The Secretary of State to the Embassy in the Soviet Union

No. 7

The Secretary of State informs the Officer in Charge that the Department has been considering the advisability of abrogating the existing United States Commercial Agreement with the USSR,1 which because [Page 1093] of its one-sided nature, conferring no advantages on the United States, and because our export controls are at variance with the provisions of the Agreement, is believed to be disadvantageous to this country. It has been suggested that abrogation of the Agreement, in order to offset the unfavorable propaganda effects of such action, might be coupled with an offer to negotiate a broader Treaty of Commerce and Navigation with the USSR during the six months period before the termination becomes effective.

The main lines of the initial thinking as well as the essential facts in this matter are set forth in the two papers enclosed, entitled “Abrogation of US–USSR Commercial Agreement” and “Possible Reactions to American Proposal”.2 The Department invites the Embassy’s careful consideration of the pros and cons of the proposed course of action, summarized in these papers, and would appreciate the Embassy’s comments and recommendations at an early date.3

[File copy not signed]



Abrogation of US–USSR Commercial Agreement4

The Problem:

Should the United States terminate its commercial agreement with the USSR?


The United States and the USSR concluded a commercial agreement in 19375 under which the Soviet Government, which controls the export and import trade of the Soviet Union, undertook to increase substantially the purchase of American products, while the Government of the U.S. undertook on its part to accord to the commerce of the Soviet Union unconditional most-favored-national treatment. This agreement was renewed on an annual basis until July 31, 1942, at which time it was renewed for an indefinite period subject to termination on six months’ notice by either government.

In the earlier years of the agreement the Soviet Union presented separate notes, along with each renewal, committing itself to a minimum [Page 1094] total of purchases in the U.S., varying from $30,000,000 to $40,000,000 during the forthcoming year. These notes were discontinued, however, following the 19416 and 1942 renewals, with the result that the post-war obligations of the agreement fell solely upon the U.S.

In addition, Soviet actions following the war have been such that the U.S. has felt it necessary to impose export controls on all goods going to Europe (including the USSR), and it is general information, although not officially admitted, that the principal effect of these controls has been to restrict very severely exports to the Soviet Union and its Satellites. These restrictions, as Mr. Molotov7 pointed out on May 9, 1948, are completely at variance with the MFN section of the Agreement reading: “Similarly, natural or manufactured products exported from the territory of the United States of America and consigned to the territory of the Union of Soviet Socialist Republics shall in no case be subject with respect to exportation and in regard to the above-mentioned matters, to any duties, taxes, or charges other or higher, or to any rules or formalities other or more burdensome, than those to which the like products when consigned to the territory of any third country are or may hereafter be subject.”

The only security exception which the Agreement contains is not sufficiently broad to cover our action in prohibiting exports to the Soviet Union of certain items, normally considered to be of a commercial character, while we at the same time permit their export to other countries. The exception reads as follows:

“Nothing in this Agreement shall be construed … to prevent the adoption of such measures as the Government of the United States of America may see fit with respect to the control of the export or sale for export of arms, ammunition or implements of war, and, in exceptional cases, all other military supplies.”

Hence the U.S. finds itself in the difficult position of being party to an agreement which imposes obligations without granting compensatory privileges. In addition, conditions have so changed that the U.S. no longer is able to live up to said obligations and is vulnerable at any time to charges of failing to honor its solemn commitments.8

Alternative Courses of Action:

Since the US–USSR commercial agreement is “subject to termination on six months’ written notice by either government”, and since the agreement is of no value to the United States as it now stands, notice could be given of official termination on the basis of the present one-sidedness of the obligations, with a statement added that the termination [Page 1095] is not intended to affect trade between the two countries in any way, but merely to remove from the records an agreement which has become outmoded with the passage of time.
Notice of termination could be given with a paragraph included stating: “The Government of the United States affirms its willingness to discuss at any time with the Government of the USSR the commercial relations between the two countries on the basis of the program and policies outlined in Article VII of the Lend-Lease Agreement between the two countries.9 The United States Government also wishes to emphasize that the present termination in no way affects current trade relations between the Soviet Union and the United States. The benefits of most-favored-nation treatment, including the generalization of tariff reductions granted by the United States pursuant to trade agreements entered into under the authority of the Trade Agreements Act,10 will continue to be extended to the Soviet Union pending subsequent negotiations.”
Notice of termination could be given, coupled with an offer to negotiate a broader Treaty of Commerce and Navigation during the six-month period before the termination became official.
The problem could be ignored until a further attack, based on the agreement, against United States trade discrimination was made. Then the United States could terminate the agreement, saying it had long recognized the one-sidedness of the arrangement, but had preferred to permit its continuance as a gesture of friendship toward the Soviet Union. But the Communists could not expect both to take advantage of the commercial privileges afforded them unilaterally in the agreement as they had been doing, and then attack the United States because it felt it necessary, in view of Soviet aggressive actions, to deny the USSR certain goods deemed to be of war potential significance.


The principal objection to a renunciation of the agreement at the present time stems almost entirely from political considerations. Previously, fear of the stoppage of manganese and chrome ore exports by the Soviets was a factor which weighed heavily in the decision to not take such action. The USSR, however, has already reduced shipments of manganese to this country, and urgent steps, in anticipation of a complete cessation, are being taken by appropriate U.S. agencies to insure adequate supplies of manganese from other more reliable sources. Such sources for chrome ore already exist, and commercial considerations are, and have been, the main motivation of both the U.S. and USSR in chrome transactions. The blow to the United States program of stockpiling strategic materials which the Russians might previously have delivered in retaliation to the termination of the agreement would not now be as severe, and in the foreseeable future could be discounted entirely. It should also be noted that the [Page 1096] Soviet Union requires no overt reasons for completely stopping trade with the U.S. whenever such an action is desired; in fact such a course would be more in keeping with their basic philosophy than their present unusual policy of operating under a very negative trade balance.

Political repercussions might still be of major importance, however. The agreement is of no more value to the Soviet Union than it is to the United States commercially, for the Russians are not receiving unconditional most-favored-nation treatment, and what purchases they are permitted to make could be consummated with equal facility if the agreement did not exist. It is obvious, however, that the Communists would not permit the occasion of the ending of the agreement to go by without leveling barrages of propaganda against the United States, most probably in line with the general policy of accusing the U.S. of preparations for war, and, more specifically, of preparing for even further discrimination against trade with the Soviet Union and the countries of Eastern Europe.

While such accusations probably would fall on fallow ground in most countries, if properly phrased they would receive attention not usually granted Communist communiqués because of a tendency prevalent in Western nations, particularly the U.S., to compare 1939 with the present day. Commentators are certain to point out the precedent of U.S.-Japanese relations wherein the Japanese in the summer of 1940 were given notice by the U.S. of the termination, according to its six-months clause, of a Treaty of Friendship, Commerce and Navigation dating from 1911.11 The Treaty became officially void in January, 1941, and this was followed by a freezing of Japanese assets in this country in July 194112—a procedure, concerning the assets of the USSR, under active consideration today among government agencies.

On the basis of the foregoing discussion, it is felt that Course of Action (1) should not be attempted because of the propaganda disadvantage in which it would leave the United States. We would have made an overt move which would generally be interpreted as antagonistic. Regardless of timing, the Soviets would be engaged either in spreading cold-war peace feelers or threatening new aggression, and our termination would act either as cold water or gasoline, depending upon the situation. Under almost no conceivable circumstances would the United States’ termination be accepted on its purely economic basis. Course (2) combines the difficulties of (1), plus bringing the ITO and the Soviet Union into closer juxtaposition than would be good for the ITO.

[Page 1097]

Course (4) leaves the United States in a vulnerable position both mow and in the future regarding its policies on international trade. Other governments are currently supporting us against discrimination charges levied by the satellite countries, but it is generally evident that they are not convinced that we are free of guilt. By continuing in force an agreement pledging nondiscrimination (with no valid security exception) and then rather openly denying equality to the Soviet Union, the United States is setting a precedent which logically could be recalled by other countries in the future when their immediate aims called for temporary measures contrary to obligations previously assumed.


Course of Action number three should be implemented. The counter-offer of a Treaty of Commerce and Navigation would be a more important gesture of conciliation than the termination would be of aggravation. The entire procedure could be presented by the United States as yet another effort on its part to achieve a better understanding with the USSR. While admitting that goods of war potential have not been going to the Soviet Union, the U.S. might state that there is no good reason why such items should be sent another power which is constantly making provocative statements against this country. Increased trade through usual commercial channels, on the other hand, might lead to closer contacts between the peoples of the two nations and greatly allay many of the mutual suspicions which are doing so much to aggravate the present tension. The former antiquated commercial agreement did nothing to foster such a program; a Treaty of Commerce and Navigation would open specific avenues down which friendly commerce in growing amounts could travel.

The most immediate danger in such a course—Soviet acceptance—could be ruled out by the phrasing used in the treaty. For example, the draft Treaty of Commerce and Navigation between the U.S. and the USSR, prepared by the Department in 1946,13 has as its first article “Entry and activities of foreign nationals”. Paragraph one of said article reads: “The nationals of either High Contracting Party shall be permitted to enter the territories of the other High Contracting Party, and shall be permitted freely to reside and travel within such territories.” Article XI, Religious, intellectual and mortuary activities, declares in paragraph 2 “the principles of freedom of the press and of free interchanges of information” by the High Contracting Parties, including guarantees to nationals and corporations of freedom of transmission to the public of material for radio and publication, must [Page 1098] be adhered to. Obviously, the USSR could not sign a treaty incorporating such articles without a complete about face of not only its international but internal policy.

Should the Soviet Union, in spite of the wording of the proposed treaty, still accept it, and should the negotiations which would follow indicate that the Russians intended to honor the commitments, a basic objective of U.S. foreign policy would have been achieved and an entire rephrasing of U.S. strategy toward the USSR be necessary. Regardless of acceptance expectations, however, an exception similar to Article XIX of the General Agreement on Tariffs and Trade14 should be included in the proposed treaty so as to exempt from the Treaty both present and future export controls deemed necessary by the United States. Again it should be emphasized that the Soviet Union’s acceptance is felt to be impossible.

In summation, if the present Commercial Agreement between the United States and the USSR is allowed to continue, the United States gains nothing from it and is constantly open to charges of discrimination. While the Soviet Union could still level accusations against United States export policy as being in violation of the principles and purposes of the UN Charter, as has been done by Poland in the General Assembly, and as will be presented by Czechoslovakia at the forthcoming meeting of GATT, the current United States policy is to minimize such charges when they are presented and to justify the steps taken as in the interests of United States national security. But termination of the Agreement would remove the onus of direct treaty violation.

The termination of the agreement must be carefully timed and combined with a thoroughly planned propaganda campaign by the United States; and there are risks inherent in any action involving the USSR and the United States. But it is felt that the simultaneous presentation of the offer to negotiate a broader treaty of Commerce and Navigation will take the sting out of the announcement of termination of the Commercial Agreement, do away with the most overt instance of United States commercial policy duplicity, and perhaps bring forth a propaganda victory from what otherwise undoubtedly would be a losing engagement.15

  1. For the renewal of the commercial agreement between the United States and the Soviet Union on July 31, 1942, and its continuation in force thereafter unless superseded by a more comprehensive commercial agreement, subject to termination on six months’ written notice by either government, see Foreign Relations, 1942, vol. iii, pp. 758765.
  2. The second paper, which was in part a commentary on the first, is not printed. It also considered possible reactions to the American proposals in the Soviet Union, the United States, and Europe.
  3. See the Embassy’s despatch 233 from Moscow on March 3, p. 1117.
  4. This paper was prepared by the Commercial Policy Staff of the Office of International Trade Policy with John F. Buckle as the drafting officer of record.
  5. For documentation on the conclusion of the first commercial agreement between the United States and the Soviet Union on July 13, 1935, see Foreign Relations, The Soviet Union, 1933–1939, pp. 192218; and for its renewal on August 4, 1937, see ibid., pp. 405440.
  6. For the renewal on August 2, 1941, see Foreign Relations, 1941, vol. i, pp. 914925.
  7. Vyacheslav Mikhailovich Molotov was at this time Minister of Foreign Affairs of the Soviet Union.
  8. For documentation on the trade policy of the United States toward Eastern Europe and the Soviet Union, see pp. 65 ff.
  9. For text of the agreement signed in Washington on June 11, 1942, see Department of State Executive Agreement Series No. 253, or 56 Stat. (pt. 2) 1500.
  10. Originally approved June 12, 1934; 48 Stat. 943, and subsequently renewed and amended several times.
  11. Notice of termination of the treaty of February 21, 1911 (for text, see Foreign Relations, 1911, p. 315) was given by the United States on July 26, 1939, and the treaty expired on January 26, 1940. On the abrogation of the treaty, see ibid., Japan, 1931–1941, vol. ii, pp. 189198.
  12. For documentation on the freezing of Japanese assets on July 26, 1941, see ibid., pp. 266 ff.
  13. The negative attitude toward and disbelief in the worth of such a proposed treaty in 1946 was trenchantly expressed by the then Counselor of Embassy in the Soviet Union, George F. Kennan. See Foreign Relations, 1946, vol. vi, pp. 728731, 745748, 762.
  14. For the text of the General Agreement on Tariffs and Trade, signed at Geneva on October 30, 1947, see 61 Stat. (Parts 5 and 6). Article XIX is in part 5, pp. A58–A60.
  15. The second report, which is not printed, closed with the following summation: “If the US offers a CN treaty to the USSR, it assumes many risks which would be avoided if the present commercial agreement were simply terminated. However, it is believed these risks would not be great if the proposal were presented properly, and the counter-offer mitigates many of the ill-effects the termination involves. In addition, it affords a good opportunity to answer the growing Communist clamor for increased East-West trade. Since this challenge will probably have to be responded to eventually, it is better to play the positive and negative aspects of our Russian trade policy off against each other and remove the direct, and possibly hysterical, attention which would accompany either proposal if made separately.”