72. Memorandum From the Deputy Assistant Secretary of State for European Affairs (Kohler) to Acting Secretary of State Dillon0
SUBJECT
- Claim Negotiations with Poland
Discussion:
[Here follows a 2-paragraph summary of the negotiations; see Document 67.]
[Page 188]Amount of the Lump Sum
At the beginning of the negotiations, we believed that $90 million was close to the actual value of the apparently valid claims. As the result of our discussions with the Poles so far, and the further information we have developed with respect to the applicable Polish laws, we believe our original estimate was too high. We now estimate that $70 to $80 million is a more realistic evaluation of legally valid claims of the U.S. The basis for this judgment is explained on pages 15–16 of the paper attached at Tab A.1
In the final analysis we believe that the amount of the lump sum must be interrelated with the maximum number of years for payment we are willing to accept, and the maximum annual payment which can be expected of the Poles. Polish post-war claims agreements with other countries (U.K., France, Switzerland, Sweden and Denmark) have provided for periods of payment varying from 12 to 17 years. In terms of defending a settlement before public and congressional opinion, we should naturally strive to limit the period of payment to as short a period as possible, and to secure as high a payment in the early years after a settlement as is possible. We are inclined to propose a 15 year period, although in view of the magnitude of the settlement we seek, we would recommend agreeing to 20 years, if necessary.
The matter of the maximum annual payment is, however, a much more difficult problem. To a large extent, it is the crux of our problem in the negotiations. Poland is experiencing recurring balance of payments deficits, has very low foreign exchange reserves, and its foreign debt burden is increasing. The Poles will therefore insist that their capacity to pay claims compensation is very limited. On the other hand, the Poles enjoy a substantial dollar surplus in trade with US. This surplus, which has averaged about $20 million since 1955, is expected to continue and may increase, if Poland is accorded MFN status. From this surplus, Poland is obligated to pay dollar debts to the US of about $7 million a year until 1962 and $16 million a year between 1963–83. Thus, even after payment of dollar debts, the Poles should have available dollar funds with which to pay claims compensation.
If we were to agree to a settlement of $70 million and were to attempt to limit payments to 15 years, the Poles would be required to pay about $4.7 million per annum. Over 20 years, an annual payment of $3.5 million would be required. The Poles may be expected to strongly resist such a settlement on the grounds that their settlements with other countries have provided for payments based on a percentage of Polish exports to the creditor country. The largest such percentage used, [Page 189] provided for in the U.K. agreement, is 5.5%. This percentage applied to the current level of Polish exports to the U.S. ($27 million) would mean a payment of $1.5 million. Even if we were to assume a substantial increase in Polish exports to the U.S., there would remain a large gap between our two positions, which would have to be bridged if an agreement is to be reached. This might be accomplished in several ways, such as a graduated schedule of payment. Our efforts, however, should be directed toward a schedule in descending scale, based upon Poland’s dollar position (taking into account also the contribution made by our credit and sales agreements). Pending exploration of this problem with the Poles, our position on this matter should not be finally determined at this time.
Conclusion
While we will naturally try to get Polish agreement to as favorable a settlement as possible, from the point of view of the American claimants, we believe that we must realistically expect to settle for as low as $70 million, or possibly somewhat lower. It is our present judgment that a settlement in the vicinity of $70 million would not be disadvantageous to the American claimants, and even a somewhat lower settlement might be in the best interests of the claimants if this meant a settlement over a shorter period of years.
Recommendations:
It is recommended:
- 1.
- That Ambassador Beam be authorized to reach agreement with Poland on a lump-sum claims settlement as much in excess of $70 million as possible, but in any event not below $70 million without further authorization.
- 2.
- That Ambassador Beam be authorized to propose a period of payment of 15 years, and if necessary he may agree to 20 years, and to the extent possible to secure a higher payment in the early years after a settlement.
- 3.
- That the Assistant Secretary of EUR and the Legal Adviser be authorized to determine the positions to be taken by the U.S. on the subsidiary issues discussed in the review attached at Tab A, with the understanding that in any case, the U.S. would not retreat beyond the recommended positions set forth on page 17 of the paper at Tab A.2
- Source: Department of State, Central Files, 248.1141/6–1859. Confidential. Drafted by Julius L. Katz of the Office of Eastern European Affairs and concurred in by Benedict M. English and George W. Spangler of the Office of the Assistant Legal Adviser for International Claims; Stanley D. Metzger and John J. Czyzak of the Office of the Assistant Legal Adviser for Economic Affairs; John M. Raymond, Deputy Legal Adviser; Sherer; and Beale.↩
- Not found.↩
- Handwritten notations on the source text indicate that Dillon approved the second and third recommendations. There is no indication whether the first recommendation was approved or disapproved.↩