761.56/12–650
Statement of Specific Points at Issue in the United States-Soviet Union Lend-Lease Settlement Negotiations1
1. Over-all Amount To Be Paid by the USSR
Background
The United States proposals follow generally the principles of settlements already concluded with other lend-lease recipients. The United States asks no payment for any lend-lease assistance expended [Page 1323] in the war effort, and asks no payment for “military type” articles which 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 as $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. The Soviets have now increased their offer to $240 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 acceptable. This figure assumes that the settlement would be concluded on credit terms not more favorable than that granted to other major lend-lease recipients. We should, however, be prepared to accept less than $500–600 million if a cash settlement could be agreed upon.
Discussion
In response to our proposal that negotiations be resumed on the basis of a constructive offer to be made by the Soviet Government, that Government has now increased its offer for an over-all settlement from $200 million to what it states to be a maximum offer of $240 million and has agreed to resume negotiations in Washington on December 20 for the purpose of reaching full and final agreement on all questions related to this.2
From the wording of the Soviet note it appears doubtful that the Soviets intend to further negotiate the over-all amount to be paid. They are ready to negotiate merely “all questions related to this”. It is presumed that the Soviets have in mind the terms of credit. Nevertheless it is believed that we should reply to the Soviet note stating that the Government of the United States agrees to the suggested date for the resumption of negotiations and although the United States [Page 1324] Government considers the Soviet offer inadequate it agrees to resume negotiations with a view to agreeing upon a mutually acceptable settlement.
2. Naval Craft
Background
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 as early as July 1946 (3 icebreakers) and January 1948 (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 note of September 3, 1948, 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 (one certified as lost) 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 have broken screws and caught in the Arctic ice pack.
With respect to the other 186 naval vessels demanded by this Government on October 7, 1948, the Soviet Government has consistently avoided its obligation to return these vessels as required by Article V. In our note of June 15, it was stated that the Soviet Government was in default of Article V but suggested that naval experts of the two Governments resume discussions in order that this question be brought to an early conclusion.
The Soviet note of November 24 makes no mention of the 186 naval vessels demanded by this Government, but merely states that the Soviet Government agrees to a resumption of talks between naval experts with the understanding that these experts will discuss the sale of naval vessels.
Discussion
Since the beginning of lend-lease settlement negotiations with the Soviet Government, the aim of the Department with respect to naval vessels has been to recapture from the Soviets as many vessels as possible. It was believed that by agreeing to sell some naval craft to the Soviet Union we would successfully obtain the return of the more important vessels. This position was taken with the concurrence of the Department of the Navy. The Navy, however, has reversed its previous position and now believes that we should demand the return of all naval craft in Soviet custody. It is argued that conditions have [Page 1325] changed greatly since 1948 when we offered to sell some naval vessels to the Soviet Union, and in fact some of the vessels we had offered for sale are now urgently required by this Government.
In addition to the attitude of the Department of the Navy, careful consideration should be given to probable reaction of public and Congressional opinion to a sale of naval vessels by the United States to the USSR at a time when relations between the two Governments are at their lowest point.
We are thus faced with very strong pressures to demand the return of all United States naval vessels in Soviet custody. It is to be recognized, however, that a demand for the return of all of the naval craft in the face of our previous offer to sell 242 of these craft would lay this Government open to a Soviet charge of bad faith and undoubtedly would not result in the return of any naval vessels.
The question we must decide is whether we want to make a further effort to obtain the return of certain vessels with the understanding that the Soviets are to retain the remainder, or whether we believe we must demand the return of all vessels in the knowledge that we probably will not obtain the return of any.
It is believed that this question will require a fundamental policy decision before negotiations are resumed. In the meantime we can immediately reply to the Soviet note of November 24 by refuting its contention that the meetings between naval experts should proceed on the basis that the experts will discuss the conditions of sale of naval vessels to the Soviets, and stating that we will be ready to resume discussions between naval experts to determine the disposition of vessels of the United States Navy leased to the Soviet Union during the war.
3. Patents
Background
Soviet obligations to compensate United States firms for the use of their patented processes in lend-lease oil refineries are clearly set forth under Article IV of the Master Lend-Lease 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 this Government in a note dated October 12, 1948.
After stating in its note of September 30, 1949 that it was ready to resume negotiations with all interested patent holders the Soviet Government concluded an agreement with one of the seven interested firms, [Page 1326] Max B. Miller and Co. No progress was made in reaching agreements with the six other firms. Two of the firms, having despaired of receiving compensation from the Soviet Government entered suits against the Government of the United States.
In response to our note of June 15, 1950 requesting the Soviet Government to state the reasons for its failure to reach settlements with the remaining uncompensated patent holders, the Soviet note of November 24 states that it is ready, as it has been, to continue negotiations with interested American companies.
Discussion
In view of the resumption of negotiation between the Soviet Purchasing Commission in the United States and two patent holders, as stated in the Soviet note of November 24, it is believed that our present note should take notice of these negotiations and state that we expect the Soviet Government to compensate all claimant companies as required by Article IV of the Master Lend-Lease Agreement.
- This statement, drafted by Mr. Julius L. Katz, was attached to a memorandum of December 8, from the Assistant Secretary of State for Economic Affairs Willard L. Thorp to the Under Secretary of State James E. Webb.↩
- With regard to the date for the resumption of the lend-lease negotiations the following comment is contained in Mr. Thorp’s memorandum of December 8: “Although we take exception to several points in the Soviet note [of November 24], it is believed that we should express the continued willingness of this Government to resume negotiations. In view of the short time remaining before December 20, the date suggested in the Soviet note, and the need for several major policy decisions having a bearing on the position to be taken in the negotiations, it is suggested that the meetings begin on January 15 [1951].” (761.56/12–650)↩