Lend-lease settlement discussions with the Soviet Union began in April,
1947 and, although some progress has been made, the major issues remain
unresolved. While there is reason to question the serious intention of
the Soviet Government to conclude a mutually satisfactory agreement, it
is felt that we should again attempt to reach agreement, carrying the
matter to Vishinsky1 and possibly to Stalin2 in Moscow if our
efforts with the Ambassador here in Washington should fail. Should the
two sides reach a point closer to a settlement than is the case at
present, the deadlock might be broken by our offer to accept a
substantial amount of the over-all settlement in rubles rather than
dollars.
A detailed statement of specific points and proposed action is attached
together with two proposed notes, one on patents and one proposing
resumption of negotiations in Washington on or before July 15.
[Enclosure]
Statement of USSR Lend-Lease Settlement
Negotiations
secret
[
Washington
,] June 7,
1950.
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 issues.
1. Naval Craft
Soviet obligations to return lend-lease articles determined by the
President to be of use to the United States are clear and specific
under Article V of the Master Lend-Lease Agreement. As a result of
Soviet delays in returning 31 naval craft requested informally as
early as July 19464 (3
icebreakers) and January 1946 [1948]5 (28
frigates), on October 7, 1948 a formal demand was made for the
return of a total of 217 naval craft including the icebreakers and
frigates. In our [Page 1294] note of
September 3, 1948,6 we
indicated our willingness to sell the remaining 242 naval craft to
the USSR under surplus property procedures as part of a prompt
over-all settlement. To date only twenty-seven frigates and one
icebreaker have been returned. The two icebreakers which were not
returned in accordance with the agreement of September 27, 1949 are
reported by the Soviets to be caught in unusually heavy arctic ice
and are not expected to break clear until October or November.
The Soviet naval experts, it was understood by the U.S., came to
Washington last year to negotiate the return of all 217 naval craft
requested as well as the terms of sale of the remaining vessels.
Despite a personal request to the Soviet Ambassador on September 27,
1949 by Mr. Thorp that the experts discuss the other vessels, they
immediately departed from Moscow after reaching agreement only as to
the icebreakers and frigates. In view of the demand of the U.S.
Government for the return of the remaining 186 vessels, we have
declared the Soviet Government in default of its obligations under
Article V of the Master Lend-Lease Agreement.
With respect to the request by the Department of the Navy that the
remaining 242 naval craft in addition to the other 186 vessels be
demanded from the Soviet Government, the Department takes the view
that the Government of the United States cannot in good faith at the
present stage of the negotiations ask for the return of the 242
Naval craft having already expressed its willingness in a note of
September 3, 1948 to sell these vessels under surplus property
procedures. While this Government made it clear that such sale was
conditioned upon a prompt over-all settlement, and, therefore, would
be justified in demanding their return in view of the failure to
reach a prompt agreement, still it is felt that to demand the return
of the 242 naval craft now would open the United States to a Soviet
charge of bad faith and jeopardize for all time the possibility of
receiving the 186 vessels previously demanded. This action also
might well jeopardize any remaining possibility of an over-all
settlement and give force to the Soviet position that the U.S.
interpretation of Article V is unilateral and not consistent with
the Master Agreement as a whole. It is felt that a demand for the
return of the remaining 242 vessels should be considered only after
every effort has been made on our part to reach an over-all
settlement agreement.
2. Merchant Vessels
Tentative agreement has been reached to let the Soviet Government
keep the 36 war-built liberty ships remaining in Soviet custody at
U.S. prices and terms as set forth in the Merchant Ship Sales Act
[Page 1295] of 1946,7
with effective date of transfer of title retroactive to September 2,
1945. We have also tentatively agreed to the Soviet December 9, 1948
offer of $13 million cash for the old pre-war-built merchant
vessels. Our agreement to sell both categories of vessels has,
however, since the outlet, been conditioned upon a prompt
satisfactory over-all settlement.
It should be noted that since the end of the war, the Soviets have
used the above vessels without any payment for their use.
Furthermore, it is felt in some quarters that these vessels are
being operated in competition with the U.S. Merchant Marine. It is
thus apparent that unless some serious effort is made to rectify
this situation by forcing the settlement negotiations to a speedy
conclusion and either obtaining payment for the vessels or demanding
their return, the Department will be particularly vulnerable to
criticism from Congressional and other sources.
The United States has refused to settle for these vessels with the
Soviet Government in the absence of an over-all settlement, being of
the opinion that our recapture rights, which might be enforced in
friendly ports or on the high seas, represented our only leverage
(admittedly weak) in obtaining an over-all settlement. To accept
payment for these vessels now, prior to agreement on the over-all
settlement, would be a reversal of the previous United States
position which might be construed by the Soviets as U.S. abandonment
of its settlement attempts.
3. Patents
Soviet obligations to compensate United States 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.
Continued failure of the Soviets to arrive at settlements with the
patent holders, their demands for new process information, their
requests for royalty rates well below those applicable in the United
States, and their refusal to conclude settlements with the patent
holders except in conjunction with an over-all lend-lease
settlement, prompted a formal demand by us in a note dated October
12, 1948.8 We were
heartened by the Soviet note of September 30, 19499 on this matter which informed this
Government of the readiness of the Soviet Government to continue
negotiations with the interested United States firms. We were
further heartened by the announcement of an agreement with Max B.
Miller and Co., Inc. However, since the conclusion [Page 1296] of this agreement, there have been
no indications of Soviet efforts to conclude agreements with the
other six patent holders; on the contrary, two firms have already
entered suits against the Government of the United States having
despaired of receiving compensation from the Soviet Government under
Article IV of the Master Lend-Lease Agreement. We have taken the
position therefore, that the Soviet Government must be considered
also in default of its obligation under Article IV of the Master
Lend-Lease Agreement.
In view of the fact that the Soviet Government in its note of
September 30, 1948 [1949] dealing with patent
matters expressed its willingness to negotiate with the interested
firms independently of an over-all settlement, it is felt that this
matter should be presented to the Soviets in an especially strong
manner. It is felt that an approach to the Soviet Government on the
question of patents should be made concurrently with an approach on
other lend-lease matters but should be in a separate note to
maintain our position as to the independence of this matter from the
over-all settlement.
4. Over-all amount to be paid by
the USSR
The U.S. proposals follow generally the principles of settlement
already concluded with other lend-lease recipients. 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 wartime
losses was estimated by the United States at $2,600 million and this
figure was made known to the Soviets early in the negotiations. This
estimate was made after repeated requests for an inventory from the
Soviet Government went unanswered.
As our first step in the bargaining process we offered to accept
$1,300 million for these articles. The Soviets in their note of
December 9, 1948 increased their original offer of $170 million to
$200 million. We replied in our note of August 8, 1949 reducing our
proposal from $1,300 million to $1,000 million. While we have not
yet 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 Soviet Government, however, in its reply of September 30, 1949,
failed to raise its offer and held to its previous position of $200
million as the over-all amount of compensation. We are prepared to
further reduce our demand through give and take negotiation in good
faith; however, Soviet default of its specific obligations under the
Master Lend-Lease Agreement with respect to compensation of U.S. [Page 1297] patent holders under
Article IV, and with regard to the return of 186 naval craft
demanded by the U.S. under Article V, and, among other factors, the
refusal of the Soviet Government to raise its offer from $200
million in the face of the U.S. reduction to $1 billion leads us to
conclude that the Soviets have no serious intention of reaching an
over-all settlement agreement of a type wholly satisfactory to the
U.S. It is felt, however, that a settlement which dispossessed the
Soviets of dollars and provided the U.S. Mission in Moscow with
rubles would be more in the national interest than the theoretical
propaganda value of this further example of Soviet faithlessness.
Therefore, it is suggested that we advise the Soviet Government of
our desire to resume negotiations on or before July 15, 1950 for
purpose of reaching a mutually satisfactory settlement on the basis
of a constructive offer to be made by the Soviet side. If the two
sides should reach a point closer to a settlement than is the case
at present, it is hoped that acceptance by the U.S. of a portion of
the settlement in rubles in lieu of dollars may result in breaking
the settlement deadlock.
Should our current effort be unsuccessful, it is felt that Ambassador
Kirk could make an approach to Vishinsky on the matter and if
unsuccessful in this quarter could then take advantage of Stalin’s
offer10 and
request his intervention in order that a settlement may be agreed
upon.
5. Credit terms
Our position as to terms of payment 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 annual installments of interest and principal beginning
July 1, 1951. The Soviets disagree with the above proposed terms and
request MFN treatment, i.e. the
terms of the British Financial Agreement of 1946, specifically
payment of principal in fifty annual installments beginning five
years after the settlement agreement, with an annual interest rate
of 2%, and with the accrual of interest also commencing five years
after the conclusion of the agreement. The terms already offered by
the U.S. are as favorable as those granted in any major lend-lease
settlement except the British, which is part of an over-all
Financial Agreement including a $3,750 million loan. We are prepared
to stand on our present position that the terms offered are as
favorable as those granted in any other settlement limited to
Lend-Lease and war accounts. It might, however, be advisable to make
concessions on the matter of credit terms, provided that permission
can be obtained from the NAC.
[Page 1298]
In this connection it is believed that the question of credit terms
should not be raised at this time but that it be held as a
bargaining point for serious negotiations should they
materialize.
