The Secretary of State to the Ambassador of the Soviet Union (Panyushkin)
Excellency: I have the honor to acknowledge the receipt of your note of June 25, 1948 replying to my note of May 7, 1948 on the subject of the settlement of the obligations of your Government under the Lend-Lease Agreement of June 11, 1942.
I. The Government of the United States has noted the statement contained in your note that the Soviet Government is prepared to assist in the finding of practical solutions to the questions which must be resolved before agreement on a complete and final settlement can be attained.
II. This Government has noted the statement also contained therein that the Soviet Government agrees to the settling of the question of compensation for civilian-type lend-lease articles by the fixing of an over-all sum reflecting the fair value of all such articles transferred to your Government up to September 20, 1945 but not destroyed, lost or consumed in the war period, i.e., prior to September 2, 1945; and by the payment by your Government of such a sum on a long-term credit basis. The civilian-type articles referred to are understood by this Government to consist of all lend-lease articles transferred to your Government under the Agreement of June 11, 1942 except ships and [Page 1005] military articles of types included in Lists Nos. 1, 2, 3 and 4 handed to representatives of your Government on May 7, 1947. The foregoing is, of course, not applicable to articles for which payment arrangements have already been concluded in the Agreement of October 15, 1945 and under the terms specified in Mr. Crowley’s letter to General Rudenko1 of May 30, 1945, and does not in any way affect or modify such payment arrangements.
However, the fixed sum of 170 million dollars proposed by your Government is not considered by this Government to constitute fair and reasonable compensation for the civilian-type articles described above. In as much as your Government did not provide an inventory of lend-lease articles remaining at the war’s end as requested by this Government, the inventory estimate prepared by the Government of the United States has afforded the only available indication to this Government of the magnitude of the inventory of civilian-type articles for which payment is requested. The memorandum presented to representatives of your Government on May 13, 1947 indicated the depreciated value of this estimated inventory of civilian-type articles, based on cost to the Government of the United States, as approximately 2,600 million dollars as of September 1945. This estimate is based upon United States Government records of lend-lease articles that arrived in Soviet or Persian Gulf ports. With respect to consumable supplies, in the great majority of instances, only those articles which arrived after June 1, 1945 were included in the estimate as not having been consumed during the period of the war. In no instance were consumable articles included which arrived prior to March 1, 1945. With respect to durable articles intended for use in the Soviet theater of operations, the estimate included liberal allowances for combat losses. With respect to durable articles intended for use in the areas untouched by combat damage, including most of the large quantities of industrial machinery and equipment supplied under lend-lease, the values of such articles were estimated by applying to the original cost the most liberal depreciation rates in use in the United States. Accordingly, as the Soviet government has been informed, the Government of the United States considers the total of 2,600 million dollars as a minimum estimate of the depreciated cost of the inventory of civilian-type articles remaining in the Soviet Union as of September 1945.
The Government of the United States, being desirous of achieving a lend-lease settlement at the earliest possible date as a matter of urgency, and bearing in mind the expressed desire of the Soviet Government [Page 1006] to assist in this connection, proposes that the sum of 1,300 million dollars be agreed upon as the fixed over-all sum to be paid by the Soviet Government in consideration of the transfer by the Government of the United States of full title to all civilian-type lend-lease articles transferred to your Government up to September 20, 1945 except for those articles paid or to be paid for under arrangements already concluded.
The Government of the United States cannot accept the proposal of your Government that payment of the over-all sum be made in fifty equal annual installments beginning five years after the conclusion of the agreement, nor can it accept the proposal that accrual of interest on the unpaid balance also begin five years after the conclusion of the Agreement. The Government of the United States proposes instead that interest on the over-all sum accrue from July 1, 1946 at the rate of 2% per annum, that the interest accrued to July 1, 1948 be paid upon conclusion of this agreement without additional charge, that the interest accruing from July 1, 1948 be paid annually on July 1, 1949 and July 1, 1950, and that beginning July 1, 1951 interest and principal be paid in thirty equal annual installments, each installment to consist of the full amount of the interest due for the year preceding the July 1 on which the payment is made and the remainder of the installment to be the principal due in that year. The Government of the United States also is willing to include in the settlement agreement a provision that if, by agreement between our two Governments, it is determined that because of extraordinary and adverse economic conditions arising during the course of payment, the payment of any installment would not be in the joint interest of both Governments, payment may be postponed for an agreed upon period.
III. With respect to the question of military-type articles which remain in the Soviet Union, the Government of the United States has noted that the Soviet Government agrees to the inclusion of a provision in the settlement agreement whereby the Soviet Government would undertake not to sell or transfer any of these articles to third governments or their nationals. This Government cannot accept the position of your Government, however, that no reason exists for inclusion in the settlement agreement of a provision granting to the Government of the United States the right to recapture remaining lend-lease articles of a military character, on the grounds that such a right is not envisaged in all similar agreements of this Government with other countries and that the acceptance of this proposal would create vagueness in relations and uncertainty as to the final lend-lease settlement. The Government of the United States points out to the Government of the Union of Soviet Socialist Republics that all lend-lease settlements of the scope and magnitude of that now under negotiation with your [Page 1007] Government have included a provision for the recapture of military-type articles and that, in the implementation of those agreements, no significant difficulties of the types mentioned in your note have been encountered.
IV. With respect to the question of the three icebreakers of the United States Navy, your note, in proposing the long-term lease of these vessels to your Government, did not respond to the request of this Government, as set forth in my note of May 7, 1948, that it be notified immediately as to early dates upon which they would be returned to the United States; nor did the proposal of your Government that agreed conditions for the return of twenty-eight frigates of the United States Navy be included in the lend-lease settlement agreement respond to the request of this Government, also set forth in my note of May 7, 1948, that it be notified immediately of early dates upon which these vessels would be returned to the United States. Until the conclusion of an over-all settlement agreement and thereafter to the extent provided by the settlement agreement, the obligations of your Government under the Agreement of June 11, 1942 remain in full force and effect. Article V of that Agreement provides that the Soviet Government will return to the United States all articles which are determined by the President of the United States “to be useful in the defense of the United States of America or of the Western Hemisphere or to be otherwise of use to the United States of America.” Accordingly, the Government of the United States demands under the terms of Article V of the Agreement of June 11, 1942, the immediate return by the Government of the Union of Soviet Socialist Republics of the three icebreakers and twenty-eight frigates of the United States Navy and requests that it be advised urgently that these vessels are available for immediate transfer to representatives of this Government at ports in the Continental United States to be designated by the United States Navy Department. The Government of the United States has an immediate use for these vessels. It is pointed out in this connection that the return of articles under the terms of Article V of the Master Agreement of June 11, 1942 is not dependent upon the use of such articles to be made by the Government of the United States.
With respect to other vessels of the United States Navy “leased” to your Government, the Government of the United States requests the early return in good condition to United States ports of the following numbers of vessels of the types indicated:
|Landing Craft, Infantry||15|
|Large Submarine Chasers (SC)||39|
|Small Submarine Chasers (PTC and RPC)||31|
Provided a mutually satisfactory lend-lease settlement is promptly agreed upon by our two Governments, the Government of the United States is willing, at agreed prices, to sell to the Soviet Government as a part of such settlement and in accordance with the surplus property procedures outlined to representatives of your Government on June 25, 1947, the following naval craft which are among those stated in your note to be desired by the Soviet Government:
|Large Minesweepers AM||28|
|Large Submarine Chasers (SC)||15|
|Landing Craft, Infantry||10|
|Landing Craft, Tank||17|
|Landing Craft. Mechanized||50|
|Floating Repair Shops||4|
With respect to the ninety vessels of the United States Navy which are stated to be technically worn out and to have suffered battle damage, the Government of the United States requests that such of these vessels as are capable of being returned to the United States be delivered to United States ports in the immediate future and that the remaining vessels be destroyed by the Soviet Government. Certified reports of the destruction of the latter vessels, identified by hull numbers as set forth in List No. 2 handed to Soviet representatives on May 7, 1947, should be forwarded to the Government of the United States at the earliest opportunity.
The Government of the United States, in order to make the necessary arrangements for the sale to the Government of the Union of Soviet Socialist Republics, under the surplus property procedure, of the 242 vessels described above, and for the return to the United States of 186 vessels as listed above, requests information at an early date as to the general condition of each of these vessels by hull number. The United States Government will designate by hull number the 186 vessels which it wishes returned, and the 242 vessels which it is willing to sell.
The Government of the United States desires to be informed also at an early date, of the hull numbers of those thirty-six vessels included in List No. 2 which were not included in the report attached to your note of June 25, 1948 and are therefore presumed to have been lost or destroyed. The Government of the United States desires to be [Page 1009] informed as fully as possible concerning the fate of each of these vessels.
V. The Government of the United States has considered the offer of your Government to acquire the pre-war-built merchant vessels and tug for cash in the amount of Seven Million Dollars. It is necessary to point out to your Government that transfer of full title to these vessels can be accomplished only as a part of an overall lend-lease settlement between our two Governments and then only if such settlement is concluded promptly. On June 25, 1947, this Government made known to representatives of your Government the minimum prices acceptable for these vessels, i.e. the world prices as of September 2, 1945. A total of Seven Million Dollars is not considered by this Government as adequate compensation for these vessels, especially since this amount is considerably less than the amount of charter hire which would apply to the charter of these vessels for the period from September 2, 1945.
VI. The Government of the United States has noted that authority has now been given to the Government Purchasing Commission of the Soviet Union in the USA to begin negotiations with United States firms holding patents on processes used in connection with the oil refinery plants transferred to your Government under the Lend-Lease Act. The interested patent holders are being requested to submit their statements to the Purchasing Commission. In view of the above, this Government expects that prompt settlements with the patent holders will now be accomplished in fulfillment of the obligations of your Government under Article IV of the Agreement of June 11, 1942.
The Government of the United States notes the statement of your Government that a favorable decision on the question of compensation to patent holders can be made only in those cases where the patented processes may be utilized as a result of the delivery of complete units to the Soviet Union. It is the opinion of this Government that the settlements between the Soviet Government and the United States patent holders should be such as to provide full compensation to the patent holders for all patented information and equipment furnished to the Soviet Government by the Government of the United States under the Lend-Lease Act.
The Government of the United States views with utmost seriousness the fact that the responses of your Government to the proposals made by this Government with respect to several aspects of the settlement negotiations have not been such as to permit the conclusion of a satisfactory settlement agreement. Furthermore, as stated in its note of May 7, 1948, the Government of the United States cannot long defer final decisions upon the disposition of such lend-lease articles as the merchant vessels which can be retained by the Soviet Government only if a general settlement is promptly concluded. Therefore, not-withstanding [Page 1010] certain offers which this Government has made in connection with its settlement proposals, unless a mutually satisfactory settlement is promptly agreed upon by our two Governments, this Government will have no alternative but to withdraw its offers to transfer full title to certain lend-lease articles to the Government of the Union of Soviet Socialist Republics and will be obliged to exercise its rights under Article V of the Agreement of June 11, 1942 by requiring the return of such articles to the United States. This is particularly applicable to all merchant and naval vessels. It applies also to military vessels and to certain other lend-lease articles which would be of use to the United States.
A separate communication2 will be forwarded to Your Excellency concerning the settlement of the claims of your Government relative to the Agreement of October 15, 1945.