849.331/4–452

No. 8
Memorandum by the Assistant Secretary of State for European Affairs (Perkins) to the Secretary of State1

top secret

Subject:

  • Czechoslovak Steel Mill and Oatis Case

Problem:

To determine the Department’s position with respect to a request of the World Commerce Corporation for authorization of a proposed purchase of the Czechoslovak steel mill.

Discussion:

World Commerce Corporation of New York, which has retained the legal counsel of General Donovan’s firm of attorneys, has been having discussions for some time with the Czechs looking toward the purchase for a German steel company of a Czechoslovak strip mill, which has been under a blocking order of the Treasury since January 17. We were informed on April 2 by General Donovan that Mr. Frank Ryan, President of World Commerce, had reached agreement with Czechoslovak representatives at Zurich on a proposed transaction pending approval of the US Government and issuance of the necessary Treasury license. The proposal is as follows:

The US Treasury would issue a check for $10 million to the Chase National Bank under instruction to transfer this amount to the Union Bank of Switzerland for the account of the Czechoslovak seller upon authorization by Ryan. At the same time a Düsseldorf Bank would open an irrevocable letter of credit valid for six months with the Chase International Bank in favor of World Commerce. The latter would reimburse the US Treasury as soon as drawings might be negotiated under the letter of credit. The mill would thus be sold by World Commerce to Internationale Maschinenhandel Gmb.H., Düsseldorf, in Western Germany. In the negotiations Ryan expressed the personal opinion entirely on his own initiative March 26 that the transaction could be concluded under the commercial conditions discussed only if Oatis were released within 10 days after conclusion of the agreement. On March 29 the Czechoslovak delegation stated to Ryan that the Czechoslovak Government was prepared to release Oatis provided that the proposed contract was concluded.

[Page 18]

The disposition of the steel mill has been a problem for this Government ever since 1948. The Czechs concluded a contract with the United Engineering and Foundry Company in 1947 (before the Communist coup in Czechoslovakia) for construction and purchase of the mill, and completed payment for it, amounting to about $17 million with storage charges included, in December 1951. The Czechs endeavored in 1948 to obtain a license for its export to Czechoslovakia but this was denied by the US Government. From that time the Czechs apparently did not give up hope of obtaining the mill in some manner or other until the latter part of 1951, when they first began to make realistic efforts to sell the mill. When we learned there was a prospect of its sale and the escape of the proceeds from US jurisdiction, the specific blocking action was taken.

In the course of the discussions on the Oatis case at Prague the Czechoslovak Foreign Minister introduced the question of the steel mill and hinted at getting its release as part of the arrangements for freeing Oatis. We consistently opposed this effort, taking the position repeatedly that the disposition of the mill or its proceeds had no connection with the Oatis case. We have indicated to the Czechs both in oral discussion and by aide-mémoire2 that after a settlement of the Oatis case, including an exchange of persons and lifting of our main retaliatory measures, the US Government would be prepared to discuss with the Czechoslovak Government outstanding financial problems with a view to reaching agreement on them, including the steel mill or the proceeds from its sale and compensation for nationalized American property in Czechoslovakia.

The press and members of Congress have raised the question of the relation of the Oatis case to the disposition of the steel mill or proceeds from its sale. There has been a particular interest to learn whether we were using this as ransom to get Oatis free. We have always taken the position in recorded hearings and in correspondence with members of Congress etc, that we were not so doing and that the Oatis case was something entirely apart from the matter of the steel mill.

Insofar as any relationship has existed between the two, the Czechs have endeavored to establish it and we have tried to disabuse them of the notion that they could use the release of Oatis to get the steel mill or its proceeds. To drive this home with the Czechs was one of our motives in blocking the mill.

[Page 19]

The Department has long sought a means by which the asset of the mill, the only sizeable Czechoslovak asset in the US might be utilized in a settlement of our financial claims against the Czechoslovak Government. We would probably be willing to settle these claims for $25 million. The decision was taken more than two years ago to utilize this asset and possibly our control over Czechoslovakia’s share in the gold pool distribution as a leverage or offset to obtain satisfaction of American financial claims against Czechoslovakia.

It was on this basis that discussions were held with Treasury, and Treasury agreed to the blocking action on the understanding that if the mill were sold the proceeds would go into a blocked account. If these proceeds are allowed to go freely to the Czechoslovak Government, it probably means that American claimants will lose by a corresponding amount since little other pressure for obtaining settlement is available.

World Commerce Corporation had earlier been in touch with the Department about negotiation of the purchase of the mill. Its representatives had been encouraged by the Department to pursue this possibility but had been informed that a license would be issued only on condition that the funds for payment go into a blocked account. They tried to negotiate with the Czechs a purchase on this basis but when they were met with a negative response they introduced entirely on their own the proposal that Oatis be released in return for a free transfer of the funds to the Czechs. World Commerce thus appears to be trying to buy the authorization of this Government for the proposed transaction by the promise of the release of Oatis and at the same time to make the proposal acceptable to the Czechs by the promise of a free transfer of proceeds.

If we should authorize the transaction as proposed by World Commerce, it might be argued that the transfer of the proceeds to the Czechs represented only a recovery of a property to which they still possess legal title under the blocking order and that the US in agreeing to the deal only removed a pressure measure which it had imposed through the blocking action since the imprisonment of Oatis. This argument might have considerable appeal to many representatives of the press and to many others who are impatient with the Department’s lack of success so far in obtaining the release of Oatis. The immediate sale of the mill to World Commerce, apparently the only party seriously interested in acquiring the mill at a reasonable price, might avoid any problems such as future custody of the mill, its retention as a possible white elephant, and wastage of the asset for lack of customers.

[Page 20]

On the other hand, such authorization would doubtless appear as ransom to those in Congress and among the public who had previously sought and obtained the Department’s assurance that everything would be done to obtain the release of Oatis except to pay ransom and that the steel mill was not being used in any way in connection with our efforts in behalf of Oatis. It would accordingly be necessary in case of authorization to prepare the ground carefully with appropriate members of Congress. If the mill should be utilized in this way exclusively for the benefit of Oatis, members of Congress … might well question the Department’s sincerity.…

Our approval of the sale would also mean that the Czechoslovak Communists might well feel the claim that they had won out against the US in the Oatis case after all. The Communists have attempted from the beginning to use Oatis as a bargaining asset to extract something from us which they did not have before his arrest. To them it must mean the getting of $10 million which they had probably expected otherwise to lose. If the proposed sale goes through it would accordingly almost inevitably be regarded by the Communists as a triumph over the US Government and a gaining of ransom. It might be expected, as our Embassy at Prague suggests, to set the pattern of US relations with the Communist regimes of Eastern Europe making it more difficult for our missions and for any American citizens who in the future may be imprisoned by the satellite governments.

Alternative Courses of Action:

Under the foregoing circumstances the following courses of action are possible:

I.

Disapproval of the proposed sale, together with an approach as soon as possible to the Czechoslovak Government at Prague. Ambassador Briggs would be instructed (see attached telegram3) to inform Foreign Minister Siroky that the proposed transaction involving Oatis could not be authorized by the US Government; that a basis mutually to the interest of the two Governments had already been proposed in oral discussion and by aide-mémoire of February 14 for solving the Oatis problem and for dealing with the steel mill (that is, exchange of persons in US and Czechoslovak custody, lifting of our main retaliatory measures imposed since imprisonment of Oatis, and subsequent discussion looking toward a general financial settlement including disposition of the proceeds of the steel mill in the context of claims for compensation for nationalized [Page 21]American property); and that since disposition of the steel mill or proceeds from its sale is a matter apart from the release of Oatis, the only possibility for the Czechs to sell the mill and utilize the proceeds would be on the basis of having the funds put into a blocked account and considered in relation to our financial claims.

General Donovan would be advised that the transaction in the form proposed was regarded as contrary to the national interest and no authorization could consequently be given for the sale unless the proceeds were transferred to a blocked account. World Commerce should make this clear to the Czechs in any further discussions with them about the sale of the mill in accordance with the position we would take with the Czechoslovak Government at Prague in discussing this matter with the Foreign Office.

II.
Authorization of the proposed sale.

Recommendation:

We believe that on balance Alternative I above is the right course and recommend that it be adopted as the Department’s position, and that you sign the attached telegram.

  1. Drafted by Vedeler and cleared with Bohlen and Jack C. Corbett, Deputy Director of the Office of Financial and Development Policy.
  2. Reference is to the proposal made by Briggs at his meeting with Široký on Feb. 14; see Document 6.
  3. No telegram was found attached to the source text; a marginal note indicates, however, that this memorandum was submitted to Acheson by Perkins on Apr. 4, and that the recommendation in the concluding paragraph was approved by the Secretary. Telegram 440 to Praha, Apr. 4, contained the essence of the approved recommendation and bore Acheson’s signature. Presumably it is this telegram that is under reference. (249.1111 Oatis, William N./4–352)