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

21. Notes of Conversation Between Soviet General Secretary Brezhnev and Secretary of Commerce Peterson¹

Crimea, July 30, 1972.

Accompanying Secretary Peterson were Ambassador Beam, Lynn, Sonnenfeldt and the Secretary’s Assistant, Sweitzer.² Accompanying Brezhnev were Foreign Trade Minister Patolichev, his Deputies Manzhulo and Alkhimov, and Zinoviev, Head of the American Department of the Foreign Trade Ministry.

Brezhnev states that the trade work should be looked upon as a continuation of the businesslike, constructive meetings held with the President at the Summit. He hopes that the day’s talks could be frank because there could be no other tone given the importance of the talks. Brezhnev has good memories of the Summit and what was accomplished there.

Peterson responds by conveying greetings from the President. He states the President remembers the Summit with enormous warmth and commented to Peterson that he has never seen such hospitality. Patolichev has also gone to great lengths to make our trade delegation feel welcome.

Brezhnev states that he is pleased inasmuch as hospitality is a part of the Russian character. In the village he came from people were constantly inventing occasions to entertain each other and would spend so much on hospitality they would have to buy food on credit the next day.

Peterson refers to the fact that the President also stated that he and Brezhnev share a desire to take the long view and the broad view but to combine it with taking very concrete, forward steps. The President likes big steps. In this connection, the President asked Peterson to tell Brezhnev of the President’s pleasure with the grain and scientific agreements which had been recently signed.

Peterson states that the President’s and our view is that if we are going to set up trading and commercial relationships on a long-term, permanent basis, we should set up our commercial institutions on the same basis. For example, copyrights, arbitration and tax treatment are important to show our press and our people that we have a long-term relationship in mind. Brezhnev then interjects that we will immediately have to start arguing. On his own domestic side, he is trying to make staffs smaller and cut overhead. He is convinced that Patolichev and Peterson can handle such matters. Why create additional institutions? (This was all said in a semi-humorous way.)

Peterson states that in many ways the US and the USSR are extremely natural trading partners. In addition to being the two largest economies, there is a very good fit between the two economies. The United States has traditionally exported agricultural products and about 60% of our exports are of high technology products. Every good commercial relationship must be balanced. One of the real challenges is to build Soviet exports to the US. A real opportunity in this regard is in the field of energy and raw materials. We should start joint projects soon in raw materials. As an example, we have proposed projects involving the production of platinum for sale into the United States. We need platinum to meet the automobile pollution problem, and the requirements will be quite large. Such projects will have both practical and symbolic value. Also, the President had told Peterson about Brezhnev’s discussions with the President on gas,³ and had pushed Peterson on it. Peterson and Patolichev and others within our respective delegations have had many discussions on that.

Brezhnev then interjects that he must right away issue a severe reprimand to Patolichev, and to the extent he can, to Peterson, for working too slowly on gas. He adds that Peterson must know what a reprimand means in the Soviet Union. He tells us to advise the President of such reprimand and the need for quicker movement on gas projects. (Again, all this reprimand talk was in a humorous tone.) He states the President should know Brezhnev wants to move more quickly on gas.

Peterson states he will be candid on gas. We have proposed to set up a specific group under the Joint Commission to work on gas, but we assure that such work is not to be slow. The group is needed because the problem needs focus and definition. In energy, the US is “polluted” with too many environmentalists. They want no local drilling and want no deep water ports. They are very unrealistic. However, before too many months have passed, we will find our country coming closer and closer to agreement that we have a real need for increased energy resources. This question of energy needs and policy was getting the focused attention of the US Government at the direct instructions of the President. Peterson sincerely believes that after the election our country will be more realistic about energy needs and will proceed more rapidly to get deals going in that particular field. The first basic step is to get widespread public agreement that the energy problem is a real one. In the meantime, there is important work to get started on. For example, there are many different opinions, conflicting assertions, on the Soviet gas projects. Some sources say the costs are $3–4 billion, while others say $7–8 billion. Some say it is feasible to lay big pipe in permafrost; others say the permafrost situation presents many difficult and imposing problems. Thus, work by the joint US–USSR group on gas projects is very important to get agreement on the technological and economic facts upon which decisions can be made.

Peterson adds there is another important thing the US is doing on gas. We like to get the private sector involved in big projects, not just the government. At the President’s direction, Peterson has met three or four times with seven or eight of the biggest financial people in the United States, including David Rockefeller, Andre Meyer, who is a senior partner of the investment banking firm Lazard Freres, and the head of our largest bank, Bank of America. These meetings are to explore potential of the private sector for financing these very large deals, as well as to explore whether we need new financial institutions in the United States to handle government participation in such financing. At present, the Export-Import Bank is largely set up to handle ordinary exports. The largest amount of Export-Import credit to any country outstanding is only slightly over $1 billion. The gas deals alone would far exceed this kind and level of financing. The President wants us to think in new, bigger terms for deals that are large and complex. We also have within the United States coordination problems. For example, the Federal Power Commission determines prices at which gas can be sold, and that body must be brought into the issue. The FPC is independent from the President. If we are to get not only more government money, but also private money, we also have to figure out how to bring in the private financial sector.

Peterson concludes this portion of his presentation with the statement that he will accept Brezhnev’s reprimand, but we are not sitting on our fannies. Brezhnev says a weak excuse (again humorously). Brezhnev adds that businessmen work quickly. Peterson points out that his background is being a businessman but he must be a slow businessman. Brezhnev says he is just joking. Peterson says all he can do is assure Brezhnev that the President is interested and that at his direction Peterson is spending a lot of time with the gas companies and intends to spend a lot of future time on this problem.

Brezhnev then states that he should first emphasize the importance of his Summit talks with the President. There was plenty of “speculation” in the world about such meetings. The greater majority of rumors are now positive—rather reserved but clearly pronounced. History will estimate it. Given the circumstances in the USSR and in the United States, the facts of the Summit aimed at favorable development—to improve the relations of the two nations, all to the benefit of both peoples and for relaxation of tension. What would be more noble. Perhaps the Summit meetings would not solve all problems, but everything shows the efforts were noble and not wasted. World opinion confirms this. The Party and the Soviet nation accepted the Summit results very well. The subject was treated with great understanding and attention. The Party is well organized and educated and can properly judge such things, and there was favorable acceptance. Brezhnev hopes deeds do not differ from the words. He is not criticizing US society but reserves the right to do so elsewhere. The US has created for itself different institutions which argue with each other. But the tendency in the United States is expressed favorably. Remnants of past opinion on Bolsheviks, Brezhnev, Patolichev, et al are not good, but in general a reasonable approach is predominating in the US. Brezhnev’s impression is that all United States institutions “shall take” a positive decision on all that was done at the Summit, and he hopes that this is the case.

Then moving to trade matters, Brezhnev states there were decades when the United States did not want to trade and these years were just wasted. Nothing was achieved by that attitude. It was a waste in the life of the society of the United States. We could have helped each other. In a modern world, trade has not just commercial but political importance. In this sense, the Summit decisions have tremendous “colossal” importance for the future. The President is taking steps to implement these decisions. Peterson’s trip is an example, which Brezhnev appreciates highly.

Brezhnev states that the task now is to overcome and remove all the obstacles and difficulties with respect to trade relations. There should be large sized transactions to the benefit of both countries. As a political matter, it is important to resolve all these trade problems. The President and the USSR acted correctly, courageously and far sightedly when they signed the statement of principles at the Summit. Such principles should provide the base for the solution of other problems. Everybody in both countries seems to accept this, showing that the solutions at the Summit were correct. Congress is about to ratify important agreements that were two years in the making. Therefore, Brezhnev thinks that in trade matters the two nations should be doing the same. There must be principles. To clarify, trade has to be on a reciprocal basis. Businessmen sometimes lose three cents and make ten cents but that is how life is. Therefore, principles are important. If they are not established—take MFN—we can’t have trade; it would be impossible. This is not news to the US. Brezhnev said the same thing to the President, and the President realized this perhaps better than Brezhnev. This is the first question to be resolved.

Secondly, Brezhnev states, we are big countries with huge territories and huge resources. The USSR has “tremendous reserves of raw materials for generations”—ores for non-ferrous metal, rare metals, timber, “trillions” of gas and oil reserves, etc. Now that the Soviet Union is stronger, it is opening those “vast treasures” to increase the standard of living for the Soviet people. If we talk of large projects, no others can do what our two countries can do together. We two countries can do big trade together.

Brezhnev states that the Soviet industries and products have been oriented toward exporting to its traditional partners, the Socialist countries, Western Europe, the Near East, etc. This kind of trade is already provided for in plans into the 1980s. If you take the populations of these traditional trading partners, they are bigger than the United States—Turkey, Italy, France, etc. The USSR cannot throw that trade away. If we are talking about development of US–USSR trade in a big way, trade in a conventional way would be a waste of time. It must be bigger. He alludes to the story of the man selling eggs. The man is asked what he is paid for the eggs per dozen, and he says two rubles. He is then asked what he sells them for and the man says two rubles. The response of the questioner is then: “What do you get out of all this?” The man says, “Well, I am in business!” Trade between the US and the USSR can have tremendous benefits not only in commercial terms but in political terms—increasing standards of living. Payment for projects in the USSR concerning ores, timber and processing equipment, for example, could be made in products—for example, gas, oil and mineral fertilizers. A big deal has already been done in grain. The USSR wants to increase meat consumption and this means a rise in cattle breeding. Under certain circumstances, there could be future grain deals if we have good relations. This is a lesser item but it could continue.

Brezhnev goes on to speak further of gas. It is in the ground. It has to be transported and this can be done in either gas or liquid form. Gas is an important money maker for the USSR. Peterson should trust the US businessmen. Long-term deals are in order and the Soviet Union is prepared to make 25–30 year deals. Short terms are not profitable. The Soviet Union does not have the money for the US gas deals in the five-year plan. It would take credit. At present 8500 kilometers of pipelines are being built by the USSR for domestic and Western Europe gas supplies. It is no secret as to the number of pipe plants the USSR has but it is also buying pipe from Sweden, Germany and Italy. There are no tricks or devices. Brezhnev knows his economy. Is it profitable for the US to do a gas deal? It is up to the United States. The United States is farsighted but competing with its friends in the world. It needs “something in its hands it can use,” in its world trade. “No political preconditions, terms, no nothing.” The US cries poor that it hasn’t got $3 billion but the US “wastes” a lot more in “certain places” (we all took this to be an obvious reference to Vietnam).

Going on, Brezhnev states that, of course, these gas projects take time. To calculate the specifics the US has experienced people and so does the Soviet Union. Then the matter can be resolved. Perhaps 80% of the gas to the US and 20% for Soviet use. These are details. The Siberian gas project is a big operation. The USSR has also had negotiations with Japan. The USSR believes it should do the Japanese gas project because there are some goods in Japan the USSR is interested in. Recently there have been rumors the US and Japan want a joint approach. The US must arrive at an understanding with the Japanese. The investment step is the heart of the matter. The terms of supply and the rest were merely matters of techniques. For example, the Soviets could guarantee us a fixed quantity at a price for a certain term and the US wouldn’t have to worry about all the problems.

Brezhnev also mentions the possibility of other big projects, such as cellulose plants to be built in the USSR—perhaps a 50–50 deal. On platinum, he states he does not know the details but Patolichev is to continue looking into such a project. He mentions the USSR truck industry as a big item for development. Also a couple of big fertilizer plants, both phosphorous and nitrogen. Summarizing, he states projects could be on a “colossal” basis, worthy of the two countries.

Brezhnev states further that we can also exchange consumer goods and capital goods such as machinery. Would require credits. The United States has credits that could be made available. This requires good will and a reasonable approach. The United States should roll away the superstition and get rid of the biased opinion that used to exist against the USSR in the US. Gas is not dependent on political systems.

Peterson states he is a businessman and believes that gas alone could make the US the USSR’s biggest trading partner by 1980. If Peterson were to make the decision, he would do it. Peterson states, however, that it may take a few months to convince others in the US what Peterson believes is an obvious fact. He reassures Brezhnev that he had heard him loud and clear on gas.

Peterson states that on trucks (Kama River)⁴ and joint projects, we would be able to move soon. It is very important to get a few deals started soon, even if not the biggest ones. Once we get a few projects started, the American mentality is that other businessmen will want to do the same thing. Thereupon Brezhnev refers to Henry Ford and how, after discussions between Ford and Kosygin on the Soviet auto plant, there were such noises in the United States “Poor Henry Ford” had to suppress what he had talked about with Kosygin and the Italians ended up building the plant.

Brezhnev states that during the current five-year plan, the USSR wants to build another truck and automobile plant in Siberia, involving 150,000 units a year. This plant could be built with the US.

Peterson states that the Ford experience was pre-Summit. Already people in the United States are saying that there have been no more important, bold meetings in the modern history of the world than the Summit meetings. Brezhnev interjects that if God is willing (crossing himself) and he comes to the US he will explain to our businessmen. Peterson states that the Summit has changed things and uses as an example our attitude toward participation in the Kama River truck plant. He further states jokingly that modestly he will also point out that the Ford project was pre-Peterson, and that Patolichev knows we are ready to go on the Kama River plant.

Brezhnev states there are 250,000 million people in the USSR, and the US should take a realistic look at the country. Peterson should look hard at the Soviet requests to him. Peterson should treat the interest rate issue with a “Godly” attitude. The issue of whether 3 or 6% is important.

Peterson offers Brezhnev a bet that he states Brezhnev probably won’t take—that if we can get by the small technical problems in the next couple of months, the US will be the largest trading partner of the USSR by the end of this decade easily.

Brezhnev states that the US social problems are harder to solve than in the USSR, for example, unemployment and poverty. The US should take that into account. The USSR is prepared to “help out” with these problems through trade. He adds that if we were enemies, the USSR would foster crises in the United States.

Peterson states that we do have different systems and different views about our systems. As the Summit showed, both sides agree that “in a nuclear age there are no winners and losers.” The same is true in trade. Both nations want peace and also have in common our efforts to improve the standard of living in our countries.

Brezhnev interjected that if we don’t trade, both peoples live less good lives. Brezhnev refers to his learning about an American game of “chicken” where autos come at each other in the same lane and wait to see who will divert first. In such a case, Brezhnev said that we both know who would be left and we would have to ask ourselves how we felt about that.

Peterson states history will make Brezhnev and Nixon the greatest peacemakers in history, and beyond this each dollar saved will go into the pockets of our people. Brezhnev replied that history inevitably judges leaders and inevitably such judgment is either good or bad. For example, the Soviet people have a good impression of Roosevelt⁵ and not so favorable impression with regard to certain other Presidents.

On the subject of allocation of national resources as between defense and consumer expenditures, Peterson states that as the President’s Assistant he made a special study of Japan. Japan has had the greatest increase of GNP of any major country. It puts only 0.8% of GNP into defense. Brezhnev interjects that the Japanese advantage is both the lack of defense expenditures and its cheap labor. Peterson continues that the difference in what Japan spends on defense in relation to the US is almost exactly the amount of investment the Japanese put into plant and equipment annually.

Brezhnev states that he appreciates setting up the special working group on gas, and he authorizes Patolichev to proceed. He urges that businessmen be given a free hand. They should be pushed together. He raised this with the President. He asks Peterson to tell the President that he raised the gas project many times with Peterson. Also to tell him that Brezhnev is confident that the understandings and agreements between us will be realized.

Peterson states that the President directed Peterson to bring Principle Seven of the Summit principles into a reality.⁶ (Brezhnev then reads it.) Brezhnev then tells Peterson to “tell the President that Comrade Brezhnev is glad Peterson had me read it and we will abide by it.”

Brezhnev states that we have to solve lend-lease and states that he gave his point of view to the President. They agreed to resolve the problem on “that principle.” Brezhnev doesn’t like unpleasant words but it is an old problem. The United States got nothing. If Brezhnev had been General Secretary at the time and as farsighted as he is now, he would have had the USSR act in a different way. He would have had the USSR return all the lend-lease property left after the war. Thereupon the USSR would not be a debtor. Now, instead, the USSR even has to pay interest. The USSR now “has to pay” and Brezhnev wants to resolve this unpleasant problem. Brezhnev wants the President to understand the USSR proposals on time periods and feasibilities of payment.

Brezhnev states he will raise one more issue, that was not on the agenda. If the US will offer “Godly” credit terms, the Soviets would discuss a long-term deal on soybeans, and makes another reference to our needing something in our hands vis-à-vis the problems with our new competitors.

Jokingly, Peterson refers to a possibility of our forming a trading bloc with the USSR if that problem is that serious.

In closing, Brezhnev tells Peterson to give Brezhnev’s best regards to the President, Secretary Rogers and Dr. Kissinger. He also asked Peterson to advise the President that the USSR keeps working in the spirit of the Summit and nothing will shake its position in this regard. “We must not be hesitant.”

Following the meeting, Peterson and Brezhnev met privately for about 15 minutes. At this point, Brezhnev told Peterson that he wanted him to give a private message to the President on the lend lease issue. Brezhnev said this was a very difficult issue for him and he wanted the President to know that he was not able to go beyond the 2% interest. Peterson mentioned the proposal made to the Soviets to split the difference between the old interest rate of 2% and new interest rates of 6⅛ to 7% and that he had very much hoped that this would get both sides off the hook. Brezhnev said he understood this but he still wanted me to relay the 2% interest message to the President.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 953, VIP Visits, Pete Peterson’s Moscow Visit (Commerce), 17 Jul–3 Aug 72 [1 of 2]. Secret; Nodis. The notes were sent from Peterson to Nixon under an August 8 covering memorandum. (Ibid.)
2. Not further identified.
3. The two leaders discussed it on May 25 at 2:10 p.m.; see Foreign Relations, 1969–1976, volume XIV, Soviet Union, October 1971–May 1972,Document 276.
4. See footnote 4, Document 19.
5. Franklin D. Roosevelt, President of the United States from 1933 to 1945.
6. Presumably a reference to the Basic Principles. Article 7 reads, “The USA and the USSR regard commercial and economic ties as an important and necessary element in the strengthening of their bilateral relations and thus will actively promote the growth of such ties. They will facilitate cooperation between the relevant organizations and enterprises of the two countries and the conclusion of appropriate agreements and contracts, including long-term ones.” (Public Papers: Nixon, 1972, p. 634)