Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

861.24/5–949

Memorandum by the Assistant Secretary of State for Economic Affairs (Thorp) to the Secretary of State

secret

[Washington,] May 9, 1949.

Discussion:

Lend-Lease settlement discussions with the Soviets which began in April 1947 have made little appreciable progress. The two sides remain far apart on the amount to be paid by the USSR for civilian-type items remaining on V–J Day. As against a United States estimated cost of these items of $2,600 million and as our first step in the bargaining process we have offered to accept $1,300 million. While we have not finally determined the minimum sum acceptable, it has been the consensus that an amount computed under the general principles followed in the UK settlement,¹ $500–$600 million, would be practicable. The Soviets have offered only $200 million and disagree as to the credit terms of payment. The Soviets also disagree with our proposed offer to permit retention of military items without payment, objecting specifically to US recapture rights. With respect to our demands for prompt compensation of US firms for the use of their patented processes in Soviet lend-lease oil refineries, the USSR has delayed making settlements with the patent holders, demanding new process information and refusing settlements except in conjunction with an over-all lend-lease settlement. These conflicting points of view are set forth in the US note of September 3, 1948² (Tab A) and the Soviet reply of December 9 (Tab B). Tentative agreement has been reached on the amount and terms of sale of the 36 war-built merchant vessels now remaining in Soviet custody and we are ready to accept, also tentatively, the $13 million offer in the Soviet note of December 9 with respect to the sale of the old pre-war built merchant vessels. Our agreement to sell these vessels has since the outset been conditioned upon a prompt satisfactory over-all settlement.

In its note of December 9, 1948 the Soviet Government agreed to return three icebreakers and 28 frigates of the US Navy, repeatedly demanded by us, but proposed that the procedures and dates for their return should be agreed upon by experts of both parties. With respect to the 518 other naval craft remaining in Soviet custody, the return of 186 of which has been demanded, the Soviets have proposed that the vessels to be returned and the terms of sale of the remainder also should be discussed by the experts. In a conversation with the Soviet Ambassador on January 4, 1949 and by note of January 11 (Tab C) the Ambassador was advised of our agreement that the details with respect to naval craft be discussed by the experts and he was requested to name the Soviet experts and the date on which they would be available to begin discussions. Our note of January 11 remains unanswered and the failure of the Soviet Government to return the naval craft in accordance with our demand is a clear violation of its obligations under Article V of the Master Lend-Lease Agreement.

To initiate further discussions of general lend-lease matters while the Soviet Government continues to disregard its specific obligation to return the naval craft would indicate weakness in our position as to Soviet obligations under the Master Lend-Lease Agreement. Not to press the Soviets immediately at the highest level for the return of these vessels would indicate that the United States considers this matter one of secondary importance. If steps are to be taken in the near future, it would appear that they should be initiated prior to the meeting of the Council of Foreign Ministers in Paris; otherwise a delay of several months would follow and the force of our position would depend in large measure upon the successful outcome of the Paris meeting.

Recommendation:

It is recommended that you call in the Soviet Ambassador, and if he remains in New York that he be called to Washington, for the purpose of handing him the attached note³ (Tab D) and impressing upon him the seriousness with which this Government views Soviet failure to return the naval craft to the United States. Your remarks to the Ambassador might follow the substance of the attached note and he might be told in addition that this Government fails to understand the attitude of the Soviet Government in not replying to our note of January 11, 1949, especially since our agreement for discussions of the details of return of the naval craft by a group of experts was in accord with a proposal originated by the Soviet Government.

1. For documentation on the conclusion of the Financial Agreement and the Lend-Lease Settlement Agreement with the United Kingdom signed at Washington on December 6, 1945, see Foreign Relations, 1945, vol. vi, pp. 1–204. For the text of the Lend-Lease Settlement Agreement, see Department of State, Treaties and Other International Acts Series (TIAS) No. 1509, or United States and Other International Agreements (UST), vol. 4, p. 2.
2. Foreign Relations, 1948, vol. iv, p. 1004.
3. See the United States note of May 25, 1949, infra.