Foreign Relations of the United States, 1977–1980, Volume XX, Eastern Europe

109. Memorandum From the Executive Secretary of the Department of State (Tarnoff) to the President’s Assistant for National Security Affairs (Brzezinski)¹

Washington, September 21, 1979

SUBJECT

• Proposal to Negotiate a New Claims Settlement with Czechoslovakia

The Department of State has prepared a new proposal for an agreement with Czechoslovakia to settle the outstanding claims of American citizens and to effect the return of the Nazi-looted gold to the Czechoslovak Government as mandated in Presidential Directive 21.² We plan to present the proposal to the Czechoslovaks early this fall after consulting with interested Members of Congress and the claimants.³

We believe that moving now to resolve this longstanding issue is in the best interest of the claimants and our own foreign policy interests and has reasonable prospects for success. The several thousand American claimants who will benefit from the agreement have been waiting for just and adequate compensation for their nationalized properties for more than thirty years. Many of them are elderly and of limited financial means and, in their contacts with the Department of State, they have stressed their need. Representatives of Czechoslovak-American organizations also support the negotiation of a new claims settlement agreement as soon as possible. We do not anticipate significant domestic political opposition to such action and we will be able to defend the negotiation of a new agreement strongly since it is clearly in the interest of the claimants and in our own national interest.

We are also being urged to move promptly by the British Government which is understandably impatient to bring into force its own 1964 claims settlement with Czechoslovakia which is contingent on the return of the gold. On September 11, the British informed the Department that they are seriously considering a proposal to return the portion of the Czechoslovak gold they hold to facilitate resolution of their claims, a development which would clearly weaken our bargaining position.⁴

In considering the timing of a proposal we have borne in mind the generally poor human rights record of the Czechoslovak Government and the May 29 arrests of the Charter 77 activists.⁵ We do not believe that we should defer making a proposal on these grounds. In fact, given the apparent differences within the Czechoslovak leadership on the issue of whether to proceed with the trials of the Charter 77 activists, we believe that prompt tabling of a claims/gold proposal might help to tilt the balance against those arguing for harsh punishment. In any event, we expect the claims/gold negotiations to drag out for a considerable time given our tough proposal, and we can adjust the pace—and even suspend the negotiations if necessary—in order to react to the outcome of the trials. We will of course make our disapproval of any trials of Charter 77 activists very clear to the Czechoslovaks in both the bilateral and CSCE contexts when and if such trials occur.

Section 408 of the Trade Act of 1974 directed that the 1974 ad referendum claims settlement agreement with Czechoslovakia be renegotiated and submitted to Congress for its approval. All of the Members of Congress with whom we have spoken or with whom the issue has been discussed, including Senator Long who was chiefly responsible for the Congressional repudiation of the 1974 agreement, clearly favor moving ahead to resolve this matter. We believe that we will be able to negotiate a new agreement providing enough compensation for the American claimants to be acceptable to Senator Long. Treasury and we plan to consult with key Members of Congress, including Senator Long, before tabling the new proposal and to continue consultations with them throughout the negotiations. Now that the US/PRC claims settlement agreement has been accepted by Congress and a US/PRC trade agreement has been signed,⁶ we do not anticipate Congressional opposition to negotiations with the Czechoslovak Government. Given the substantial increase in the price of gold since 1974 and the more than $175 million which will accrue to the Czechoslovaks with the return of the gold, we may nevertheless encounter the criticism that any settlement short of 100% is too low.

The Czechoslovak Government has recently expressed interest in renegotiating the 1974 ad referendum agreement. Premier Strougal informed our Ambassador on July 3 that his Government does not insist on the terms of the 1974 agreement and that “everything is possible” with regard to renegotiation.⁷ Acting Foreign Minister Knizka was more specific on August 15 when he indicated to the Ambassador that the Czechoslovaks might be willing to go as high as a fifty percent settlement.⁸ This new-found willingness of the Czechoslovak Government to consider a substantial improvement in the terms of the 1974 agreement suggests that we now have the best opportunity in five years to reach an agreement acceptable to all parties.

Our new proposal will be substantially more advantageous to American claimants than the 1974 agreement and even provides for a higher percentage return than the recent PRC claims settlement. It will provide for:

—A total settlement of approximately $51 million, including the $9 million we obtained from the sale of vested Czechoslovak steel mill equipment, or 70 percent of the outstanding principal of $72.6 million.

—A down-payment of $20 million and five annual payments of approximately $4.4 million each.

—The return of the 18.4 metric tons of Czechoslovak gold in the custody of the Tripartite Gold Commission for the Restitution of Monetary Gold upon receipt of the down-payment of $20 million. Approximately 45 percent of the gold, worth about $80 million at current prices, is physically in the United States.

—The retention of the 1974 ad referendum agreement’s other provisions, including payment in full, in installments, of Czechoslovakia’s surplus property debt to the USG of approximately $4.9 million; the release of two blocked US bank accounts in Prague containing approximately 7.2 million Czechoslovak crowns; and the agreement of the Czechoslovak Government to begin negotiations with the US Foreign Bondholders Protective Council on defaulted bonds within six months of the effective date of the agreement. We will also continue to resist attempts by Czechoslovakia to link the agreement in any way to the granting of MFN or the extension of credits.

The 1974 ad referendum agreement provided for total compensation of $29.5 million, or approximately 41 percent of the outstanding principal. Our new proposal would provide for compensation of 70 percent of the outstanding principal. For purposes of comparison, we have settled with other Eastern European countries as follows: Poland, 39 percent; Romania, 37 percent; Hungary, 41 percent; Bulgaria, 63 percent (Bulgarian assets vested in the US were substantial, and the Bulgarian cash payment was only $4 million); and Yugoslavia, 91 percent (Yugoslavia also had substantial assets in the US and was looking for friends at the time of the settlement in 1948). The recent PRC settlement of 42 percent involved a total payment of $80.5 million on an outstanding principal of $190 million.

Treasury concurs in our proposal to negotiate a new claims settlement on these terms.

Peter Tarnoff

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country Files, Box 17, Czechoslovakia: 1/77–1/81. Confidential. A copy of the memorandum indicates it was drafted in EUR by Johnson and Glenn and cleared by Nimetz, Vest, Barry, Walker (S/P), Crook (L/EUR), Schmidt (EUR/EE), Peters (EB/IFD/OMA), Weston (H), and in the Department of Treasury by Solomon and the Department of Commerce by Jenkins. (National Archives, RG 59, Office of the Assistant Legal Adviser for European Affairs, Country Files, 1950–1986, Lot 89D336, Box 11, Czech: Gold 1979– )
2. See Document 16.
3. A meeting between Department officials and congressional staff members took place on Capitol Hill three days later. (Memorandum of conversation, September 26; National Archives, RG 59, Office of the Assistant Legal Adviser for European Affairs, Country Files, 1950–1986, Lot 89D336, Box 11, Czech: Gold 1979– )
4. The Department reported the British response to Senator Long’s proposal to vest the Czechoslovak gold unilaterally in telegram 240364 to Prague, September 12. In its response, the United Kingdom stated: “After full consideration in London, we have concluded that this proposal, if carried out, would be illegal under the terms of the Paris Agreement as was explicitly recognized in 1974 by all three governments represented on the Tripartite Commission.” The British stressed, “we very much hope that you will not try to proceed with this form of action and that it will be possible for you instead to make a renewed effort to resolve your claims against Czechoslovakia by negotiation.” (National Archives, RG 59, Central Foreign Policy File, D790418–0244)
5. See footnotes 1 and 2, Document 107, for more information on the arrest of Czechoslovak dissidents.
6. The U.S. Government and the Government of the People’s Republic of China reached an agreement on the settlement of claims of U.S. citizens against the PRC on May 11. Under the terms of the agreement, the PRC paid $80.5 million to settle all claims.
7. The conversation between Ambassador Meehan and Prime Minister Strougal was reported in telegram 2201 from Prague, July 3. (National Archives, RG 59, Central Foreign Policy File, D790302–0782)
8. Ambassador Meehan met Acting Foreign Minister Knizka on August 15 to follow up on the visit by Congressman Vanik’s delegation to Prague. In telegram 2844 from Prague, August 16, the Embassy reported that the Czechoslovak Government was considering a settlement figure between CZK47–50 on the dollar. Knizka told Meehan “percentage is not all important; good relations with the US and trade and MFN were the important things to GOC.” He also stressed that the GOC was willing “to show goodwill” on cultural projects as well as planning to “propose an exchange of instruments of ratification of consular agreement.” (National Archives, RG 59, Central Foreign Policy File, D790372–1121)