861.24/8–849

The Secretary of State to the Ambassador of the Soviet Union ( Panyushkin )

Excellency: I have the honor to refer to your note of December 9, 1948 replying to this Government’s notes of September 3, October 7 and October 12, 1948 concerning the settlement of the obligations of your Government under the Lend-Lease Agreement of June 11, 1942.

The matter of the three icebreakers, twenty-eight frigates and other vessels of the United States Navy, which was the subject of this Government’s note of October 7, 1948, may, it is hoped, be promptly disposed of in discussions with the Soviet experts designated in your note of July 22, 1949. The matter of compensation of United States [Page 718] patent holders, as requested in this Government’s note of October 12, 1948, is the subject of a separate note forwarded simultaneously herewith.1 As pointed out in recent conversations with you and as stated in the accompanying note, the times and conditions for fulfillment by your Government of its obligations, with respect to the return of lend-lease articles, are governed specifically by the provisions of Article V of the Agreement of June 11, 1942 and, with respect to compensation of United States patent holders, by the provisions of Article IV of that Agreement, and these provisions are clear and unequivocal. This Government, therefore, expects the Soviet Government to take immediate action in fulfillment of its commitments with respect to these matters.

In your note of December 9, 1948 you stated that the Soviet Government is prepared to purchase the pre-war-built merchant vessels and the tugs for the sum of $13 million, having in mind that experts of both parties should come to an understanding regarding the conclusion of a special agreement on the sale of merchant vessels to the Soviet Union.

The Government of the United States considers this amount satisfactory as the cash price for the sale of the vessels, effective as of September 2, 1945, it being understood that the sale will be consummated only upon conclusion of the over-all Lend-Lease settlement. Agreement on this point resolves satisfactorily another of the several points of a comprehensive settlement; but the Government of the United States will continue to reserve its rights under Article V of the Agreement of June 11, 1942 to require the return to the United States of the pre-war-built merchant vessels and the tugs, as well as other lend-lease articles, until such time as a mutually satisfactory over-all settlement agreement is reached.

With reference to that portion of your note of December 9, 1948 which cites the publication of the United States Senate, “Additional Report of the Special Committee Investigating the National Defense Program”,2 and compares the over-all amount of the settlement with the United Kingdom with that proposed with your Government, such comparisons shed no light upon the substance of the lend-lease settlement negotiations with your Government and serve no useful purpose in the furtherance of these negotiations. In fact, the Government of the United States could readily present alternative calculations demonstrating that the amount of settlement with your Government should, in comparison with that reached with the United Kingdom, be much [Page 719] greater than the amount of $1,300 million already proposed by the United States.

With respect to the over-all sum to be paid by the Soviet Government, the Government of the United States is again obliged to point out that, in recognition of the Soviet contribution to the common war effort, the Government of the United States has asked no payment for articles “destroyed, lost or consumed” in the war, and, in fact, has asked no payment whatsoever for any portion of lend-lease assistance expended by the Soviet Union for the defeat of our common enemies. This Government also has asked no payment for military items of combat types which may remain in Soviet custody under the settlement. The Government of the United States asks payment only for the fair value of the “civilian-type” articles remaining after the defeat of our common enemies, which value is derived solely from the usefulness of the articles in the post-war period. Thus, it is significant that the total cost of the goods and services provided by the United States to the Soviet Government for its war effort without request for payment of any part of the cost amounts to over $8,000 million or about three quarters of the total of the United States lend-lease assistance to the Soviet Government. It is of even greater significance, however, that the amount of $1,300 million proposed by the United States in its note of September 3, 1948 as reasonable compensation represents only one-half of the value of $2,600 million of the inventory of “civilian-type” articles estimated by the United States as remaining for post-war use in the Soviet Union and it must also be noted in this connection that the value of $2,600 million which has been reduced by one-half represents not the original cost of the residual articles but the cost after estimated losses and depreciation arising from war use have been deducted.

In view of these facts, the Government of the United States cannot consider your Government’s proposal of an over-all sum of $200 million as a serious offer intended to expedite a settlement agreement nor can it consider that such a sum would under any circumstances, provide adequate or reasonable compensation for the “civilian-type” lend-lease articles remaining in the custody of your Government at the war’s end. The Government of the United States, on the other hand, views the conclusion of a lend-lease settlement agreement as a matter of urgency and is desirous that no possible obstacles stand in the way of such a settlement. It therefore proposes that, instead of the amount of $1,300 million proposed in its note of September 3, 1948, the amount of $1,000 million be agreed upon as compensation for all “civilian-type” lend-lease articles remaining in Soviet custody at the war’s end.

In making its proposal of the amount of $1,000 million, the Government of the United States has considered all relevant factors having a bearing upon this issue and has concluded therefrom that this [Page 720] amount should be accepted as a fair and reasonable settlement. In this connection, it is recalled that under the arrangement between Premier Stalin and President Roosevelt concluded in November 1941,3 Premier Stalin agreed to pay $1,000 million dollars without interest within fifteen years after the end of the war, this amount being the full cost of total aid then contemplated. This arrangement, although it was superseded by the Agreement of June 11, 1942, is significant as an indication of the reasonableness of the present proposal of the Government of the United States, since it would have required full payment for lend-lease assistance furnished thereunder, while in the present instance this Government is asking payment in an amount equal to less than one-tenth of the total aid provided amounting to over $10,800 million.

With respect to the credit terms of payment it is pointed out that the terms offered by the United States in its note of September 3, 1948, namely, interest at 2% per annum accruing from July 1, 1946 and principal repayable in thirty annual installments beginning five years after July 1, 1946, are in fact the most favorable terms granted to any country in a settlement limited to lend-lease and war accounts. In this connection it should be noted that the terms of the Financial Agreement of December 6, 1945 between the United States and the United Kingdom which were made applicable to the lend-lease settlement, were part of broad over-all economic and financial arrangements.

This Government has noted the statement in your note of December 9, 1948, that the Soviet Government is unable to alter its position that the inclusion in the settlement of a provision reserving to the United States its right of recapture of “military” articles would only delay final settlement of the lend-lease account. This Government has made clear its position on this matter in previous communications. It is suggested, therefore, that this matter be made the subject of special attention between the negotiators of our two governments.

The Government of the United States is of the opinion that the proposals contained herein should provide a basis for a prompt and reasonable over-all settlement of the Soviet wartime lend-lease account. Accordingly, it is proposed that the negotiators of our two governments meet at an early date for the purpose of resolving remaining [Page 721] issues and for the purpose of agreeing upon a complete and final settlement.

Accept [etc.]

For the Secretary of State:
James E. Webb
  1. Supra.
  2. See U.S. Congress, Senate, Investigation of the National Defense Program. Additional Report of the Special Committee Investigating the National Defense Program, Report No. 110 (79th Cong., 1st and 2d sess.), Washington, Government Printing Office, 1945, 1946.
  3. Regarding the first loan of one billion dollars arranged between President Roosevelt and Iosif Vissarionovich Stalin, Chairman of the Council of People’s Commissars, in 1941, see Foreign Relations, 1941, vol. i, pp. 851852, 855, 857, and also 654655. For the second loan of one billion dollars in 1942, see ibid., 1942, vol. iii, pp. 690694. Further, see the exchange of notes between Secretary of State Cordell Hull and the Ambassador of the Soviet Union Maxim Maximovich Litvinov on June 11, 1942, at the time of signing the Lend-Lease Agreement, whereby these two prior arrangements were considered as being replaced and rendered inoperative, together with a statement by the Department of State issued to the press on June 12, 1942; Department of State Bulletin, June 13, 1942, pp. 531–535.