800.51W89 U.S.S.R./103
Memorandum of Conversation, by the Chief of the Division of Eastern European Affairs (Kelley)
- [Present:] Ambassador Troyanovsky,
- The Secretary,
- Mr. Moore, and
- Mr. Kelley.
Mr. Troyanovsky commenced the conversation by saying that he had had considerable difficulty in connection with the last exchange of telegrams with Moscow since they were very much garbled and that was the reason why he was unable to come to the Department on Thursday.53 He then said that Moscow had informed him that the last proposal of the Department was worse than the first. He referred to the statement that the Export-Import Bank would discount Amtorg acceptances “for that part of the credit which the exporter would not be expected itself to carry”. He said that this implied that the exporter would be obliged to carry most of the credit while he had previously understood that the Bank would carry 70 to 75 per cent of the credit. The Ambassador was informed that it did not imply this at all and that it was expected that the exporter would carry only about 25 per cent. It was stated that this matter had been discussed with American exporters interested in trade with the Soviet Union and that they were agreeable to carrying this proportion of the credit themselves.
The Ambassador then referred to the statement that the Bank would assist in financing transactions “approved by the Bank”. He said that Moscow considered that this meant that the Bank would have the right to go into the details of each transaction and decide whether it was the sort of transaction that the Bank ought to allow Amtorg to conclude with the American exporter. The result would be that the Bank would control the placing of orders by Amtorg and the fixing of terms. The Ambassador was informed that, as it was specifically stated in the Department’s proposal, Amtorg would be free to place its orders directly with exporters of its own choosing and that the phraseology in question merely meant that the Bank reserved the right to disapprove specific transactions. Such a right was reserved by all governments which guarantee credits extended to the Soviet Government. This phraseology did not mean that the Bank would participate in the determination of the terms of sale between the exporter and Amtorg. The Ambassador said that Moscow [Page 130] was very sensitive with regard to this point. He recalled that when he was Ambassador to Japan the Japanese Government on several occasions held up contracts on the ground that the price which the Soviet agencies were paying for the goods was too low. The Ambassador was told that it was thought that there would be no difficulty in clarifying the phraseology so as to dispel Moscow’s worries.
The Secretary inquired whether the two points which the Ambassador had brought up, which were, in his opinion, relatively minor points, were the only ones which were causing concern to his Government. The Ambassador said no, not at all. He thought that the main difficulty was the question of credit terms. After considerable discussion, he indicated that his Government thought that credit should be extended for a longer period than 5 years. He was informed that the maximum period of any maturity financed by the Bank would be 5 years and that it was intended to vary the maturity of acceptances according to different categories of goods. The Ambassador said that his Government needed longer credits, particularly in connection with machinery and industrial equipment. When he stated that locomotives were sold in the United States on 15 years credit, he was told that in such cases there was a cash payment of 25 per cent and two annual payments thereafter and that the title did not pass until the last payment was made. This arrangement did not at all mean that credit was granted for 15 years: in fact 50 per cent of the cost of the locomotives was paid within the first 5 years.
Inasmuch as the Ambassador appeared to be raising minor points and not getting at the heart of the matter, the Secretary took the occasion to point out that his Government was greatly disappointed at the attitude taken by Mr. Litvinoff in connection with the settlement of the question of debts and claims. The discussions appeared to be getting nowhere although they had been going on for 9 months. The United States had presented several drafts of proposals while the Soviet Government had made no counter-proposals but merely raised objections. The Secretary stated that if it were not possible for the two Governments to reach a solution of the problem in hand, the first one to come to their attention and, in the Secretary’s opinion, a relatively minor one, it could hardly be expected that they could collaborate with regard to larger world issues. The amount involved, 100 million dollars or so, was a comparatively small one, and the issue was a relatively unimportant matter compared with the world problems confronting both the American and Soviet Governments. While the Secretary did not want to go so far as to say that we felt that Mr. Litvinoff was trifling with the American Government, he would say that it appeared to him that Mr. Litvinoff was indifferent with regard to the outcome of the negotiations.
[Page 131]The Secretary said that the American Government was very desirous of reaching a settlement of this question but it was not prepared to allow the thing to drag on indefinitely. If there was no hope of reaching a settlement, it would be better to dissolve the Bank and drop the matter entirely, accepting the consequences which such action would entail. Certainly if the Secretary and Mr. Troyanovsky were not able to come to an agreement with regard to this minor matter, it would be quite futile to expect that when American representatives met Soviet representatives in London, Paris, Geneva, or elsewhere, any discussions between them would produce any fruitful results.
Furthermore, the Secretary pointed out that a very large amount of his time recently has been taken up listening to arguments against granting credits to the Soviet Government and to protests against the carrying on of communist propaganda in the United States under the direction of Moscow. Instances were being brought to his attention wherein the Soviet Government was not carrying out in good faith the undertaking given by Mr. Litvinoff with regard to noninterference in our domestic affairs. In fact, there appeared to be developing an increasing amount of hostility towards the Soviet Government and it was very difficult for the Secretary to meet this when hardly an inch of progress had been made in 9 months in the discussions with the Soviet Government with regard to the settlement of the question of debts and claims which we thought was settled when recognition was given.
The Ambassador said he could say very decidedly that the Soviet Government was much interested in reaching a settlement of this question. While Litvinoff had left Moscow and would not be back until the end of September, his presence was not essential to the settlement of the question. He inquired what should be the next step in the matter. The Secretary said that inasmuch as the United States had presented several draft proposals with regard to which the Soviet Government found fault, he thought that the next step should be the submission of some proposals on the part of the Soviet Government. The Ambassador said that he would endeavor to prepare some counter-proposals.
In the course of the discussion, the Secretary inquired what interest rate the Soviet Government was willing to pay on the commercial transaction. The Ambassador said 4 or possibly 5 per cent. He was informed that the Bank had to pay the R.F.C.54 4 per cent and that one-half or ¾ per cent additional was necessary in order to pay the expenses of running the Bank. The Secretary inquired what additional interest the Soviet Government was prepared to pay in [Page 132] order to liquidate the agreed indebtedness. He said that the Soviet Government would be willing to pay 3 per cent. The United States had proposed 10 per cent in its draft proposal. The Secretary inquired what rate of interest the Soviet Government would pay on the agreed indebtedness. The Ambassador said that Moscow did not think that it should pay any interest since in the conversation between Mr. Litvinoff and the President there was no agreement made to pay such interest. He was told that the determination of an indebtedness implied the payment of interest on such portion of the indebtedness as was not paid immediately. The Ambassador said he was confident that this matter could be satisfactorily settled.