861.24/8–449

Memorandum by the Assistant Secretary of State for European A fairs (Perkins) to the Secretary of State

secret

Discussion

Lend-Lease settlement discussions with the Soviets began, in April 1947 and, although some progress has been made, the two sides remain far apart on the major issue of the over-all amount to be paid by the USSR. The U.S. position follows generally the principles of other major settlements already concluded. The U.S. asks no payment for any lend-lease assistance expended in the war effort and asks no payment for “military-type” articles which may remain in Soviet custody under the settlement. We ask payment only for the fair value of “civilian-type” articles remaining in the USSR on V–J day which have a peacetime utility to the Soviet economy. The depreciated landed cost of “civilian-type” articles after allowance for wartime losses has been estimated by the U.S. at $2,600 million. This estimate was made known to the Soviets early in the negotiations. As our first step in the bargaining process we have offered to accept $1,300 million for these articles. While we have not finally determined the minimum sum acceptable it is the consensus that an amount computed as nearly as possible in accordance with the principles of the British settlement, namely, $500–$600 million, would be practicable. The Soviets in their note of December 9, 1948 raised their original offer of $170 million to $200 million which still is considered by us as a bargaining approach not seriously intended. We are prepared, however, to reply by reducing our proposal from $1,300 million to $1,000 million. This offer, it is felt, will leave no doubt as to the seriousness of our intentions to proceed to a mutually satisfactory settlement.

The Soviets object to our proposal to retain recapture rights of [Page 714]“military-type” articles which may remain in the USSR on the grounds that such a provision would only prolong the complete and final settlement of the account. They agree, however, to a provision prohibiting retransfer of military items without prior U.S. consent. Rather than deal with this matter now, we propose to parry the question pending the outcome of other issues.

credit terms

The Soviets also disagree with our proposed credit terms and request MFN treatment. Our terms are the standard lend-lease and war accounts settlement terms approved by the NAC: 2% interest accruing from July 1, 1946 payable July 1, 1947 and annually thereafter; principal payable in thirty equal annual installments of interest and principal beginning July 1, 1951. It is contemplated that the settlement with the Soviets would be retroactive to these dates. These terms are the most favorable granted in any major lend-lease settlement except the British, which is a part of an over-all Financial Agreement including a $3,750 million loan. We are prepared to stand on our present position on the basis that the terms offered are the most favorable granted in any other settlement limited to Lend-Lease and war accounts.

merchant vessels

Tentative agreement has been reached on the amount and terms of sale of the 36 war-built liberty ships remaining in Soviet custody and we are ready to agree, also tentatively, to the Soviet December 9 offer of $13 million for 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.

naval craft

Soviet obligations to return lend-lease articles to the U.S. when requested are clear and specific under Article V of the Soviet Master Agreement. As a result of Soviet delays in returning 31 Naval craft, requested informally as early as July 1946 (3 icebreakers) and January 1948 (28 frigates), on October 7, 1948 we made a formal demand for the return of a total of 217 Naval craft including the icebreakers and frigates. We have indicated our willingness to sell the remaining 242 Naval craft to the USSR under surplus property procedures as a part of the over-all settlement. In their note of December 9, 1948, the Soviets agreed to return the frigates and icebreakers if experts of both sides would agree as to the dates and procedures of return. They also agreed that the experts should discuss the return of a certain number of other craft and the terms of sale of the balance. The Soviet Ambassador was informed of the names of [Page 715]the U.S. experts by Mr. Thorp on January 4 and was asked to designate the Soviet experts for immediate discussions. After further delays culminating in conversations between Mr. Webb and the Soviet Ambassador in May and June, the Soviet experts were designated on July 22 and are expected to arrive in Washington shortly.

Our delay in replying to the Soviet note of December 9 was prompted by the failure of the Soviet Government to designate its experts and its resulting evasion of its obligations to return the Naval craft. Our action was designed to forestall further linking of the specific obligation to return these craft under Article V to the over-all settlement discussions. Since the experts have now been designated, it is considered desirable to avoid further delay and to press for an over-all settlement as forcefully and as rapidly as possible.

patents

Soviet obligations to compensate U.S. firms for the use of their patented processes in the lend-lease oil refineries are also clearly and specifically set forth under Article IV of the Master Agreement. Failure of the Soviets to settle with the patent holders during a period of over a year, their demands for new process information, their requests for rates well below those applicable in the U.S. and their refusal to conclude settlement except in conjunction with an over-all lend-lease settlement, prompted a formal demand by us in a note dated October 12, 1948.1 Since no action has been taken by the Soviets in response, we consider them in default of their commitments under Article IV of the Master Agreement. A separate reply to that portion of the Soviet note of December 9 dealing with patent matters is thus considered desirable.

Recommendations

Signature of the attached notes, one on patents and one replying to the Soviet note of December 9, 1948 is recommended.2

  1. Foreign Relations, 1948, vol. iv, p. 1016. The United States had declared in its “Outline of the Main Points of Settlement” of June 25, 1947, that it expected that the government of the Soviet Union would make satisfactory settlement agreements directly with United States companies who held patents on oil refinery processes and equipment which had been made available under lend-lease and had been used by the Soviet Union. A note of December 16, 1947, from the Soviet Union ( ibid., 1947, vol. iv, p. 715), stated that it would undertake negotiations for the conclusion of satisfactory agreements with the companies concerned. In the next year the United States made inquiries of the government of the Soviet Union when it intended to proceed with the negotiations to reach agreements with the patent holding firms. There is a large quantity of correspondence on this subject between the United States Government, the companies involved, and their attempts to obtain satisfactory settlements with the Soviet Union in the central files and Lot collections of the Department of State.
  2. See the following two notes dated August 8, 1949.