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

29. Memorandum From Secretary of Commerce Peterson to the President’s Assistant for National Security Affairs (Kissinger) and the Executive Director of the Council for International Economic Policy (Flanigan)¹

Washington, August 19, 1972.

SUBJECT

• Meeting of Peterson and Lynn with Dobrynin (August 15, 1972)

Dobrynin stated that Patolichev’s heart spasm suffered at the airport when we left was quite serious; he had gone to the hospital but was now home recovering.

Peterson gave his favorable impressions of Brezhnev, and Dobrynin indicated his longtime close relationship with Brezhnev. Dobrynin wants copies of our pictures of the Brezhnev meeting.

Peterson went through the press clippings offsetting Schwartz article which claimed that we are tying progress on trade to assistance by the Soviets on Vietnam.² Also, Peterson indicated how he is emphasizing big joint gas and raw material deals. Dobrynin seemed satisfied.

Peterson spoke frankly on our real impression of the Moscow trade talks—that notwithstanding what we considered to be a forthcoming package proposal to Patolichev in our private sessions, they had not moved, and in fact had taken a couple steps backward. He pointed out we had said this candidly to Patolichev the day before we left and had then pointed out that if their lack of movement was by reason of an impression the President needed agreement before the election or for our economy, they were seriously mistaken. Peterson added that we want an agreement, but believe that the agreement must be comprehensive and fair so as to avoid misunderstandings later on.

Peterson gave some examples of the things we interpreted as lack of movement on their part or steps backward.

First, on lend lease, the Soviets gave no indication of movement on the 2% interest rate even though we had been given the impression pre-Moscow that they were willing to negotiate the rate. There was also no give on their part on other issues such as postponements and making one or more initial payments not conditional on Congressional granting of MFN.

Second, on MFN, notwithstanding discussions in earlier meetings in 1971 and 1972, in which the Soviets understood that our export controls were not negotiable, the Trade Ministry deputy in the Work Group on the trade agreement was interjecting MFN treatment on exports as opposed to treating MFN solely as an import question.

Third, on business facilitation, Patolichev and his people acted like the Moscow trade center, with office and hotel facilities, was a completely new thought even though the Moscow Chamber of Commerce and Ministry of Science and Technology were pushing a U.S. pavilion, had given copies of the plans for the center to our Embassy and had shown interest in Dr. Hammer’s proposal³ to have U.S. participation in building the hotel. Dobrynin took a copy of the plan and promised to advise as to what is really going on—how firm the plans are for the center.

Peterson also referred to our proposal for an MFN concept on office facilities for our businessmen,⁴ which also had received a cool reaction from Patolichev. Dobrynin indicated that in the last three or four months the Soviets had decided on a rule that if a foreign company is doing business in the USSR at a $10 million a year rate it would be entitled to accreditation and office space. (This was very interesting to us because Patolichev never has given a hint that they have a formula.)

Fourth, on arbitration, Peterson commented that the Soviets were unwilling to write a clause making it clear that if an American businessman wants arbitration to be in a third country under third country rules the Soviets will not insist on Moscow arbitration.

Peterson also outlined our proposals on copyrights and taxes, including the reasons why satisfactory resolution of the copyright issue could favorably influence receptivity here on the whole trade package, including MFN. Dobrynin stated he did not think ideological problems were the cause of Soviet slowness to respond on the copyrights. Joining the international convention was turned down sometime back, but at that time it seemed clear that this was the thing to do as a matter of economics—they would earn a lot less royalties than the amount they would have to pay. He thinks it is an economic issue and if they conclude that with the change in balance of publishing it is now good business to join, they will.

At the conclusion of Peterson’s outline of examples of lack of movement, Dobrynin asked whether we had expressed our concern to Brezhnev. Peterson pointed out that we made our package proposal to Patolichev on Friday, we met with Brezhnev on Sunday, gave Patolichev our impression of the lack of progress on Monday and left Tuesday morning.⁵ Peterson pointed out that in our meeting with Brezhnev, he had stated that he didn’t want to get into the details. Thus we felt it better to wait for Patolichev’s response on Monday. Dobrynin then indicated that we shouldn’t be discouraged because the lack of movement on Monday was probably due to a lack of time for Patolichev to go through the governmental processes to get further instructions.

Peterson then outlined our Moscow discussions on the gas and other special projects. He surveyed the complexities of the decision-making process in the U.S. Government on the gas issue and said he was afraid the Soviets had a mistaken impression that the matter was entirely in Peterson’s hands and that he could simply tell U.S. companies to go to it and they would. He stated his own opinion that these projects should be carried out and that within a few months there would start to be affirmative action on the gas.

Dobrynin indicated his own personal awareness of the complexity from our standpoint, including sophistication on the FPC issues as exemplified by the Algerian gas case.⁶ He said one of the problems was that other countries such as France and Japan do direct their companies to a large degree, and it will take some time for the Soviet trade people to understand that the U.S. does not play the same role. He pointed out that Kuzmin, who did the grain deal,⁷ was puzzled by our reluctance to recommend U.S. banks to issue the CCC letters of credit on the grain purchases. Since Dobrynin had known David Rockefeller from U.N. days, he called Rockefeller to ask if interested. He was and called Dobrynin later to thank him.

On the gas, Peterson pointed out we were confused by what seemed to be somewhat contradictory signals from the Soviets on the gas deals involving our West Coast. On the one hand, in Moscow we were given the green light to have our companies proceed jointly with the Japanese. On the other hand, we now had word that the Soviets were advising the Japanese that because the U.S. companies seemed to lack interest, the Soviets were going to proceed with the Japanese.⁸ Dobrynin promised to get a better reading on the situation and advise us by the end of the week. (He did and told us it was perfectly all right for us to work jointly with the Japanese on the Yakutsk project.)

Dobrynin was also very interested in other projects that might be put together promptly. We identified platinum, iron pellets, and the hotel, the fertilizer plants talked about by Hammer and the phosphorus and nitrogen fertilizer plants and cellulose plants which Brezhnev had mentioned.

Dobrynin observed, off the record, that one of the problems in getting good communications on such projects and accelerating them is that his Embassy has had very poor commercial competence. The reason, he says, is that there has been so little economic action between our countries. Commercial work at the Embassy has not been very important in the past. Now that trade is moving to the forefront, he is trying to beef up their expertise in the Embassy. He was recently amazed to find that on certain aspects of our laws, he knew a lot more than his commercial people did.

At the close of the meeting Dobrynin observed that what is sometimes needed is a clear direction from above to get on with work and to keep the subordinates from being too stubborn on certain specifics. As an example, he pointed out that Brezhnev had finally stepped into the drafting of the SALT papers and overruled the position their negotiators had been taking on the wording of a particular clause. Our impression was that Dobrynin was not sympathetic to the sphinx-like approach taken by the deputy-level Soviet trade negotiators in Moscow.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Kissinger Office Files, Box 67, Country Files—Europe—USSR, Map Room, Aug. 1972–May 31, 1973 [3 of 3]. Secret.
2. A reference to Moscow correspondent Harry Schwartz’ op-ed article in The New York Times on August 7 entitled “Moscow Smiles.”
3. Armand Hammer, Chairman of Occidental Petroleum Corporation, announced on July 19 that his corporation had signed a five-year technical assistance agreement with the Soviet Government to “include exploration, production and use of natural gas and crude oil; agricultural fertilizers and chemicals; metal treating and plating; design and building of hotels; and utilization of solid wastes.” (“Occidental, Soviet Unveil Five-Year Technical Accord,” Wall Street Journal, July 19, 1972, p. 2)
4. Peterson described this proposal during his press conference of August 1; see Document 22.
5. Friday, August 11; Sunday, August 13; Monday, August 14; Tuesday, August 15.
6. In June 1972, the Federal Power Commission approved the importation of 1 billion cubic feet of LNG from Algeria. On August 18, the FPC held a rehearing of the issue in response to complaints from applicant companies that the project would not be “feasible financially” unless the FPC removed various conditions that it had imposed on the planned LNG imports. (Douglas Watson, “Rules by FPC Seen Peril to Gas Imports,” Washington Post, August 19, 1972, p. B1)
7. See Document 7.
8. See footnote 3, Document 8. Haig wrote Kissinger in message Tohak 58, August 17: “In two recent telegrams, Embassy Tokyo has reported that the Soviets have approached Japanese business interests for discussions of natural gas deals involving the Yakutsk fields which the Soviets previously talked about to U.S. firms and to Peterson. The Soviets apparently left the impression that deals with us were not working out and they were therefore approaching Japanese business representatives in early September.” (National Archives, Nixon Presidential Materials, NSC Files, Kissinger Office Files, Box 23, HAK Trip Files, HAK’s Secret Paris Trip, Switzerland, Saigon, Tokyo, August 13–19, 1972, To/Frm 86971 & Backchannels)