Department of Defense Flies

The Acting United States Military Governor for Germany (Hays) to the Department of the Army

top secret

CC 8633. Personal for Voorhees info: USMA Paris for Jessup. Very unsatisfactory 6 hour meeting today on lifting trade restrictions. We went over amended Russian proposals given in CC 8599.1 Wilkinson insisted on rephrasing paragraph 1 to eliminate any implied recognition of validity of 1948 Trade Agreement, by beginning: “To agree that goods listed in the Berlin Trade Agreement for 1948 which have not already been shipped, shall be licensed for shipment to the extent that the buyers, et cetera.” Russian Delegate emphatically declared this complete repudiation NY agreement2 since it did not [Page 777] recognize continued existence of 48 Trade Agreement. Wilkinson then stated that his government had informed him there was nothing in the NY agreement which calls for reestablishment of agreement, using language from 3d paragraph W[ARX?] 88649.3 British, who had similar instructions, supported position. French also agreed. Russian then disgustedly went on to succeeding paragraphs.

Paragraphs 2 and 3 were agreed. If you will examine language of paragraph 3 you will see operative words are “enable them”. There is no implication that MG assumes any responsibility for execution contracts.

Paragraph 4 was amended to read “British, American and French authorities will take practical measures for the return or replacement in cash or kind, as rapidly as possible, having the intention to complete the operation by the 1st of June 1949 of all goods”, et cetera. Minutes are to reflect (a) This paragraph does not refer to commercial transactions. It has to do with Soviet stocks which we seized (and vice versa) during blockade, and with restitution items; (b) British and Americans expressed doubt as to realism of 1 June date and said they would do their best but would not consider selves in default if this date not met; (c) Both sides to assist in this matter by providing lists of goods claimed; (d) It is understood paragraph applies to all sectors of Berlin as well as to all zones; (e) It refers to physical release of only those restitution items which have already been approved for release to USSR by competent Western Allied Restitution authorities.

Wilkinson asked for deletion paragraph 5 as being vague and unnecessary as to first sentence, since Western Zones had never denied right of German firms to carry out such commerical transactions, and therefore this could not properly be included in a paper dealing with lifting of restrictions. As regards second sentence, Germans are already meeting, so this provision unnecessary. Wilkinson proposed substitute paragraph: “German firms in both areas are authorized to carry out all commercial transactions necessary to the implementation of the present agreement.” Russians insisted on their language so paragraph passed over.

Paragraph 6 caused final blow-up. British Delegate, under instructions, said no clearing on their financial agreement necessary, and that trade could be handled by buyer and seller on basis mutually agreeable. Wilkinson said he considered this solution the best, but did not exclude the possibility of some type of clearing arrangement. Russians stated that this proved neither we nor our governments were sincere in carrying out NY agreement since obviously trade could not be restored without some mechanism for financial settlement, and that our position [Page 778] on this point, added to refusal to recognize 48 Trade Agreement, made further conversation useless. Wilkinson rejected this statement and pointed out Transport Meeting going on at same time in same building was dealing with Western Powers claims that Soviets were not lifting transport restrictions. Obviously, in such complicated matters, there was room for 2 points of view, and it was our job to attempt to close the gap and not merely to accuse anyone who differed from us of acting in bad faith. British Representative summarized extent of agreement already reached, and suggested deferring further action on clearing account until we had report from East-West German meetings, possible in 2 or 3 days, from which we might be able to get basis for clearing mechanism.

Russian refused to leave initiative to Germans and emphasized that since before 1 March 48 there had been a bank clearing system in effect, and that this had been vital to flow of trade, they were entitled to demand equivalent clearing arrangements now, on grounds lack of one restricts trade. Wilkinson pointed out that NY discussions had recognized difficulties arising from 2 currencies and left them for CFM discussion. It had been recognized that these difficulties could not be overcome easily nor had it been intended that local measures attendant upon lifting of Blockade should be more than stop-gaps. We felt trade could and would flow on basis direct buyer-seller arrangements.4

Finally, Russian suggested meeting of financial experts Friday to discuss clearing account further, and this was agreed. However, there is little likelihood any agreement on terms acceptable to us.

All during the day reports, in from Helmstedt, of hundreds of East-bound trucks held up, and finally trains of food as well. Russians disclaimed all knowledge and said it was transport matter, but when we referred to Soviet Transport Chief in nearby meeting, he said it was foreign trade matter. Finally, Vassilieff agreed to look into the matter. When it was suggested that failure Sovzone to receive goods from Bizone was due to this restriction on traffic, Russian slipped by saying “No. Those (restrictions) have only to do with Berlin”.

Later, Russian officer at Helmstedt said he could not pass any commercial goods for Berlin unless, in addition to Eastern Zone Warenbegleitschein, they also had evidence of formal approval of Deutsche Wirtscaftskommission for the import into Berlin. This measure of course give Soviet complete control of all commercial goods going into Berlin, and since they have so far refused to approve any exports from Berlin, the situation is very unsatisfactory. It is likely that these [Page 779] nuisance tactics are directed at our Quadripartite Trade Talks to impress upon us that if we don’t give way on our alleged restrictions, Russians will not effectively lift Blockade.

We cannot see any advantage in modifying our present position, even if Russians get tougher. We have fully met our obligation under NY agreement, and we do not feel it would be sound local or international tactics to meet their unreasonable demands.

Will discuss with British tomorrow joint position on clearing account following lines paragraph 1, WX 88726,5 and paragraph 3, Murphy’s cable of 17 May.6

Transport meeting discussed:

Use of Sovzone locomotives on Berlin trains. Russian adamant. We object on principle rather practice.
Road transport. Russian disclaimed all responsibility and said this matter for economic authorities.
Passenger train schedules. Russian admitted service had been poor and promised correct at once.
Number of trains. Russian said we only entitled to 16 trains of 10 September 45 Agreement, and that any additional trains running at 1 March 48 were due to his good will and not to any rights of ours. We demand 20 trains. Russian said he would discuss with his superiors. If he considers there is any point, he may agree further meeting Friday.
IWT. Russian said he would license craft if we sent him necessary applications. We will send application for over 1000 barges, and see what happens.

[ Hays ]
  1. May 14, p. 766.
  2. For the text of the communiqué issued at New York on May 5, 1949, see editorial note, p. 750.
  3. May 14, p. 769.
  4. In telegram WARX 88904, May 19, to Berlin, not printed, the Department of the Army informed Hays that the idea of a clearing agreement appeared reasonable and recommended that the financial advisers work out a temporary agreement on May 20. (Department of Defense files)
  5. Not printed; the text of this cable was transmitted to Berlin in telegram 581, May 17, p. 775.
  6. The reference here is to telegram 580, to Berlin, p. 773.