60. Transcript of Telephone Conversation Between the President’s Assistant for National Security Affairs (Kissinger) and Secretary of Commerce Percy1

HK: Pete, how are you?

PP: Welcome back. Hope you had a great trip.2 We got both a solution and a problem. We have had the world’s worse time on maritime3 that you and I should sit down and discuss, but I just got—

HK: Dobrynin called me last night and asked me if I was backing your position and I said absolutely.4 It was world price plus a dollar.

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PP: Yeh, plus $10 is the way it’s going to work out.

HK: Or whatever.

PP: But just thought that was extremely desirable given all of the—

HK: Yeh, I backed you and he said he’d give on it.

PP: This is what I heard last night—but I didn’t know if you knew that. So I think we are now virtually in shape probably for signing tomorrow. Now on the lend-lease issue, there is still an awful lot of stickiness on this interest rate question and they claim there was an understanding and all that sort of business. I would like you to think about a concept that maybe you can’t react quickly, I don’t know, but it’s as follows. Keep in mind the way we are going to merchandize this thing to the public is to use a British settlement—and I have never taken you through these numbers except to demonstrate to you you will recall, that if we use the principle based on the British settlement, it is much, much less than 500M—it’s numbers like 200 300 400 M dollars which permits us to claim a healthy interest rate—now the difficulty we have in inserting numbers like we are now talking about which is 3 and they say only 2. 7 on a mortgage basis and this kind of business is in the middle of this nice rhetoric about good interest rates, we got a much lower interest rate number. Now there are two possibilities that occur to me—both of which are somewhat different than your understanding but I don’t want to try them unless you in general approve. Suppose Henry for the moment we didn’t have any interest rates announced and one alternative would be to add the interest rate at, you know, whatever it is, 2.9, 2.8 or 3.0 to the 7.25 and come up with a new global sum of 7.60 let’s say, which would then say that there are postponements, you know, that they can take, now the advantage—

HK: Yeh, I understand.

PP: Okay—the advantages of that are obvious—it’s global, we don’t get interest rates, the disadvantage that it obviously triggers—that they are going to take postponements which is both an advantage and a disadvantage, given what we all know. The second approach would be to say it is two numbers—either the number we have or the larger number—depending upon whether they do take settlements—I mean postponements and the payments we have agreed on are such and such and avoid the interest rate question—

HK: Yeh, but who will be bothered by the goddamn interest rate?

PP: Well, the people who will be bothered by it are the people whom we are saying we got a damn good interest rate on—the Congress and others, we can demonstrate a fabulous interest rate based on the British deal, and what I am trying to do Henry is get off of this 500M dollar wicket which I think is the wrong wicket to be on—I think we can say the 500M included back interest and should not be consid[Page 214]ered a principle—but that get’s us to using British principle calculation. My question is if they are willing to do it how would you feel about it—or would you rather we would not discuss it or what? I think it is better and so do most people think it is better than what we got now. And my assumption is they have had to go all the way up to the top anyway, to review this interest rate question, so it isn’t as though it’s going back—

HK: My concern is that—I made a deal in Moscow5 and I have got to preserve the position and when I make a deal it isn’t the beginning of another goddamn negotiation, but it sticks.

PP: Right. Now your deal I think Henry—I don’t think you have any idea how much interest was involved. Your real deal was obviously 7 and a quarter plus 35.

HK: I understand that.

PP: So you’re not going back on your word at all. It is just the question of whether it is presented as a global number or not—the essence of the deal is identical because they are going to take them right if there is any question about that.

HK: But then we have to say right away we have reason to believe they are going to take them?

PP: That is the disadvantage of the first option—they would obviously be taking them—on the other hand the number is bigger—the second option just gives you two ranges—

HK: That is impossible—that requires too much explanation.

PP: What do you mean—the 7.25 and the 7.60?

HK: Yeh. That’s just too cute. I mean the 7.60 has a certain advantage—

PP: Because under that we’d never get an interest rate—would say it’s a theological issue, we don’t want to get into it, and we interpret it one way and they interpret it another way.

HK: That’s right.

PP: I have a feeling they’d at least consider it, but I do not want to be—

HK: Well you see his6 problem is this: he obviously claimed at home, he scored a spectacular victory by getting me down to 7.25, I think he was willing to settle for 7.50, I let him have those .25 because I wanted him to win something.

PP: Right, I understand perfectly.

HK: Now my worry is that if we go to the higher figure, he has the same bunch of clucks at home that we are trying to bamboozle here.

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PP: Yeh, but my assumption is Henry it was with all the wires going back and forth now this issue of interest on postponements—

HK: The average American will just consider it a good deal anyway.

PP: Yeh, for him the larger the better—the number you see.

HK: Well, that’s right but if—it’s not that much, you know, what the hell, because he figured nothing—I mean every congressman I have talked to thinks around $500—you have been terrific on that.

PP: What I think Henry, I don’t hear you responding to this point by now the issue of interest on postponements, I assume has been thoroughly ventilated—

HK: Not that part of it—I am just wondering from—I am more interested in him looking good than in our looking good.

PP: Right, but now let me tell you what I would do. If we were to go to the second basis which gets us out of interest rates totally, then I’d be willing to yield another 1/10 point—.1 or .2 for precisely the reason you mentioned. It makes him look good and who the hell cares over here whether it is 7.60 or 7.56. And then that gets their friend Alkhimov off the hook because he is in real trouble.

HK: Well, let me think about it for 15 minutes and call you back?

PP: All right, I am in the middle of meetings so I will be listening to you when you call—because Patolichev will be in there.

HK: Okay good.

PP: All right.7

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Kissinger Telephone Conversations (Telcons), Box 16, Chronological File. No classification marking.
  2. Kissinger was in Paris from October 7 to October 12 to meet with Le Duc Tho.
  3. There was a dispute between Peterson and Soviet Minister for Merchant Marine Timofey Guzhenko, in Washington for negotiations since September 27, regarding the maritime agreement. Specifically, they differed over the general rate per ton to be charged to the USSR for the carriage of cargo on U.S.-flag vessels. Dobrynin and Kissinger discussed the negotiations during a telephone conversation, October 6, in which Kissinger told Dobrynin that Peterson was asking for the world price plus $2.00. Dobrynin responded that it would create difficulties if he had to cable Moscow “without any explanation that we have to pay world rate plus $2.00.” (National Archives, Nixon Presidential Materials, NSC Files, Kissinger Telephone Conversations (Telcons), Box 16, Chronological File)
  4. A record of Kissinger’s October 12 telephone conversation with Dobrynin is ibid.
  5. See Document 41.
  6. Brezhnev.
  7. In a subsequent telephone conversation at noon, Kissinger told Peterson: “Pete, my instinct is this—I would do whatever is easier for the Russians and rather take the heat on a lower interest rate. I mean, if you can get the higher figure as a global sum without getting them climbing walls, fine. I think we ought to settle for what we’ve got because I think we’ve tested their patience enough.” (National Archives, Nixon Presidential Materials, NSC Files, Kissinger Telephone Conversations (Telcons), Box 16, Chronological File)