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


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.


Signature of the attached notes is recommended.3


Statement of USSR Lend-Lease Settlement Negotiations


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.

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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.

  1. Andrey Yanuaryevich Vyshinsky was Minister of Foreign Affairs of the Soviet Union.
  2. Iosif Vissarionovich Stalin, Generalissimo, and Chairman of the Council of Ministers of the Soviet Union.
  3. Two notes to the Chargé of the Soviet Union, dated June 15, 1950, pp. 1299 and 1301.
  4. United States note of July 26, 1946, Foreign Relations, 1946, vol. vi, p. 852.
  5. United States note of January 23, 1948, ibid., 1948, vol. iv, p. 956.
  6. Foreign Relations, 1948, vol. iv, p. 1004.
  7. Approved on March 8, 1946; 60 Stat. 41.
  8. Foreign Relations, 1948, vol. iv, p. 1016.
  9. Note No. 120, ibid., 1949, vol. v, p. 745. There is a large quantity of correspondence on this subject between the United States Government and the companies involved on their attempts to obtain satisfactory settlements of their claims with the Soviet Union in the central files and Lot collections of the Department of State.
  10. See telegram 2057 from Moscow on August 16, 1949, Foreign Relations, 1949, vol. v, p. 725.