Foreign Relations of the United States: Diplomatic Papers, 1944, Europe, Volume IV

861.24/8–244: Telegram

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

Washington, August 22, 1944—10 a.m.

1997. ReDepts 1965, August 17, 10 p.m. The following are the pertinent results of the seventh meeting we had with Stepanov on August 16.

After lengthy discussion with Stepanov we made the following proposals to him which we feel will expedite the negotiations and permit the signing of the agreement if they are acceptable to the Soviet Government:

1. Stepanov was told that a) if he was prepared to accept an interest rate of 2⅜ percent, the lowest rate which we possibly can offer, b) we would accept his proposal to have amortization payments begin at the end of the ninth year after the determination by the President that the military resistance of the common enemy had been overcome, and c) we would be willing to meet certain of his suggestions in a new cost formula, the pertinent parts of which are given below.

While Stepanov indicated willingness to give careful consideration to these proposals, he stated that the best interest rate he was in a position now to accept was 2 percent but asked that we submit the new cost formula to him in writing in order that he could study the proposals.

The following is a summary of the new cost proposal which was handed to Stepanov on August 17:

For supplies under schedule I:

a. Transfer of title and risk of loss shall pass to the Soviet Government immediately upon loading supplies on vessel in American port,

b. Cost of supplies shall be determined by the President, or an officer of the U.S. Government designated by him, and shall be the sum of the following items:

• Sub 1. The contract purchase price f.o.b. point of origin paid by American Government to contractor less 5 percent of such amount, or if contract purchase price can not be ascertained, the average contract purchase price f.o.b. point of origin paid by American Government for similar goods during the 3-month period preceding the date of determination by the President that the military resistance of the common enemy has been overcome, less 5 percent of such amount.
• Sub 2. Cost of storage, if any, after the date of the determination by the President, will be computed on the basis of fixed rates which shall be included in the agreement.
• Sub 3. Inland transportation and accessorial costs after the date of determination by the President shall be based upon published commercial export rates.

c. For such supplies as the President or duly authorized officer of the American Government shall determine are standard in that they have been contracted for by the American Government in accordance with standard U.S. specifications, the Soviet Government may elect to substitute in lieu of item Sub 1 above the price at which the President, or duly authorized officer of the American Government, shall determine that similar supplies of comparable quality and comparable quantity shall be sold by American Government to any buyer at or about the time of transfer to the Soviet Government. This election will be made by the Soviet Government only in the event that the aforesaid price can be or is determined.

For supplies under schedule II:

a. Title and risk of loss shall pass to the Soviet Government immediately upon loading supplies on vessel in American port.

b. Cost of supplies shall be determined by the President, or a duly authorized officer of the American Government, and shall be the sum of the following items: the contract purchase price paid by the U.S. Government to the contractor, the cost of storage, if any, computed at the same rates as for items in schedule I, and inland transportation and accessorial costs prior to the transfer of title based upon published commercial export rates.

It will be noted that with the option given in regard to standard specification supplies, reduction of cost price is different in present form from that reported in the Department’s 1965, August 17.

2. Stepanov asked for clarification in regard to the list of plants which we are willing to furnish under the Fourth Protocol but only on a cash basis (enclosure no. 8 to Department’s instruction of August 14, 1944¹⁶). He stated that it was his understanding that under the proposed agreement, the U.S. Government was prepared to make available to the Soviet Government on a credit basis all industrial equipment needed by the Soviet Government in connection with its war effort or for reconstruction purposes. He was therefore at a loss to understand why the plants in the above-mentioned list were not included in schedule II and asked whether we had changed the basic principles upon which the proposed agreement was based.

We explained in great detail the reasons why lend-lease funds could not be used for any other purposes than those which could be justified as being directly connected with the Soviet war effort and thus in the interest of the defense of the United States. Despite our detailed explanations it is not certain whether Stepanov fully understands this question. If you feel that the Soviet authorities are of the same misapprehension as Stepanov, you might, in your discretion, explain to them the reasons why we could not justify furnishing under lend-lease or the 3(c) agreement such items as two sets, continuous automatic potato chip and julienne machinery or other equipment which would not contribute directly to the Soviet war effort.

Hull

16. Not printed.