value to the Soviet Government of such articles for use after September 2, 1945 may be considerably less than their cost to the Government of the United States.

In view of the foregoing, the Soviet Government considers that the sum of One Hundred Seventy Million Dollars is a figure which represents fair compensation for the lend-lease articles furnished to the Soviet Union and which were not destroyed, lost or consumed at the end of the war. At the same time the Soviet Government proposes that the payment of this amount be made in fifty equal annual installments, beginning five years after the conclusion of the agreement for lend-lease settlement, with interest at the rate of 2% per annum, the computation of interest on the amount of the debt likewise to begin five years after the conclusion of the agreement, which corresponds to existing precedents.

III. With reference to the question of residual lend-lease articles of a military nature which may still remain in the Soviet Union, the Soviet Government must point out that the identification of such remaining items would entail great technical difficulties. Furthermore, the Soviet Government considers that the question of these remaining items has no practical significance for the United States, which is confirmed particularly by the presence in lend-lease agreements of the United States with certain other countries of provisions the sense of which is that the Government of the United States retains only the formal right to demand the return of military items supplied under lend-lease.

The Soviet Government, therefore, considers that there is no reason to set forth in the lend-lease agreement the right of the Government of the United States of America to demand from the Government of the Soviet Union the return of the remaining lend-lease items of a military character, the more so since such a right is not envisaged in all similar agreements of the United States of America with other [Page 992] countries and since the acceptance of the proposal of the Government of the United States of America would create vagueness in relations and uncertainty regarding the final lend-lease settlement.

At the same time the Government of the USSR has no objection to a provision in the agreement whereby the Government of the USSR would not sell or transfer to other countries the remaining lend-lease items of a military character.

IV. The Soviet Government declares its agreement to the inclusion in the agreement for lend-lease settlement of conditions for the return to the Government of the USA of 28 frigates received under lend-lease. On this question the Soviet Government proceeds on the assumption that these vessels are necessary to the Government of the USA itself, that it does not propose to sell or transfer them and that accordingly, no discrimination vis-à-vis the Soviet Union occurs.

With reference to the three ice-breakers received under lend-lease, in as much as no agreement has been reached in the negotiations for their sale to the Soviet Union in accordance with the proposals submitted from the Soviet side, the Soviet Government now proposes that these ice-breakers be made available to the Soviet Government on a long-term lease.

V. In the enclosure to the present note, data is set forth concerning the remaining vessels received by the USSR under lend-lease from the United States Navy Department, of which 518 units remain.

The Soviet Government declares its desire to acquire at reasonable prices 428 of these vessels, which are indicated in the above-mentioned enclosure.

With reference to the remaining 90 vessels, which are worn out and have suffered battle damage, the Soviet Government is prepared to consider a proposal from the Government of the United States of America concerning the disposition of these vessels.

VI. The Government of the USSR declares its readiness to acquire 45 merchant vessels of pre-war construction and one tug turned over to the Soviet Union under lend-lease, and to effect payment for three lend-lease vessels of pre-war construction which were lost after March 18, 1946. Considering the prices of these vessels as indicated by the American side as inappropriately high, the Soviet Government on its part proposes as fair payment and compensation for all the above-mentioned vessels the amount of Seven Million Dollars. With reference to the terms of payment the Soviet Government is agreeable in accordance with the proposal of the Government of the USA to making payment in cash.

VII. The Soviet Government has authorized the Government Purchasing Commission of the USSR in the USA1 to begin negotiations [Page 993] with the interested American firms with a view to settling the question of payments to these firms in connection with the use in the Soviet Union of patents for oil refining processes belonging to them which were transferred to the Government of the USSR by the Government of the USA during the war, at the same time bearing in mind that the agreements with patent holders reached in these negotiations will enter into effect simultaneously with the general lend-lease settlement between the two Governments.

In accordance with the foregoing, the interested patent holding firms may now submit their statements to the Purchasing Commission.

It is obvious that a positive solution of the question of compensation to the patent holders in connection with the use of their patents in the Soviet Union can apply only in those cases where, as a result of the complete delivery of the appropriate equipment to the Soviet Union, the processes which are the subject of the patents can be used.

Accept [etc.]

A. Panyushkin

List of Surviving Vessels Received by the USSR Under Lend-Lease From the US Navy Department

Vessels on hand Vessels which USSR desires to purchase Vessels which are technically worn out and have battle damage
1 2 3 4
Total 518 428 90
1. Large minesweepers AM 31 28 3
2. Minesweepers YMS 41 30 11
3. Large submarine chasers 74 54 20
4. Small submarine chasers 56 31 25
5. Torpedo boats 193 167 26
6. Landing craft, infantry 25 25
7. Landing craft, tank 17 17
8. Landing craft, vehicle 2 2
9. Landing craft, support 2 2
10. Landing craft, mechanized 51 50 1
11. Floating repair shops 4 4
12. River tugs 15 15
13. Pontoon barges 6 6
14. Motor launch 1 1
  1. On the formation of this commission, see Foreign Relations, 1942, vol. iii, p. 696, and footnotes 71 and 72.