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

114. Action Memorandum From the Assistant Secretary of State for European Affairs (Vest) to the Under Secretary of State for Political Affairs (Newsom)¹

Washington, April 30, 1980

SUBJECT

• Circular 175 Authority: Claims/Gold Agreement with Czechoslovakia

ISSUE FOR DECISION

Whether to authorize our Ambassador in Prague to negotiate and conclude an agreement with Czechoslovakia settling nationalization claims and other financial issues.

ESSENTIAL FACTORS

Despite the more than 30 years which have passed since World War II ended and the Communists seized power in Prague, unresolved financial disputes from that era continue to bedevil our relations with Czechoslovakia. We have not been able to conclude a satisfactory agreement on compensation for the claims of American citizens and corporations whose property was nationalized during the early post-war period or on several other related financial issues. The Foreign Claims Settlement Commission has adjudicated the value of the claims in 1958 as $72.6 million in principal and $41 million in interest. In return, we have refused to consent to the delivery to Czechoslovakia of the remaining portion (18.4 metric tons) of its share of the Nazi-looted monetary gold which the Allies recovered at the close of the war. We have also maintained blocking controls on approximately $1.4 million of Czechoslovak assets in the United States and have refused to consider granting MFN status to Czechoslovakia.

The Gold

We are a member of the Tripartite (U.S., U.K., France) Commission for the Restitution of Monetary Gold, established by multilateral agreement in 1946 to marshall all monetary gold found in Germany and to allocate it among the countries whose gold was looted by the Nazis. Unanimity is required for the Commission to effect delivery of the remainder of the share it allocated to Czechoslovakia in 1947 and we have so far not consented to such action. The French would like to see the gold delivered, having settled their claims in 1950. The British are even more interested since under a 1964 UK-Czechoslovak agreed minute, settlement of British claims will begin only after the gold is delivered. The British have, in fact, been pressing us rather actively during the past year to get on with a settlement.

Past Claims/Gold Negotiations

Serious discussions with the Czechoslovaks on these issues have taken place intermittently since 1949 and twice we have reached ad referendum agreements. In both cases, however, Congress objected to the claims settlement as too low. Most recently, a 1974 settlement for $29 million or approximately 40 cents on the dollar (typical of our settlements with other Eastern European countries) was repudiated by section 408 of the 1974 Trade Act added at the insistence of Senators Long and Gravel. The Trade Act also requires that any future agreement be approved by Congress. Our efforts to resume negotiations since that time have regularly been thwarted by a souring of the political atmosphere caused by repressive measures of the Czechoslovak Government against its dissident citizens. We had obtained interagency agreement last fall to propose a claims settlement of $51 million (70 percent of the adjudicated principal with no interest).² We did not go forward with the proposal at that time because of the trial of six dissidents in Prague in October.

With the rise in the price of gold to its present level (at $500 per ounce the Czechoslovak gold is worth about $300 million), our negotiating leverage has increased substantially as has the pressure on us from the claimants for a good and rapid settlement. It now should be within the realm of possibility to obtain a claims settlement which will be acceptable to the claimants and to Congress and to reach a satisfactory resolution of the other issues involving USG financial interests. Such an outcome would move our bilateral relations with Czechoslovakia out of their long stagnation and increase our policy options in dealing with that country.

Our Proposal

We intend to propose to the Czechoslovak Government that we renegotiate the provisions of the 1974 ad referendum agreement relating to the amount to be paid by Czechoslovakia in settlement of U.S. claims and that we leave the other provisions as agreed in 1974. We would initially propose that the Czechoslovak Government make a lump sum claims payment of $105.1 million (100 percent of the outstanding principal and interest awarded by the Foreign Claims Settlement Commission). The central elements of the proposal are described in the attachment at Tab 2.³

Our initial proposal of $105 million will be much higher than our opening position in the negotiations which led to the failed 1974 agreement ($26 million), although commensurate with the increase in the value of the Czechoslovak gold. It also exceeds the settlement levels with other Eastern European countries. There are several reasons for a high opening position. Initially, it seems clear that Congress will not approve a settlement which is not much more favorable to American claimants than the failed 1974 agreement, particularly in light of the greatly increased value of the gold. Our proposal will give us negotiating room to reach an eventual settlement acceptable to Congress. Moreover, this proposal responds to Congressional suggestions that we should seek interest on the value of U.S. citizens’ claims.⁴

Because of the level of our proposal, there is a risk that the Czechoslovaks will not be willing to enter into meaningful negotiations; however, we believe that the substantial increase in the value of the gold provides an incentive for the Czechoslovak Government to consider our proposal seriously and to make a reasonable response. Moreover, the Czechoslovaks will expect us to present an initial position that will allow some bargaining room.

If the Czechoslovaks do reject our proposal to resume negotiations, we will have in any event sought to satisfy the mandate of section 408 of the Trade Act to renegotiate the 1974 Czechoslovak Claims Settlement Agreement. However, such an outcome could also result in increased pressure from the claimants and from Members of Congress for the U.S. Government to vest the gold to satisfy U.S. claims.

Congressional and Public Consultations

We consulted extensively last fall with interested Members of Congress on the terms of a settlement. With the important exception of Senator Long, all of the Members consulted indicated they would be willing to support a settlement in the range of 50%. Since our present proposal meets even Senator Long’s expressed requirement for “100 cents on the dollar,” we believe that he will not block a settlement at or near this figure. Similarly, we have discussed the terms of a possible settlement with a number of the claimants or their representatives. They would be delighted to receive anything close to 100% of the principal value of their claims. The claimants, many of whom are elderly, are anxious for a settlement, and many are disgruntled with our failure to obtain one since 1974. Individuals who were active in obtaining Congressional disapproval of the 1974 agreement are now lobbying for legislation to use the gold to compensate the claimants directly and we understand some Members of Congress are prepared to introduce such legislation.⁵ Taking such a step without the agreement of the UK and France—who have told us unambiguously they would oppose it—would clearly violate specific U.S. international legal commitments.

If we can establish with the Czechoslovak Government that a basis exists for fruitful negotiations, we will conduct more comprehensive consultations with a broader range of the claimants. Immediately prior to tabling our new proposal, we will advise Senator Long and several other Members of Congress with particular interests in this issue of our plans. We will also consult with them periodically during the course of the negotiations. Such consultations will be critical, since the approval of Congress would be required under the terms of Section 408 of the Trade Act of 1974 in order for the agreement to enter into effect, and related legislation would be required to authorize the Foreign Claims Settlement Commission to adjudicate claims arising after 1958. A legal memorandum on the agreement is attached at Tab 1.⁶

RECOMMENDATION

That you authorize our Ambassador in Prague to negotiate and conclude a claims agreement with Czechoslovakia as described above, subject to concurrence by EUR, L, EB, H and other appropriate bureaus and agencies.⁷

1. Source: National Archives, RG 59, Office of the Assistant Legal Adviser for European Affairs, Country Files, 1950–1986, Lot 89D336, Box 11, Czech: Gold Working File. Confidential. Sent through Counselor Ridgway; drafted by Johnson; cleared by Schmidt and Barry and in E, H, EB, L/EUR, and Treasury. Barry initialed the memorandum for Vest. According to a stamped notation, Newsom saw the memorandum on May 5.
2. See Document 109.
3. Tab 2 is attached but not printed.
4. The Department of the Treasury suggested using the demand for interest as a means to improve the U.S. negotiating position and ensure that Congress would have its concerns about interest addressed when the agreement went to the Hill for approval. The Treasury position was reported in telegram 72571 to Prague, March 19. (National Archives, RG 59, Central Foreign Policy File, D8000140–0224) In telegram 1037 from Prague, March 24, Ambassador Meehan responded that such a position “verges on the unreal” and “could throw the previous basis of negotiation out the window.” “We think” Meehan wrote, Czechoslovakia “would receive the 105 million figure as a naively exaggerated bargaining tactic or else as a signal we are not serious about negotiating.” (National Archives, RG 59, Central Foreign Policy File, D800170–0605)
5. Congressman Lester L. Wolff (D-New York) introduced H.R. 7338 on May 13, which directed the Secretary of the Treasury to “take full possession of all Czechoslovak gold located in the United States, if a settlement agreement is not submitted to Congress or such agreement has not been approved by Congress, within 60 days of enactment of this act.” The proceeds of the sale would be invested in U.S. and foreign securities, and all interest accrued from the investment deposited into the Czechoslovak Claims Fund for payment of claims. The bill also directed the Secretary of State to negotiate with the United Kingdom and France on the vesting of Czechoslovak gold in the United Kingdom, to be used in conjunction with the vested gold in the United States for payments to claimants. The bill was referred to the House Committee on Foreign Affairs. A joint hearing was held by the Subcommittee on International Economic Policy and the Subcommittee on Europe and the Middle East on August 19. In telegram 229046 to Prague, August 28, the Department reported: “most of the subcommittee members present were clearly sympathetic to the concerns of the claimants” and that “the administration’s presentation regarding the desirability of a negotiated settlement and the legal and political problems which the bill presented did not appear to have had much effect.” (National Archives, RG 59, Central Foreign Policy File, D800410–1048)
6. Tab 1 is attached but not printed.
7. Newsom approved the recommendation on May 6.