Memorandum by Mr. Paul H. Nitze, Deputy to the Assistant Secretary of State for Economic Affairs, to the Under Secretary of State (Lovett)
The attached note1 to the Soviet Ambassador in reply to his note of June 25 on Lend-Lease settlement matters has the approval of the interested offices of the Department and is now ready for transmission. The US–USSR Lend-Lease Settlement Committee which includes representatives of the Treasury and Commerce Departments, has recommended that the note be handed to the Soviet Ambassador by the U.S. negotiator in order to emphasize the US position and, if possible, to determine the limits of the Ambassador’s negotiating authority.[Page 1003]
The proposed note is in keeping with our policy of insisting upon a lend-lease settlement with the Soviet Union which is generally comparable with the settlements with other major lend-lease recipients, notably the UK and France. The note’s main points are:
- (a) Rejection of the Soviet offer to
compensate the US for civilian-type articles in inventory as of
V–J Day by payment of $170 million over fifty years with
interest at 2% and five-year period of grace on payment of both
principal and interest.
(b) Proposal that $1,300 million be set as the amount to be paid for the civilian inventory over thirty-five years with interest at 2%, and a five-year period of grace as to principal only. These are the “French” terms recently approved for the USSR settlement by the National Advisory Council.2 The figure of $1,300 million equals one-half of the minimum depreciated cost value of the civilian inventory (without taking account of an obsolescence factor) as estimated by the United States in the absence of a Soviet inventory or estimate.
- Over Soviet objections, our note insists upon the retention by the US in the settlement of the right to recapture military-type articles, i.e. articles of strictly combat nature. This follows the precedents of the British and French settlements which required no payment for military articles but contained recapture clauses and statements that the US did not intend generally to exercise this right.
- (a) Demands categorically the return of
three Ice-breakers and twenty-eight Frigates of the US Navy,
rejecting the Soviet proposal for the long-term lease of these
vessels. Return of the Ice-breakers was first requested in July
Frigates were formally requested in January of this year.
(b) Requests specifically for the first time return of 186 other naval craft in accordance with Secretary of the Navy Forrestal’s letter of June 11, 19474 and offers to sell as surplus property 242 naval craft. Heretofore the US has told the Soviets that it would be willing to sell certain naval vessels in certain categories if it received an inventory of the vessels remaining in Soviet possession. This inventory was received with the Soviet note of June 25 after repeated requests.
- Rejects the Soviet offer to purchase pre-war-built merchant vessels for $7 million cash. Our asking price is $15 million cash based on world prices as of the end of the war (September 2, 1945). Charter hire alone for these vessels would amount to about $8 million from September 2, 1945 to the present. Agreement has already been reached for disposal of war-built merchant vessels on terms of Merchant Ship Sales Act. These terms have been approved by N.A.C.
- States that since the authority has now been given to the Soviet Purchasing Commission to negotiate license agreements with US patent holders covering patented processes in lend-lease oil refineries, this problem should be disposed of promptly. In response to the Soviet statement that patent problems can be solved only as they pertain to plants completely delivered, the proposed note states the US opinion [Page 1004] that the settlements with the patent holders should make full compensation for all patented information and equipment furnished under lend-lease.
- The note as a whole is strong and closes by stating the seriousness with which the US views the failure of the USSR to respond to US proposals in a manner which would permit a satisfactory settlement. It states that the US will have no alternative but to request return of certain articles such as the merchant and naval ships and possibly other articles, if a satisfactory settlement is not promptly agreed upon. This note therefore advances the settlement negotiations to the point where they will either succeed in producing agreement or will fail, thus requiring positive action by the US with respect to articles which should be recaptured.
It is recommended that you approve my calling in the Soviet Ambassador and handing him the attached note in the course of discussions of a lend-lease settlement.5
- Not attached to file copy. See the note of September 3, 1948, infra.↩
- This action No. 275 was taken by the National Advisory Council at its 101st meeting on August 6, 1948.↩
- Note of July 26, 1946, Foreign Relations, 1946, vol. vi, p. 852.↩
- Ibid., 1947, vol. iv, p. 694.↩
- A notation in red pencil at the beginning of this memorandum reads: “Cleared with Secretary for confidential (no public release) delivery to Soviets Sept. 3. L”.↩