Memorandum by the Director of the Office of European Affairs (Hickerson) to the Under Secretary of State (Lovett)1


The Soviet Ambassador, in his conversation with you on July 1, 1948, raised two apparently separate and independent economic questions: (1) the annual interest payment due July 1, 1948 on the post-war

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Lend-Lease “Pipeline” Agreement of October 15, 1945 and (2) payments due American firms by the Soviet Government for goods which, because of present US export control policy, cannot be shipped to the Soviet Union. However, by his reference to the interest date in response to your statement on the claims problem, the Ambassador may have intended to indicate that payment of the lend-lease interest was dependent upon a favorable reply concerning export licenses for the goods now subject to claims by the American firms. In a conversation with EE–Mr. Hooker on July 6, Mr. Krotov, First Secretary of the Soviet Embassy, in asking when answers could be received to the Ambassador’s questions, further complicated the matter by expressing his understanding that the goods referred to by the Ambassador were those which had not been delivered by the US under the Lend-Lease “Pipeline” Agreement rather than to Soviet private purchases now held because of export controls. This statement by Mr. Krotov may indicate that the Ambassador intended to make the payment of the lend-lease interest dependent upon completion of deliveries under the “Pipeline” Agreement.

In making payment of the “pipeline” interest a year ago, the Soviet Ambassador stated in a note dated July 4 that, as a result of the non-delivery by the US of certain items included in the “Pipeline” Agreement, a violation of the Agreement had occurred and $20,000,000 worth of equipment delivered in incomplete units could not be utilized in the Soviet Union until it was delivered in full. Accordingly, the Soviet remittance had been reduced by $490,000. After receiving a second protest from the Soviet Government dated September 10, 19472 a note was forwarded to the Soviet Embassy on November 17, 1947 stating that since legislative authority had ceased, no further lend-lease deliveries could be made and that the Department was prepared to discuss the value of Soviet losses resulting from the termination of deliveries. In a recent Soviet note dated June 25, 1948 on the over-all lend-lease settlement negotiations the Soviet Government again protested the U.S. violation of the “Pipeline” Agreement and suggested the “pipeline” problem as an additional matter which should be resolved in the over-all lend-lease settlement discussions. It is the U.S. position, however, in view of apparent Soviet reluctance to conclude a reasonable over-all settlement, not to discuss the “pipeline” question in this connection, but to keep it separate, relying upon the Soviet obligation in that Agreement, in spite of our failure to complete delivery of the goods.

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In order to respond to and, if necessary, to clarify the questions of the Soviet Ambassador, it is recommended that he be called to the Department and informed as follows:

Assuming at the outset that the Ambassador intended to raise the two questions independently—
“With regard to your question concerning interest due July 1 on the Lend-Lease ‘Pipeline’ Agreement of October 15, 1945, the U.S. Government is willing to accept a reduced payment of interest computed on the same basis as last year. This payment should be slightly greater than that made a year ago since additional billings have been rendered to the Soviet Government for items completely delivered. The acceptance of a reduced amount of interest at this time will be considered by the Government of the United States as tentative pending the outcome of discussions proposed in the U.S. note of November 17, 1947. These discussions, which it is hoped may be commenced shortly, should provide equitable adjustments reflecting the losses experienced by the Soviet Government as a result of incomplete deliveries. You will be informed in the near future as to the date upon which these discussions may begin.”
“With regard to the claims of American firms against the Soviet Government for goods which cannot be exported to the Soviet Union because of export control procedures, the Department of State cannot consider this matter until it has received from your Government the details of these claims, including descriptions of the goods and their values, the amount of the claims, the names of the claimants and against whom the claims have been made, i.e. the Amtorg Trading Corporation or the Government Purchasing Commission. Upon receipt of this information the Department will be able to present the problem to the Department of Commerce and other interested agencies of the Government.”
If the Ambassador should take the position that the “pipeline” interest payment will not be made until export licenses are granted for the goods now the subject of claims by U.S. firms—

“The U.S. Government sees no relation between these two problems and expects a reasonable payment of interest due July 1, 1948 on the basis already indicated (A–1. above). At the same time the Department, after receiving the necessary details (A–2. above) will submit the matter of claims to the interested agencies of the Government for consideration as a separate problem.[”]

If the Ambassador should take the position that the interest payment will not be made until all items included in the “Pipeline” Agreement have been delivered in full—

“Article I of the Agreement of October 15, 1945 between our two Governments reads as follows:

All articles and services undertaken to be provided by the Government of the United States under this agreement shall be made available [Page 1000] under the authority and subject to the terms and conditions of the Act of Congress of March 11, 1941, as amended, and any acts supplementary thereto.[”]

The termination of deliveries under the Agreement was the result of an Act of Congress which was envisaged by the language of Article I. However, the U.S. Government recognizes that certain losses and damages have been experienced by the Soviet Government by the non-delivery of certain items included in the Agreement and is prepared to make equitable adjustments. The Government of the U.S. expects a reasonable payment of interest as already indicated (A–1. above)[.]

  1. A slightly rewritten version of the memorandum was dated August 9, but it contained no signficant changes.
  2. Foreign Relations, 1947, vol. iv, p. 706.