52. Telegram From the Department of State to the Embassy in Czechoslovakia 1

67657. Subject: Gold/Claims.

Leddy-Duda meeting held November 8.
Prior to presenting Duda with Aide-Memoire on settlement of outstanding US-Czech economic questions, Leddy stated we have completed thorough and exhaustive review problems unsettled issues of claims and gold in sincere effort find solution which might be mutually acceptable. As result this review would like to lay on the table, for purposes discussion, proposal which we hope might commend itself to Czech Government as basis for beginning serious negotiations. We do not put this forward in spirit of “take it or leave it,” but rather as contribution to discussion and in spirit of seeking accommodation in order to achieve a fair settlement all around.
Leddy then reviewed elements proposal:
  • First, proposal embraces:
    Settlement of claims.
    Settlement of blocked Czech funds in US and blocked US funds in Czechoslovakia.
    Question of Czech dollar bonds.
    Release to Czechoslovakia of accumulated social security payments under Treasury Circular 655.
    Regularization of payments situation under Surplus Property Agreement.
    Immediate release of Czech gold upon conclusion of agreement.
  • Second, with respect to claims:

    a) Are proposing settlement which would both give credit to Czecho for full value ($17 million) of steel mill and also be as equitable to Czechoslovakia as average of our settlements with other socialist countries. In addition, we are proposing methods of payment which take into consideration balance of payments situation of Czechoslovakia. Essential elements:

    Original claims filed were $300 million.
    After hearings, Foreign Claims Settlement Commission established figures of $72 million of principal plus accrued interest of $41 million, or total of $113 million.
    US proposal is:
    settlement for total of $44 million. (This is about 61% of principal, or average of settlements with other socialist countries.)
    Crediting of $17 million for steel mill, so that remaining balance is $27 million.
    Spreading of payments so that only $2 million would be immediately payable and remainder over 8 years—or about $3 million yearly.

  • Third, with respect to Treasury Circular 655 and social security payments, we estimate there is backlog of $5 million immediately available to Czechoslovakia and $500,000 annually. Pending Congressional legislation could eliminate back-payments or limit them to 12 months. We hopeful 12-month grace period will be adopted thus allowing back-payments in Czechoslovakia if agreement reached.
  • Fourth, with respect to surplus property, 80% of past debt would be spread out over 4 years ($4 million) and only 20% immediately ($1 million). (Annual payments over and above would be $300,000.)
  • Fifth, freeing of blocked accounts here and in Czecho would mean about $1.7 million due Czecho and $1.1 million due US—a net gain to Czecho of $600,000.

    Finally, leaving aside question of bond settlement, which still to be negotiated, if US proposal accepted, we estimate:

    Czechs would receive immediately some $26 million (gold $20 million, social security $5 million, $600,000 net unblocked funds).
    Czechs would have pay immediately only $3 million. Rest would be spread out over extended period.

After reading Aide-Mémoire and listening to Leddy presentation, Duda commented that during his visit to Prague this summer he had found GOC considered attitude of USG toward this problem as a measure of its good will to improve bilateral relations. Duda added:
Agreement initialed in 1961 constitutes best basis for settlement. This agreement result long negotiations.
He without instructions thus in no position to reply. But speaking frankly and personally he felt this proposal no basis for solution to problems. He would, however, duly transmit Aide-Memoire and Leddy comments to his Government.
Said $44 million claim based on exaggerations which do not correspond with actual losses. Leddy interjected that Department willing to review all claims awards with Duda or any member his staff. Leddy added war damage not included in awards.
Inclusion full value of steel mill not new but had been agreed to previously by USG during 1959 negotiations, he believed.
Outlay connection this proposal would be very heavy and couldn’t believe b/p taken into consideration, particularly since trade with US worsening and likely deteriorate further under Kennedy Round. (When pressed, Duda admitted that b/p vis-á-vis US this year better than ever.)
He had been given impression from various Department officials that our proposal would be flexible and constructive and now disappointed.
Proposal creates entirely new situation. He would have to await Prague instructions before making further comment. GOC reaction may be transmitted either through Czech Embassy here or to US Embassy Prague.
Leddy thanked Ambassador for his comments and said he did not wish to review history of initialed note of 1961 except to add that it was initialed ad referendum and when examined by senior Department officers found unacceptable. Stressed again sincerity with which our proposal drafted. We believe it flexible.
Duda seemed surprised by claims figure of $44 million. He made no comment about gold and did not attack any other features of Aide-Mémoire.3
  1. Source: Department of State, Central Files, FN 19 CZECH. Limited Official Use; Immediate. Drafted by Batjer, cleared in EE, and approved by Leddy. Repeated to Brussels for Petrow.
  2. Beginning in 1967, the dates and transmission times of all outgoing Department of State telegrams were in six-figure date-time-groups. The “Z” refers to Greenwich mean time.
  3. In telegram 1088 from Prague, December 8, the Embassy reported that while it had yet to receive an official reply to the U.S. aide-mémoire, Czech officials had been “stunned” by the offer, which they regarded as a “provocation.” (Department of State, Central Files, FN 19 CZECH)