Foreign Relations of the United States, 1969–1976, Volume XV, Soviet Union, June 1972–August 1974

19. Memorandum From the President’s Deputy Assistant for National Security Affairs (Haig) to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, July 25, 1972.

SUBJECT

• Peterson’s Negotiations

The attached cable (Tab B)² contains Peterson’s views as of COB Monday.³

SUMMARY:

Lend-Lease

Maintain for the time being our position of $500 million at 5% until they give us a counter offer. (This is below the 5½% Summit position, but well above Peterson’s 3¾% fall back.)

Overall Strategy

Get as much as we can on MFN, business facilities, arbitration, etc. without giving anything away on lend-lease or credit at this time; and smoke them out on where problems lie so that by Wednesday night we will know what we need to do to “define the package.”

Strategy

Start with Patolichev and suggest that since this is “highest level proposal” arrange sessions with Patolichev and Kosygin to review a proposal that only he and Kosygin-level know about. Peterson also wants “very confidential discussions” with Kosygin and Brezhnev without the Ambassador and “others.” To facilitate this, he suggests that you deal with Dobrynin, but not contact him until Peterson gives you a signal.

Overall Package

—Attempt to get a lend-lease settlement of $500 million at 2% plus an additional amount equal to interest on the $500 billion for the past twenty years, which is $200 million. This, according to Peterson, would enable us to demonstrate that we had won on the principle of back interest, but permit the Soviets to “save face,” i.e., by not going above 2% interest.

—MFN: Agree to submit MFN in latter part of the year, but try hard to get our version of MFN approved before making this commitment. This would probably include the Soviets making an initial lend-lease payment at or before the time they are made eligible for Ex-Im credit, with a moratorium provision on further lend-lease payments until MFN comes into effect.

—Ex-Im: Assure Soviets of a Presidential Ex-Im determination and $150 million for Kama River projects⁴ by a specified date—say September 25 of this year.

—Joint Projects: Make a commitment to a high-level mechanism to evaluate and push specific projects. Peterson would head this. A group would be invited to the US in August in connection with this effort.

—Business Facilities: Soviets want diplomatic immunity for a limited number of trade representatives in the US. In Washington at the Patolichev meetings Peterson took a strong stand against this. Now the US bureaucracy is for it and our delegation is trying to define immunity in precise terms as to nature and numbers. This could be thrown into the pot.

Comment

I have no major substantive problems with Pete’s scenario. There are a number of loose ends and unanswered questions which will probably be clarified in subsequent memos from Peterson. For now his main objective seems to be to smoke out the problems so that we will have a clearer idea of what the issues are. There will be a number. The Soviets have consistently rejected the concept of paying back interest on lend-lease. This is precisely the problem we had hoped to avoid through the “stream of payments” approach—which would have allowed us to focus on the amount of annual repayments rather than entering into theological arguments on principle, interest, or back interest. In this way the Soviets would not have to cave on any of their principles, but we could if we wish indicate that we had gotten annual payments equivalent to what we would have gotten had the Soviets paid back interest, an interest rate higher than 2% etc. The whole thing, however, is optics, and as long as Peterson can get an annual rate of repayment equivalent to $500 million at between 3¾ and 4%, that is acceptable.

Another issue is that of Peterson’s dealing with Kosygin and Brezhnev on the trade package. There is little in this that must be negotiated directly with these two. For us to push for them—if we are—seems a bit presumptuous at this point, especially when we are not about to conclude a trade agreement in Moscow. If negotiations are begun at the highest Soviet level, there will be intense pressure on us to move more quickly than we wished to. And that would raise problems when Patolichev visited here, since the Soviets might want the President to get involved in these negotiations.

Attached at Tab A⁵ is a brief cable to Peterson commenting on the attached cable (Tab B).

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 953, VIP Visits, Pete Peterson’s Moscow Visit (Commerce), 17 Jul–3 Aug 72 [2 of 2]. Top Secret. Sent for action.
2. Attached but not printed is backchannel message 2741 from Peterson and Sonnenfeldt to Kissinger, July 24.
3. July 24.
4. The Kama River project anticipated the production of 600,000 trucks per year for use in agriculture and inter-city transport. See Foreign Relations, 1969–1976, volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 332.
5. The attached July 25 backchannel message from Kissinger to Peterson and Sonnenfeldt was initialed by Haig for Kissinger. It reads in part: “I agree in principle with the substance of your package proposal and scenario. With regard to strategy, I question the advisability of detailed discussions at this time with Kosygin and Brezhnev. This might put undue pressure on us to move faster than we wish. And it would involve questions of reciprocal treatment when Soviet delegation visits Washington in September. I agree, therefore, that you should get as much cleared up through regular channels as possible. With regard to lend-lease, couldn’t the problems of back interest be subsumed under a stream of payments approach, which would allow each country to indicate to its domestic audience the components of whatever amount was repaid?”