Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

711.60D/12–149

Department of State Policy Statement¹

top secret

[Washington,] December 1, 1949.

Finland

a. objectives

US policy towards Finland has as its primary objective the maintenance of the independence of Finland as a sovereign state. So long as Finland is independent, it will continue to follow its democratic political tradition and, so far as possible, its liberal economic principles. Other objectives are Finland’s progress toward its pre-war standard of living, promotion of Finland’s full participation in international organizations, and maintenance of Finland’s informational and cultural contacts with the west.

b. policies

1. Political

The real problem in US relations with Finland comes from that country’s juxtaposition to the USSR and its difficulties in maintaining its traditional associations with the west, especially with Scandinavia. No problem involving the US and Finland alone is grave enough in itself to make likely a real change in our present cordial and essentially satisfactory relations, however difficult it may prove of solution. Were Soviet policy different, our whole policy would be different since there is every evidence that the Finns would cooperate fully in plans for European economic recovery and in international organizations of many types. As things are, however, we must consider the effects of any US move on Finnish-Soviet relations.

Our informational and cultural activities in Finland are designed to support US objectives while avoiding conspicuous demonstrations which might provoke the Soviets to counter-measures which would decrease Finland’s freedom of action and access to the west.

The United States is prepared to undertake negotiation of a Fulbright agreement² whenever the Finnish Government wishes. There have been indications recently that the Finns are considering action on the matter, which was presented to them in 1947, but we will leave the initiative to the Finns.

The 81st Congress passed PL 265³ providing for the use of future payments on the old Finnish debt for educational exchange between the United States and Finland. Carefully administered, this law will be a useful instrument for strengthening friendship and understanding. The Department is now engaged in developing appropriate procedures for implementing the law.

The administration of either of these programs, and especially of both together, might raise difficult policy problems. An abrupt initiation of the full authorized program in either case would constitute a spectacular move that might have repercussions in Finnish-Soviet relations adverse to Finland and hence to our policy objectives. It is desirable and administratively possible, however, to move into either program on a small and slowly increasing scale.

The longstanding problem of just compensation to Finnish owners for ships requisitioned by the US early in the war was brought to a satisfactory conclusion late in 1949 when $5.5 million was appropriated for this purpose by Congress.⁴

With respect to American claims against the Finnish Government arising out of the transfer of German assets to the USSR, the US insists on its legal rights under Article 25 of the Finnish Peace Treaty either to the return of property in which there was direct or indirect American interest, or to compensation for it. With respect to claims arising out of the expropriation of property for the resettlement of Karelian refugees, we insist on treatment of and compensation to US citizens affected by it equal to that given to Finnish citizens and citizens of other countries similarly affected.

Since the national elections of July, 1948, the Finns have made steady progress towards the elimination of Communist influence in the life of the country. Although the US Government can take no active part in this favorable development, it will be worthwhile to promote good relations between groups in Finland and their counterparts in the US. This is especially true in the case of the Finnish labor unions, in which the Social Democrats predominate.

We favor Finnish membership in the UN, but our support of its admission is limited by the fact that it would not be to the advantage either of the US or of Finland to make this question an issue between the US and the USSR.

Finland reluctantly acceded to the request of the Soviet Union and concluded a mutual assistance pact with the USSR in May, 1948. Although the Finns were unable to avoid entering such an agreement, they succeeded first in delaying its conclusion and then in limiting its terms, which are much more favorable than those accorded to other Soviet border states. The terms of the pact are, of course, subject to “interpretation,” and it must be assumed that the Soviets can make their interpretation prevail if they wish. We continue to watch this situation closely, and we would be disposed to give Finland support in the UN, if asked to, in resisting any sweeping interpretations or unreasonable proposals under the pact.

Direct Soviet aggression against Finland appears unlikely except as a prelude to a general war since the military advantages to the USSR would appear to be slight and the political disadvantages great. The possibility of a direct Soviet attack upon Finland can of course not be excluded. It is believed that in such an event the Finns would resist even though such resistance would be hopeless and they could be overcome within a matter of days. However, it is believed that the technique employed by the USSR in the Czech coup could not be used in the case of Finland.

A clear-cut case of Soviet aggression would have serious and widespread consequences. The case would of course be raised in the United Nations, and the US would be prepared to fulfill its obligations under the Charter although it is difficult to see what action the UN could take which would be effective. What action the US would take outside the framework of the UN would, of course, depend upon the circumstances of the aggression and the international situation existing at that time. One of the most important immediate results of such Soviet action would be its effect in Sweden, although the nature and extent of Swedish reaction is difficult to predict. In any event, such action on the part of the Soviet Union could not fail to affect fundamentally the basis of the relationship of the US and the other western democracies with the Soviet Union.

2. Economic

As in the case of political relations, economic aspects of US policy towards Finland are influenced by the facts of Finland’s relationships with the USSR.

The question of credits to Finland has been raised periodically since the end of the war. Since the armistice in September 1944, Finland has received over $125 million from the US Government in credits, to assist Finland to build up her productive capacity and support her economic stability. Finnish applications for credits have been scrutinized as to proposed specific uses with this objective in mind. It has been considered important to avoid directly or indirectly paying Finnish reparations.

In the past year Finland has received from the International Bank a $12.5 million reconstruction credit⁵ and probably will receive a $3 million timber equipment credit in the near future.⁶ Our attitude has been one of support for reasonable International Bank credits to Finland.

Consideration of further credit will take into account Finland’s ability to carry additional credits (servicing of present obligations to the United States requires about $1,000,000 monthly), and the purposes for which the credit will be used, including the possibility of promoting the purposes and programs of the ERP. The amounts we would agree to would necessarily be relatively small and their specific uses clearly determined. Finally, the possible political effects of the credits would have to be carefully weighed.

With the ending of the sellers’ market for pulp and paper and the lessened demand for timber, the rate of Finland’s recovery may be retarded. However, the Finns have been reasonably successful thus far in finding additional buyers and they see no acute crisis in the immediate future. In this, as in other relationships, Finland is largely dependent upon general stability in Europe and re-establishment of a generally high and stable level of world trade. The US will watch carefully for and make known its opposition to any tendency to revive cartel arrangements between Finnish and Scandinavian producers of pulp and paper.

Over the past year we have evolved a reasonably satisfactory method of processing export licenses for Finland, as well as reasonably satisfactory criteria for their consideration. In general terms, the intention is to license non-military items as freely as possible, to screen carefully all items which may be of direct or indirect military significance, and to consider items which are to be delivered to the USSR as reparations in the same manner as items for direct export to the USSR. In borderline cases the Legation in Helsinki is consulted as to end use and as to the importance of the item to the Finnish economy and its recommendation requested. Finland receives substantially more liberal treatment than do the Soviet satellite countries. Under this system, and within the limits of Finland’s supply of dollars, trade relations should continue on a mutually satisfactory basis and in such a way as to enable Finland to contribute substantially to general economic stability in Europe. We favor particularly continued exports which will maintain and increase Finnish production, especially of goods needed by the west.⁷

In adopting export controls applicable only to Europe, the US has technically violated the non-discrimination clauses and most-favored-nation provisions of the Treaty of Friendship, Commerce and Consular Eights of 1934 and the Reciprocal Trade Agreement of 1936. This situation, which is also to be found in US relations with most other European countries, remains a subject of study. We do not expect that this issue will become a problem in US-Finnish relations.

It is to the advantage of the United States, particularly for the success of ERP, that Finland’s traditional pattern of trade—predominantly with western Europe and the western hemisphere—be maintained. One limiting factor is Finland’s obligation under its trade agreement with the USSR to deliver substantial quantities of timber products in return for Soviet products essential to Finland. We may be able to help the Finns to increase their trade with the west, and we should watch for opportunities to do so.

Because of Finland’s reduced production and its obligation to deliver goods as reparations to the USSR, it has, since the war, had to husband its limited exports to produce the greatest possible return in imports of prime essentials. This has been done through the negotiation of a series of bilateral trade agreements with most of the countries with which Finland does business. This manner of transacting business is, of course, contrary to the long-term objectives of our general economic policy. However, it is recognized that in the postwar situation, Finland, like other European countries, has had no practical alternative. Finnish officials have on several occasions reiterated that Finland favors a return to multilateral trade as rapidly as possible. The fact that practically all the agreements concluded by Finland have been for brief terms gives weight to these statements. Moreover, the Finns have shown an interest in the development of the ITO Charter by actively participating as observers in the UN conference on trade and employment in Geneva and Habana. We will continue, when we can, to remind the Finnish Government of our objective of re-establishig trade on as broad a base as possible and as rapidly as possible. Finland engaged in the tariff negotiations at Annecy, France from which mutually satisfactory adjustments resulted.⁸

Finland is specifically exempt from the US aviation policy toward the USSR and its satellites. A Bermuda-type air transport agreement was signed with Finland on March 29, 1949, granting to certificated US carriers the right to operate a service from the US over a north Atlantic route to Helsinki. It also provides that one or more Finnish air carriers may operate from Finland over a north Atlantic route to New York.⁹

c. relations with other states

Aside from the character of the Soviet state, special important factors in Finnish relations with the USSR include geographic contiguity, the peace treaty, the mutual defense pact of May 4, 1948, the 50–year Soviet leasehold of the Porkkala Peninsula, the Finnish obligation to make reparations to the USSR, the importance to Finland of Soviet grain and Polish coal, and the existence of a strong Communist Party in Finland.

Finland is not behind the Iron Curtain. The Soviets have shown a certain restraint towards Finland and have treated her as the “model” border state. Undoubtedly the firm, uninterrupted functioning of the prewar Finnish constitution and the steady resolve of the overwhelming majority of the Finnish people to resist Sovietization have had much to do with this. Nevertheless, most responsible Finns subscribe, at least intellectually, to the thesis that Finland must maintain correct relations with its eastern neighbor. While Finland may be expected to continue resistance to communism domestically and to act with considerable independence internationally, it will, in situations which the USSR regards as crucial, most probably have to accede to Soviet wishes, as in the case of its abstention from ERP. Nevertheless, unless its domestic institutions are totally subverted, Finland will not be reliable from the Soviet point of view. Finland’s political sympathies lie overwhelmingly with the Scandinavian and western European countries.

Finnish relations with the UK have been traditionally friendly, close, and mutually profitable. The UK has been Finland’s best customer and leading supplier. The Finns have formed their national institutions and their constitutional behavior largely on the British model. They are extremely desirous of maintaining this close relationship. We therefore cooperate with the UK on Finnish matters whenever such cooperation appears advantageous.

Finland has an active and satisfactory trade and maintains satisfactory political relations with the other countries of western Europe, though less intimate than with the UK. Finland’s failure to participate in ERP resulted from Soviet pressure, but Finnish exports are useful to ERP.

During the period between the two world wars, Finland sought full integration in the Scandinavian community, but since the war, she has had to forego such close relationships with Scandinavia, because of strong Soviet opposition to and suspicion of a Scandinavian bloc. Special Finnish relations with the Scandinavian countries have been limited largely to cultural fields, with some cautious participation in inter-country political party gatherings.

The position of Finland was frequently mentioned by high Swedish officials and by the Swedish press in connection with Sweden’s position during the negotiation of the North Atlantic Pact. The Swedish Government feared, as did many responsible Finns, that Scandinavian adherence to the Pact would cause the USSR to force Finnish acceptance of counter arrangements. No such results have yet followed from Norwegian and Danish adherence and it may be hoped that the Pact will discourage Soviet intervention in Finland.

Finnish relations with the other countries in the Soviet sphere are neither intimate nor significant, with one exception. Polish coal is of crucial importance in the economy of Finland, since there would be important increases in transportation costs in obtaining coal from other sources.

d. policy evaluation

In considering how best to carry out any phase of US policy towards Finland, we must bear in mind the probable effect of any action on the Soviet attitude toward and treatment of Finland. It must be held axiomatic that the Soviet Union will be moved to consider countermeasures if it concludes that the implementation of US policy jeopardizes important Soviet policy objectives in Finland. Hence in action in support of our policy we must calculate the possibility that the Finns would thereby be exposed to possible Soviet counteractions overbalancing the expected advantage.

We expect that the Finns themselves will resist strongly any Soviet attempt to limit their independence further, and the more stable Europe is, the greater Finland’s ability to maintain its position. We should, therefore, resolutely but judiciously help Finland, and should try to settle the issues concerning the US and Finland alone satisfactorily, but we should bear in mind the fact that the success of our policy depends ultimately on the success of our efforts to make Europe politically and economically secure and stable.

1. The Department of State Policy Statements were concise documents summarizing the current United States policy toward a country or region, the relations of that country or region with the principal powers, and the issues and trends in that country or region. The Statements provided information and guidance for officers in missions abroad. The Statements were generally prepared by ad hoc working groups in the responsible geographic offices of the Department of State and were referred to appropriate missions abroad for comment and criticism. The Statements were periodically revised.
2. Public Law 584, 79th Congress, August 1, 1946 (60 Stat. 754), generally referred to as the Fulbright Act after its original sponsor, Senator J. William Fulbright of Arkansas, authorized the Secretary of State to enter into executive agreements with foreign countries providing for the use of currencies acquired from the sale of surplus property abroad for educational purposes.
3. Senate Joint Resolution, approved August 24, 1949, 63 Stat. 630.
4. The United States Government on November 1 paid the Finnish Government $5,574,739 in settlement of claims for compensation arising out of the requisitioning in 1941 and 1942 of 15 Finnish vessels then lying in United States ports. The payment followed the dismissal in the United States Court of Claims of suits for compensation against the United States Government. The payment was made pursuant to legislation included in a supplementary appropriation measure approved by Congress on October 28 (Public Law CH. 783, 63 Stat. 982). The Department of State statement to the press announcing the action (Department of State Bulletin, November 21, 1949, p. 790) explained that Congress approved the payment in view of the traditional friendly relations between the American and Finnish peoples.
5. Regarding the credit under reference here, see editorial note, p. 440.
6. Regarding the credit tinder reference here, see the extract from Current Economic Developments, No. 224, October 17, p. 157.
7. On March 3, 1949, the Advisory Committee on Requirements, which advised the Secretary of Commerce on export control procedures, adopted a liberalized control policy toward Finland; see Advisory Committee on Requirements Program Determination No. 118, March 3, p. 88. For a review of the Department of State’s position and recommendations for a preferential treatment for Finnish export license applications, see Current Economic Developments, No. 187, January 31, p. 75. For an expression of the Finnish reaction to the new procedures, see the memorandum of conversation by Karl L. Anderson, March 8, p. 91.
8. For documentation on aspects of United States policy regarding the General Agreement on Tariffs and Trade and the negotiations at Annecy, France, April–August 1949, see vol. i, pp. 651 ff.
9. For the text of the agreement, see Department of State, Treaties and Other International Acts Series (TIAS) No. 1945 or 63 Stat. (pt. 3) 2550. For the statement issued to the press by the Department of State at the time of the signing of the agreement, see Department of State Bulletin, April 10, 1949, p. 466.