861.24/1760a: Telegram

The Secretary of State to the Ambassador in the Soviet Union (Harriman)

625 [–627]. From Department and Foreign Economic Administration. Referring to previous cables about the Russian war aid and reconstruction programs, particularly our 510 of March 7, we should like after receiving your views and the results of any exploratory talks you may wish to have with Mikoyan on the subject to present to the Russian representatives in Washington substantially the following draft agreements:

Agreement Supplementary to the Mutual Aid Agreement Between the Governments of the United States and the Union of Soviet Socialist Republics

recitals

1. The Government of the United States has provided, and is continuing to provide, vital war supplies, services and information to the Government of the Union of Soviet Socialist Republics under the Act of Congress of the United States of March 11, 1941, as amended, and pursuant to the Mutual Aid Agreement of June 11, 1942 between these two Governments.

2. The Governments of the United States and the Union of Soviet Socialist Republics desire to insure the continued flow of such supplies, services and information required for the war program of the Union of Soviet Socialist Republics without interruption due to uncertainty as to the date when active military operations against the common enemy will cease; and desire to insure further that supplies maintained in inventory or procurement in the United States for the purpose of providing war aid to the Government of the Union of Soviet Socialist Republics shall be disposed of, following the cessation of active military operations against the common enemy, in an orderly manner which will best promote their mutual interests.

For the purpose of attaining the above stated objectives, the Government of the United States and the Government of the Union of Soviet Socialist Republics agree as follows:

agreement

Article I

The Government of the United States, in a Protocol signed on October 19, 1943 by that Government and the Governments of the Union of Soviet Socialist Republics, the United Kingdom and Canada, [Page 1066] undertook to make available certain war supplies for dispatch to the Government of the Union of Soviet Socialist Republics during the period from July 1, 1943 to June 30, 1944.

The Government of the United States agrees that, except as otherwise provided in this agreement, transfers to the Government of the Union of Soviet Socialist Republics of supplies which the United States has heretofore agreed to make available in order to provide war aid to the Government of the Union of Soviet Socialist Republics and which shall be exported or otherwise transferred prior to a determination by the President of the United States that active military operations against the common enemy have ceased, shall be made under the terms of the Mutual Aid Agreement of June 11, 1942. The provisions of this Article may be extended to future protocols or agreements by mutual agreement.

Article II

The Government of the United States undertakes to transfer to the Government of the Union of Soviet Socialist Republics, after a determination by the President of the United States that active military operations against the common enemy have ceased, and the Government of the Union of Soviet Socialist Republics undertakes to accept, those supplies included in the categories set forth in Schedule I63 annexed to this Agreement which the United States shall have agreed to make available in order to provide aid to the Government of the Union of Soviet Socialist Republics and, prior to said determination of the President, shall have contracted for or shall have in inventory, and which shall not have been exported to the Union of Soviet Socialist Republics prior to said determination;

The Government of the Union of Soviet Socialist Republics undertakes to pay the Government of the United States in dollars the full cost of the supplies transferred under the provisions of this Article, and interest thereon at the rate of . . percent per annum from the date of transfer. The first payment of . . % of the principal due shall be made by the Government of the Union of Soviet Socialist Republics . . . . . years from the date of said determination by the president, and payment of the balance of the principal shall be made within the succeeding . . . . . years in accordance with Schedule II64 attached. Payment of interest due shall be made annually from the date of transfer.

Additional categories may be added to the categories in Schedule I from time to time prior to said determination by the President by the mutual agreement of the parties. When so added, the financial arrangements set forth in this Article shall apply.

Article III

The Government of the United States undertakes to transfer to the Union of Soviet Socialist Republics and the Government of the Union of Soviet Socialist Republics agrees to accept, such items of industrial equipment required in its programs of war production as have a lengthy production cycle and a long period of useful life as may be [Page 1067] mutually agreed upon from time to time and as may be contracted for prior to the determination by the President that active military operations against the common enemy have ceased.

The Government of the Union of Soviet Socialist Republics undertakes to pay the Government of the United States in dollars the full cost of the supplies transferred under the provisions of this Article, and interest thereon at the rate of . . percent per annum from the date of transfer. The first payment of . . % of the principal due shall be made by the Government of the Union of Soviet Socialist Republics . . . . . years from the date of transfer and payment of the balance of the principal shall be made within the succeeding . . . . . years in accordance with Schedule III [II?] attached. Payment of interest due shall be made annually from the date of transfer.

Article IV

The Government of the Union of Soviet Socialist Republics shall be released from its obligation to accept supplies under the provisions of Articles II and III upon the payment to the Government of the United States of any net losses to the United States, including contract cancellation charges, resulting from the determination of the Government of the Union of Soviet Socialist Republics not to accept such supplies.

Delivery of any supplies under the provisions of Article I, II, and III may be cancelled without cost to the Union of Soviet Socialist Republics if the President of the United States shall determine that the security of the United States so requires.

Article V

The Government of the United States agrees that the provisions of Article V of the Mutual Aid Agreement of June 11, 1942, shall not apply to supplies made available to the Government of the Union of Soviet Socialist Republics under the provisions of Article II or III of this Agreement.

Article VI

Nothing in this Agreement shall modify or otherwise affect the final determination, under the Act of March 11, 1941, as amended, and the Mutual Aid Agreement of June 11, 1942, of the terms and conditions upon which the Government of the Union of Soviet Socialist Republics receives aid, except for the aid made available under the provisions of Article II and III of this Agreement. [End of Agreement]65

(1)
This proposed agreement does not involve any modification of the Third Protocol provisions. In fact, Article I specifically states that the U. S. will continue shipments under the Third Protocol after June 30, 1944, so long as the war continues.
(2)
This proposed agreement would permit us to continue with a full scale procurement program of industrial equipment and supplies for the Russian war program and would reduce the danger of being [Page 1068] caught with a large quantity of such supplies in procurement or inventory at the end of the war. It is not intended, of course, to propose that the Russians buy munitions or even food from us after the war is over unless they want to and we felt that munitions or food should be supplied. Schedule I mentioned in Article II of the agreement is intended to include only agreed types of equipment and supplies which may have both a war and a post-war use. Except for certain types of long-range industrial plant facilities, which are covered in Article III, we intend to maintain and use the present 18 months’ rule under Article II for industrial equipment required in the War. This list can be added to from time to time if and when additional supplies become available and the Russians want them on the same principle. It is possible that as the supply becomes less short on particular items procured under Lend-Lease that such additions may be made. It is also possible that motor vehicles and industrial items procured by the War Department for its own use may, because of changes in the war or supply situation, be available for such additions. As you know such items procured from direct appropriations to the War and Navy Departments can be transferred under the Lend-Lease Act and the transfer of such items as may be agreed upon is provided for in the proposed agreement.
(3)
Article III concerns certain classes of long-range industrial equipment with a long potential post-war use as well as a war use. We have already received extensive requests from the Soviet representatives for such equipment, but approval is being delayed on some of them until the financial arrangements are determined under which they are to be supplied. The types of equipment to be furnished under this Article will, of course, depend upon questions of policy to be decided within the U.S. Government and upon negotiations with the Russians. For example, if it is decided that Russia needs certain equipment which takes longer than 18 months to manufacture, ship and install, we may want to use the arrangement under Article III to supply it. As a matter of fact, items such as refinery equipment, and plant equipment generally, have in the past usually required more than 18 months to manufacture, ship and install. Also, in the case of equipment which takes less than 18 months but which has a relatively long potential post-war life, we may want to supply this to the Russians under Article III instead of under Article II. Although this equipment has a war use if it arrives before the war is over, its peace time use is likely to be so extensive that we think it fair to propose that the Soviet agree to pay us for it regardless of the date of shipment.
(4)
It is our thought, based on the experience of the Export-Import Bank and the possible effect on post-war trade relations with the USSR and other countries, that the rates of interest and the terms of payment [Page 1069] relating to transfers under Articles II and III should be somewhat as follows:
The problem of rates of interest and rates of repayment is under active discussion here with representatives of the Treasury. We thought it would be useful for you to have the general structure of the proposed agreement before you for discussion, in order to obtain a more concrete expression of Russian views on the problem of repayment, of interest rates and of amortization. For your own information, opinion here considers it feasible to propose the same rate of return and of repayment for the schedules under Article II and Article III, with relatively long periods of amortization. We are tending to think of a return linked to the present rate on U.S. Government longterm securities, somewhere between 2–½% and 3%.
(5)
We would appreciate your detailed views on the draft agreement and the rates of interest and terms of payment. [Department and Foreign Economic Administration.]
Hull
  1. For text, see p. 1091.
  2. Apparently merged with Schedule I; see p. 1094.
  3. Brackets appear in the original telegram.