132. Memorandum of Conversation0


  • US
    • Under Secretary Dillon
    • Mr. Akalovsky
  • USSR
    • Chairman Khrushchev
    • Mr. Gromyko
    • Mr. Menshikov
    • Mr. Soldatov
    • Mr. Troyanovsky

Mr. Khrushchev opened the conversation by saying that it was up to the United States to open or close the country for trade with the Soviet Union.

The Under Secretary replied that there were possibilities considerably to expand the trade between the USSR and the United States. However, the question was what the USSR wanted to buy. As the Chairman had said the other night,1 the USSR seemed to be interested in peaceful trade. Mr. Dillon said that he could state that all such commodities were available, including such commodities as machinery and equipment for the manufacture of shoes and synthetic fabrics. He said that he had looked at the records and that at least five different processes in the synthetic textile field had been made available to the Soviet Union during the past year.

Mr. Khrushchev responded rather violently, stating that this was not a platform for discussion. What he was interested in was abolition of discriminatory practices directed against the Soviet Union. He said that he was not prepared to discuss any specifics; this was something to be discussed by his Minister of Trade, who was not accompanying him on this trip. He then said that he had not come to the United States to learn how to make shoes or sausage, but rather to discuss the general principles of trade between the USSR and the US. The Soviet Union would welcome it if the United States were to rescind its discriminatory practices in trade with the USSR. On the other hand, if the United States should refuse to do so, this would mean that it wants a continuation of the cold war, which, although regrettable, would not disturb the USSR—the Russian spirit, he said, was strong and would hold out even in that situation. Any offer to the USSR of such items as shoe lasts, etc., was insulting to the people of the Soviet Union. They knew how to make [Page 471] shoes, perhaps even better than the Americans. Mr. K then invited the Under Secretary to look at his shoes and see that for himself.

The Under Secretary replied that there were two problems involved in this situation, that of buying and that of selling. As far as buying by the Soviet Union was concerned, practically the whole U.S. market was open to the USSR except less than 10% covering commodities of strategic and military importance. The Chairman had said that the USSR was interested in peaceful trade; the United States was also interested in such trade. Mr. Dillon then said that he didn’t intend to discuss specifics either. Details could be discussed between the U.S. Department of Commerce and the Soviet specialists who might come here for that purpose.

Mr. K then again emphasized that what he wanted was the abolishment of discrimination against the USSR. He said that he was not talking of trade as such but rather of a principle, of the Soviet Union’s right to trade. U.S. companies would sell what they wanted to sell and the Soviet Union would buy what it wanted to buy. The main thing was that there be the right to do so.

The Under Secretary replied that the Soviet Union already had the right to purchase things it wanted. As to the selling situation, it was true that some seven or eight years ago the United States Congress had passed a law which had frozen the level of duties and had thus prevented the extension to the USSR of the benefits granted to the most favored nations.2 A change in that law, Mr. Dillon said, was not possible without an action on the part of the Congress; this action depended on the state of public opinion in this country and on the general state of the relations between the U.S. and the USSR.

Mr. K interjected that it was necessary to make a beginning somewhere. The Under Secretary agreed with this remark and then said that there was another restriction on the trade with the USSR, which was the prohibition of the import of certain types of furs from the USSR.3 This question was now under study and, if the conditions in Congress were favorable, a revision of this situation would be sought as a test for future liberalization of trade regulations applied to the USSR.

Mr. K said that this would be a good thing to do.

The Under Secretary said that the Executive Branch would not want to ask Congress to take action on this situation if it was clear that the Congress would reject such a request. Yet, there was a chance of having this action taken perhaps during the next session of Congress. [Page 472] Mr. Dillon agreed with Mr. K that the whole question of trade was more of a political nature than economic. It was also a question of public relations. Studies conducted by the U.S. Government indicated that there was no room for a tremendous increase in trade with the Soviet Union because the commodities which the USSR had in excess were not needed by the United States;4 those commodities were produced in the United States or were obtained from other countries such as India, Canada, etc. Therefore, the growth of trade with the USSR would be gradual. However, it was important to create a better atmosphere. The Under Secretary then went on to say that there was one thing which the Soviet Union could do and which would contribute greatly to a normalization of the situation. He said that, as Mr. K undoubtedly knew, the trade in the United States was conducted by private companies. Many companies, including, for example, chemical companies were afraid to trade with the USSR because they felt that they had no solid protection of their patents or royalties. For that reason an agreement on the protection of patent rights, including an agreement on such a related subject as copyrights, would help our private business and give it some confidence. The question of protection of these rights, Mr. Dillon said, was one of the problems most frequently mentioned by our private businessmen when they come to the Department of Commerce.

Mr. K said that this question was one that had to be decided between the USSR and the individual companies concerned. He said that if the USSR bought something, it would pay for it, just as had been the case in the USSR’s dealings with du Pont. If the U.S. were to rescind its discriminatory restrictions then a new deal with du Pont would be possible.

The Under Secretary pointed out that the Soviet Union, on the basis of the reports received from its Embassy in Washington, was probably fully aware that at its conventions the U.S. chemical industry had passed resolutions indicating its apprehensions with regard to trade with the Soviet Union and its reluctance to engage in such trade until and unless its patent rights are fully protected.5 Mr. Dillon said that perhaps the Chairman himself had not seen his Embassy’s reports on this subject, but he should know that this was the situation.

Mr. K reiterated that this was a specific question to be decided by the two sides at the time when contracts were negotiated. He then again [Page 473] stated that the whole problem of trade was more political than economic. He noted that some people in the United States wanted the Soviet Union to buy chemical products from them; this was a totally unrealistic approach. The Soviet Union was a powerful nation capable of manufacturing any equipment by itself and of producing all the things it needed. Therefore, if the United States did not want to sell equipment to the USSR, the latter could manufacture the necessary equipment itself or buy it from other countries as it had already done. The Soviet people did not live on a deserted island and were not in a desperate situation. Some people still did not realize that the Soviet Union was a grown up nation and that it could build even such things as the United States had not yet been able to produce. The United States’ approach was high-handed and amounted to a policy of Diktat and of cold war. This policy, Mr. K said, had failed in the political field and it would also fail in the economic field. The Soviet Union was a strong nation and it could hold out. He then stated that the Soviet Union did want to trade with the U.S. but that such trade would have to be on the basis of equality and without injury to the national pride of the Soviet people. Any attempt to impose certain conditions on the Soviet Union would fail. Any attempt to offer the Soviet Union such items as shoe lasts was offensive to the Soviet Union and would not constitute a basis for discussion.

The Under Secretary replied that the only reason he had mentioned machinery for the manufacture of shoes was that this item, as he recalled, was on one of the lists of items submitted by the Soviet Union.

Mr. K then very strongly emphasized that the United States should not injure the national pride of the Soviet people and their sensitivity.

The Under Secretary, reverting to the question of patents, stated that this question could be dealt with between the companies and the USSR when the situation arose. Yet there was another step that the USSR could take in order to facilitate a revision of laws regulating such situations as fur import or duties. He said that Ambassador Lodge had told him that the question of Soviet lend-lease obligations had been briefly mentioned in a conversation between him and the Chairman and that the Chairman had expressed agreement to have negotiations started in order to settle this problem.6 A settlement of this problem could help create a more favorable public opinion and a more favorable climate in Congress, which in turn could help abolish the existing restrictions with regard to trade with the USSR. The Under Secretary emphasized that there was no direct connection between the two problems but that, [Page 474] nevertheless, a settlement of the lend-lease obligations could help create a better atmosphere in Congress and thus be conducive to the abolishment of restrictions.

Mr. K confirmed the fact that he had had this conversation with Ambassador Lodge and then said that, as Mr. Mikoyan had stated earlier,7 the Soviet Union was prepared to discuss this problem with a view to settling. However, the Soviet Union’s contribution in blood during the last war should be taken into account during such discussions. Mr. K said that he was positive that the United States would obtain little economic advantage as a result of the lend-lease problem being settled, because it spent more money for propaganda than it would receive from the Soviet Union on the basis of the latter’s lend-lease obligations. Yet he was aware of the fact that a settlement of this problem would constitute a moral satisfaction for the United States and would help create a better atmosphere in Congress. He said that he was also aware of the fact that this problem was used by elements unfavorably inclined toward the USSR to create friction between the two countries. Mr. K then continued by saying that in this matter, too, there should be no discrimination against the USSR; the U.S. should approach this problem in the same manner as it did with regard to other countries such as England, etc. Any discriminatory approach in this matter with regard to the Soviet Union would hurt the pride of the Soviet people because their contribution in the last war had been the greatest. There was another point, Mr. K said, which he wanted to mention and which indicated that the U.S. would not obtain any economic advantage from a settlement of the lend-lease obligations. He said that in a conversation he had had with the President, the latter had remarked that while in 1948 the U.S. military appropriations amounted to 12 billion dollars, now they were 50 billion dollars.8 The difference between the two figures showed how insignificant the sum derived from a lend-lease settlement would be. The lend-lease problem was, as a matter of fact, so insignificant from the economic point of view that insistence on its settlement could be compared to catching fleas in a dog’s hair. Nevertheless the Soviet Union would be willing to appoint representatives to start negotiations on this subject.

The Under Secretary replied that this would be very helpful and suggested that contacts be established through diplomatic channels with a view to starting negotiations.

At this point, Mr. Gromyko whispered something in Mr. K’s ear, whereupon Mr. K stated that the question of lend-lease had bearing on [Page 475] the question of credits. Yet, he said, this matter should be discussed on the ministerial level.

The Under Secretary agreed that the question of lend-lease had bearing on the problem of credits because the latter were regulated by Congress so that a settlement of lend-lease would be very helpful.

Mr. K. then said that the fact that there was little trade between the United States and the USSR was not a natural situation but rather an artificial one. He said that he did not want to impose his views on Mr. Dillon but that, nevertheless, he wanted to state it. If the United States should abolish discrimination, he continued, trade of course would not jump immediately because it was in a frozen state now; it had to be warmed up just like a plane had to warm up its engines one by one before it could take off. Trade was even more complicated than an aircraft and, therefore, it would be only natural if it did not jump upward immediately. He then said that assuming that the happy day would come when a disarmament agreement would be concluded, the U.S. industry would then have to be reconverted to peaceful production. This would be useful for both the USSR and the United States. The USSR would immediately place big orders, with credits, of course, because it could not pay for everything at once, while the United States would benefit from such orders by having full employment in the country and by having a peaceful production compensating for the production of armaments. Mr. K said that he wanted to make one point very clear: credits were not a gesture of mercy and sometimes he who gave credit was more interested in it than he who obtained it. But, he remarked, this was something for the United States to decide. his own considered view was that credits would be more beneficial to the United States, both politically and economically, than to the USSR, especially so since the United States appeared to be the only country unwilling to extend credit to the USSR. Other countries had already granted credit to the Soviet Union; true, that credit had been private, but the day would come when the respective governments would also grant government credit. He said that he wanted to repeat that the Soviet Union was not begging for credits—its pride would not allow it to do so. It would rather starve than beg, but then, of course, the future prospects for the Soviet Union were not those of starvation but rather of overweight. The only thing that had prompted him to raise the question of credits was common sense. Furthermore, various private companies, such as Ford, General Motors and others had granted credit to the Soviet Union in the past. Now if Mr. Dillon were to help in this respect his reputation as being a conservative and aggressive man would disappear. Some day, when the proletariats took over, Mr. K remarked facetiously, he would put in a good word for Mr. Dillon and say that he had helped the proletariat. The same thing would apply with regard to Mr. Lodge. Mr. K then went on to say that [Page 476] both Mr. Gromyko and himself thought that Mr. Dillon looked very much like Dimshets, the Soviet engineer who had built an iron and steel plant in India. Dimshets was one of the best Soviet engineers, and he, Mr. K, respected him very much.

The Under Secretary expressed his appreciation of the explanation by Mr. K of his basic view on trade policy. This explanation helped the United States understand the situation. As to the question of credits, they were regulated by a law passed in 1935,9 a law which had not been directed against the USSR. This law would have to be changed to make the granting of credits to the USSR possible. As to the credits by private companies referred to by Mr. K, they had been granted before 1935. A better atmosphere in the relations between the two countries now would help with regard to the granting of credits by private firms.

Mr. K said that he had nothing to add because American laws were an internal matter of the US. The Soviet Union could have its views on American legislation, it could express its opinion as to whether certain laws were sensible or not, but it was up to the United States to decide what to do. Mr. K then said that tomorrow, Monday, at 4:00 p.m. he was going to speak at the rally in Moscow and asked Mr. Dillon whether he could tell his people that this conversation gave hope that trade between the USSR and the US might be developed and that the existing discrimination practices would be rescinded. He added that he realized that Mr. Dillon could not change laws.

The Under Secretary replied that, as he had pointed out before, the problem here depended upon Congress and, in the last analysis, on public opinion. Thus, as tensions existing between the two countries were alleviated, if they were, this would affect the development of trade and could lead to a lessening of special restrictive laws.

Mr. K stated that he would repeat Mr. Dillon’s remarks word for word at the rally tomorrow.

  1. Source: Department of State, Conference Files: Lot 64 D 560, CF 1475. Secret; Limit Distribution. Drafted by Akalovsky and approved by Dillon on September 24.
  2. Presumably during the dinner on September 24; see Document 127.
  3. Reference is to the Trade Agreements Extension Act of 1951; see footnote 2, Document 64.
  4. See footnote 10, Document 65.
  5. One study mentioning the small market for Soviet goods in the United States was Intelligence Report No. 7749, “Khrushchev’s Proposals for an Expansion of US-Soviet Trade,” prepared by the Division of Research and Analysis for USSR and Eastern Europe, Office of Intelligence Research and Analysis, June 27. (National Archives and Records Administration, RG 59, OSS-INR Reports)
  6. Not further identified.
  7. Khrushchev’s remarks agreeing to negotiations on the lend-lease problem are contained in two memoranda of conversation with Lodge during their visit to Wall Street and the Empire State Building on September 18. (Department of State, Conference Files: Lot 64 D 560, CF 1473)
  8. See Document 65.
  9. The President’s remark has not been further identified.
  10. Reference presumably is to the Johnson Act, enacted in 1934, not 1935. See footnote 4, Document 65.