861.24/9–3049
The Chargé of the Soviet Union (Bazykin) to the Secretary of State
confidential
No. 119
Sir: Confirming receipt of your note of August 8 of this year on the question of the settlement of lend-lease accounts in answer to the note of the Soviet Government of December 9, 1948, I have the honor upon instruction of the Government of the USSR to state the following.
The Government of the USSR, as before, considers desirable the speediest attainment of an agreement with the Government of the USA on the full and final settlement of lend-lease accounts. The Soviet Government was influenced particularly by this when it expressed its readiness to increase the global sum of compensation as stated in the Soviet note of December 9, 1948. This is evidenced also by the agreement of the Soviet Government to meet the proposals of the Government of the USA, not waiting for the attainment of an agreement relative to lend-lease accounts in full, in such questions as the return, accomplished last year, of seven tankers received under lend-lease, the agreement for the return of 28 frigates and 3 icebreakers, the agreement for the increase in the amount of compensation for the merchant vessels and a tug of pre-war construction which are being purchased.
Together with this, the Soviet Government has always considered and continues to consider that final settlement of lend-lease accounts requires that such a settlement correspond fully to the aims and principles of the Soviet-American agreement of June 11, 1942, that proper consideration should also be given to the decisive contribution of the Soviet Union in the fight against the common enemy, and the exceptionally great sacrifices borne by the USSR in the past war. In such a full and final settlement of lend-lease accounts it is understood that the Soviet Union in any case cannot be put in a worse position than any other country in settling lend-lease. Meanwhile, the proposals made in the note of the Government of the USA of August 8 of this year cannot be considered as responding to these elementary conditions.
The Soviet Government cannot consider the new proposal of the Government of the USA relative to the global sum of compensation in the amount of one billion dollars as having any kind of foundation. Such a proposal is in direct contradiction to existing precedents relative to lend-lease settlements of the USA with other countries, in particular with Great Britain.
[Page 743]As is known, under the final settlement of lend-lease accounts, Great Britain was required to pay the United States 472 million dollars for the overall amount of lend-lease supplies, less reverse lend-lease, of 21 billion dollars. Despite the fact that the overall amount of lend-lease supplies to the Soviet Union was approximately half the amount of lend-lease supplies to Great Britain, in the note of the Government of the USA of August 8 of this year an amount of compensation is proposed which is more than twice the above sum of compensation on which agreement was reached between the USA and Great Britain. From this one fact it is evident that the proposal made to the Soviet Union in the reference note of the USA regarding compensation in the amount of one billion dollars in no way corresponds to existing precedents.
The reference made in the note of the Government of the USA to correspondence between the Chairman of the Council of Ministers of the USSR, I. V. Stalin, and the President of the USA, Roosevelt, relative to the question of a loan of one billion dollars, relates to November 19411 when there was not yet a Soviet-American agreement on lend-lease and therefore can have no relationship to the question of lend-lease settlement.
As regards the Soviet-American agreement on lend-lease, as is known, this issues from the fundamental interests of both governments in the fight against the common enemy and is based on the principles of mutual interest, it being a generally recognized fact that the Soviet Union bore upon its shoulders the basic burden of the war, having assured general victory of the coalition of the democratic governments, and this cannot fail to be considered in the final lend-lease accounting.
In the note of the Government of the USA of August 8 the question is also raised of the amount of the lend-lease inventories in the USSR after the defeat of our common enemies, in connection with which there are set forth excessively inflated figures of lend-lease articles of a “civilian type” which is the result of an arbitrary division of lend-lease inventories into articles of “military” and “civilian” type. This is already evident from the fact that, according to published information, in the settlement with Great Britain quite different criteria were applied to the articles of “military” and “civilian” type in relation to the division of lend-lease inventories than was done in relation to the USSR. Besides, many articles of the lend-lease supplies, considered in relation to Great Britain as supplies of a “military” type are arbitrarily considered in relation to the USSR as articles of a civilian type. From the facts stated, it is evident that the determination of the amount of compensation, in lend-lease settlements, must [Page 744] be accomplished by such means as would exclude the undesirable cases set forth above which lead to unnecessary complications in the matter at hand.
The note of the Government of the USA of August 8 states that the conditions of credit for the payment of compensation which were proposed to the Soviet Union by the Government of the USA “are in fact the most favorable terms granted to any country in a settlement limited only to lend-lease [questions]”2 and war accounts. However, from a comparison of the stated conditions of credit with the conditions on which lend-lease accounts with other countries were settled, for example, with Great Britain, it is evident that the conditions of credit proposed to the Soviet Union placed the USSR in a considerably worse position than Great Britain, which cannot be based on any kind of considerations not relating directly to the lend-lease agreement.
For Great Britain these conditions provide for the payment of compensation by fifty annual installments beginning five years after the conclusion of the agreement on the settlement of lend-lease accounts, with the calculation of interest to begin five years after the conclusion of the agreement. To the Soviet Union there is proposed the payment of compensation by thirty annual installments With the beginning of payment from July 1, 1951 and with the calculation of interest for several years prior to the signature of the agreement. In this connection the interest rate actually paid by Great Britain appears significantly lower in comparison with the identical nominal rate of two percent annually, whereas to the USSR, on the contrary, it is significantly higher than the stated nominal rate.
In accordance with these facts the Soviet Government continues to consider that in the determination of a global sum of compensation paid in full and final settlement of lend-lease accounts, and also in the determination of conditions of payment of this sum, it is necessary to eliminate any kind of discrimination in relation to the USSR. For just this reason, the Soviet Government considers that the global sum of two hundred million dollars proposed by it is just and sufficient compensation for the residue of lend-lease goods in the USSR and in its amount corresponds to existing precedents.
The Soviet Government reaffirms also its position in relation to the conditions of payment of compensation set forth in the note of December 9, 1948 and proposes to arrange the payment of the global sum stated above by fifty yearly installments beginning five years after the conclusion of an agreement on the settlement of the lend-lease accounts at two percent annually with the beginning of the calculation of interest five years after the conclusion of the agreement.
[Page 745]As is evident from your note of August 8 of this year, the Government of the USA accepted the proposal of the Government of the USSR regarding the sale to it of the merchant vessels and tug of pre-war construction for thirteen million dollars with payment of this sum in cash, postponing, however, decision of this question until overall settlement of lend-lease, and reserving its special rights in relation to these vessels and other lend-lease articles until the attainment of such a settlement, which leads to a unilateral expansive interpretation of the Soviet-American agreement of June 11, 1942 and with which the Government of the USSR cannot agree.
In accordance with the separate note of the Government of the USA of August 8 of this year on the question of compensation to American patent holders, the Soviet Government is sending its reply on this question also in a special note.
The Government of the USSR expresses confidence that the considerations set forth in the present note confirm the justness of the proposals of the Soviet Government and expresses agreement that plenipotentiary persons of both governments should begin discussions in the near future having in mind the attainment of final settlement of all lend-lease questions.
Accept [etc.]