LETTER TO MR. BRIAN V. KINNEY (SANITIZED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85B00236R000200190010-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 16
• Document Creation Date: December 20, 2016
• Document Release Date: June 15, 2007
• Sequence Number: 10
• Publication Date: March 2, 1982
• Content Type: LETTER

( M If)WMIT1AI
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CENTRAL INTELLIGENCE AGENC
Mr. Brian V. Kinney
Chief, Declassification and
Historical Research Branch
Records Management Division
Washington Headquarters Services
Room 1D517, Pentagon
Washington, D.C. 20301
Dear Mr. Kinney:
2 March 1982
In response to a letter of 22 February 1982 from W. E. E. Lowry, Jr.,
OSD Records Administrator, we have reviewed the attached document under
July-August 1948.
the systematic review provisions of Executive Order 12065. The document is
a State Department publication and is composed of three articles from
the State/OIR publication Monthly Review of Soviet Econ for
We note several CIA footnotes in two of the articles, but have no
objection to the declassification and release of this document under
Executive Order 12065. The final decision for its release, however,
should be obtained from the Department of State.
Chief, Classification Review Division
Office of Information Services
Directorate of Administration
1 - Liaison w/DOD File w/att
1 - Chrono w/o att
Enclosure:
Rpt, Jul.-Aug 48
Distribution:
Orig - Addressee 6v/att
Unclassified when
Separated from
Enclosure
OSD REVIEW COMPLETED C .0 NTH-. INITIAL
State Dept. review completed
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U. S. Officials Only
Monthly Review
oc
SOVIET ECONOMY
OIR REPORT NO. 4344.10 ? JULY-AUGUST 1948
DEPARTMENT OF STATE
0
DIVISION OF RESEARCH FOR EUROPE
OFFICE OF INTELLIGENCE RESEARCH
CONFIDENTIAL
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II. A NEW ROUND OF LEND-LEASE NEGOTIATIONS
A New Though Unsatisfactory Offer
WITH the return of Soviet Ambassador
Panyushkin from Moscow on June 22,
negotiations concerning settlement of
lend-lease obligations incurred by the USSR
under the Mutual Aid Agreement on June 11,
1942 are being resumed. The Soviet side has
altered its position and made offers which, al-
though unsatisfactory, could be considered as
a starting point for more successful negotia-
tions if the professed Soviet willingness to
reach a settlement proves genuine.
The negotiations originally opened April 30,
1947, after repeated requests by the United
States Government over a period of almost two
years, and have continued at an irregular pace
over the past 14 months. Progress toward
agreement has been made on a few specific
matters, but there has been no real meeting of
minds concerning basic principles upon which
an over-all settlement could be established.'
' After the initial meeting between Mr. Thorp and
Ambassador Novikov on April 30, 1947, ten meetings
of two combined working groups were held to discuss
specific aspects of the settlement. The last of these
meetings took place on July 18, 1947. There fol-
lowed a period of five months during which the So-
viet side, despite informal and formal inquiries,
offered no indication as to when negotiations would
be resumed. During this period no counterproposals
were received in reply to the "Outline of Main Points
of Settlement Proposed by the US Side" which had
been transmitted to the Soviet delegation on June
25, 1947. The United States on November 17, 1947
delivered an aide memoire calling the attention of
the USSR to the necessity for resuming negotiations,
and on December 16, 1947 the US received a note
from the Soviet Government which set forth certain
counterproposals concerning the settlement of the
lend-lease obligations. The US replied by a note
of January 23, 1948. On January 19, 1948, soon after
the arrival of the new Soviet Ambassador (Alex-
ander S. Panyushkin), meetings between the repre-
sentatives of the two sides were resumed, and four
meetings between the Ambassador and Mr. Thorp
occurred during the succeeding two months.
U. S. Officials Only
After the last meeting between Ambassador
Panyushkin and Mr. Thorp on March 12, 1948,
the American negotiators had arrived at the
conclusion that further discussion would be
fruitless unless the Soviet delegation altered
its position. A 14 page note was addressed to
Ambassador Panyushkin on May 7 in which
this Government' explained the unacceptability
of the Soviet proposals of December 16, 1947;
reiterated firmly, and in detail, its position on
various issues; and emphasized its dissatisfac-
tion at the slow progress of the discussions.
Late -in May the Ambassador called upon the
Under Secretary of State and advised him that
he was returning to Moscow for new instruc-
tions concerning the lend-lease settlement ne-
gotiations. It is reported that the Soviet Am-
bassador, on arriving at La Guardia Field
upon his return, declared that he expected to
continue the negotiations and thought it pos-
sible to reach an agreement but that this de-
pended upon both sides, especially the United
States.
7'he official Soviet reply to the American
note of May 7, 1948, which apparently sets
forth the USSR's position. in the resumption of
negotiations, is contained in a note (dated
June 25, 1948) recently received by the De-
partment of State. In this communication
the Soviet Government states that it adheres
to the principles set forth in. its note of De-
cember 16, 1947. These principles are basic-
ally at variance with the main points of the
American position and with the interpreta-
tion of lend-lease obligations accepted as a
basis for all previous settlements. At the same
time, the Soviet side states that in the interests
of obtaining agreement it is prepared to sus-
pend discussion concerning the principles of
the settlement and to continue its efforts to
find a practical solution to the questions in
dispute. As regards one major issue, the com-
pensation due the US for civilian-type articles
which remained in existence on VJ-Day, the
Soviet Government suggests that this obliga-
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tion be settled at a sum which amounts to only
a fraction of the depreciated value of the in-
ventory, as estimated by the United States.
The Soviet note makes no reference to the
purchase of 36 war-built vessels, upon which
the two governments previously had reached
a tentative agreement. However, a cash offer
is made for the purchase of 48 prewar-built
vessels and a tug, including three vessels lost
since March 18, 1946. This offer is less than
one-half the total stipulated by the US as the
minimum price for these vessels. The note
also includes other Soviet proposals, most of
which are unresponsive to the United States
requests. Included are proposals to delay re-
turn of 28 naval frigates pending an over-all
settlement and to lease three icebreakers on
a long-term basis. Reference is also made to
the purchase of other naval vessels, the re-
linquishment by the US of title to military
equipment situated in the USSR, negotiations
on patent matters, and the cessation of ship-
ments under the "pipeline" credit agreement.'
Basic Differences in Interpretation Hinder
Settlement
As suggested above, the prolonged and in-
conclusive character of the negotiations repre-
sents more than a disagreement over items of
inventory or the details of financial terms.
The negotiations have been marked by a funda-
mental difference in approach, involving the
interpretation of both the obligations assumed
by the USSR and the rights of the United
States under the Mutual Aid Agreement.
The United States settlement proposals are
predicated on the following principles which
were successfully used in other lend-lease set-
tlements: (1) No payment is requested for
items destroyed, .lost or consumed during the
'The details of these proposals will be discussed
below. In this note the Soviet Government for the
first time formally suggests the question of the ces-
sation of shipments under the lend-lease "pipeline"
agreement of October 15, 1948 as a matter to be in-
cluded in the over-all lend-lease settlement discus-
sions. Inasmuch as the American side considers
this a problem outside the settlement negotiations,
no attempt will be made to deal with the subject in
this article.
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war and prior to September 2, 1945; (2) in ac-
cordance with Article V' of the Mutual Aid
Agreement, the US requests the return of cer-
tain items which were not destroyed, lost or
consumed, and (3) the US asks compensation
for other items which remain in the possession
of the USSR.
Under lend-lease the USSR received mer-
chant vessels, naval, and other military vessels,
civilian-type articles, and military equipment.
The United States has already requested the
return of eight merchant vessels (seven tank-
ers and one steamer) and 31 naval vessels
(three icebreakers and 28 frigates), and will
probably specify other vessels for return. These
are vessels which the United States cannot or
will not offer for sale because of domestic legis-
lative or other legal restrictions or because of
strategic considerations. Other naval and
merchant vessels have been repeatedly offered
for sale to the USSR. The US contends that
in offering to sell these vessels instead of de-
manding their return it is modifying the agree-
ment in favor of the USSR, since the Soviet
Government is obligated to return any vessels
requested by the United States. Compliance
with such requests is not contingent upon ne-
gotiations or the conclusion of a general settle-
ment.
The US side also asks compensation in an
amount representing an agreed fair value of
the civilian-type lend-lease articles which re-
mained in existence on VJ-Day, and has openly
evidenced willingness to negotiate upon the
sum. The United States does not request the
return of, or payment for, military-type equip-
ment, with the exception of 260 gun assem-
blies, but merely proposes to retain 'title to
these items and the right to demand their re-
"Article V: "The Government of the Union of So-
viet Socialist Republics will return to the United
States of America at the end of the present emer-
gency, as determined by the President of the United
States of America, such defense articles transferred
under this Agreement as shall not have been de-
stroyed, lost or consumed and as shall be determined
by the President to be useful in the defense of the
United States of America or of the Western Hemi-
sphere or to be otherwise of use to the United States
of America."
U. S. Officials Only
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turn (limited only by the duration of their
existence).
In accordance with Article IV,' the US re-
quires that satisfactory arrangements be con-
cluded with US firms concerning licenses for
continuing Soviet use of patents and processes
connected with petroleum refinery equipment
transferred to the USSR under lend-lease, or
that a lump sum payment be made to the US
Government to cover the claims of the Ameri-
can firms. Other matters which the United
States wishes to include in the general settle-
ment concern miscellaneous small claims aris-
ing from ocean freight charges and insurance.
In contrast to the American position and ap-
proach, the Soviet side has tended to disregard
the "lending and leasing" aspects of the agree-
ment and to interpret lend-lease operations
only in terms of mutual aid, stressing a net
balance of mutual contribution to the war.
The Soviet representatives maintain that the
Mutual Aid Agreement was not an economic
but a military and political agreement, and
that the United States is attempting to modify
it into an economic contract. The first point
in the Soviet reply (December 16, 1947) to the
"Outline of Main Points of Settlement Pro-
posed by the US Side"--a point reiterated
throughout the reply and the discussions--is
the magnitude of the Soviet contribution to
the war effort and the relatively advantageous
position of the US in escaping from war dam-
age and enjoying the opportunity for economic
development. The Soviet Government conten-
tion is that the benefits received by the United
States, as a result of the destruction of a com-
mon enemy which was achieved in consider,
able degree through the efforts of the USSR,
exceed the benefits received. by the USSR under
lend-lease.
`Text of Article IV: "If, as a result of the transfer
to the Government of the Union of Soviet Socialist
Republics of any defense article or defense infor-
mation, it becomes necessary for that Government
to take any action or make any payment in order
fully to protect any of the rights of a citizen of the
United States of America who has patent rights in
and to any such defense article or information, the
Government of the Union of Soviet Socialist Repub-
lics will take such action or make such payment when
requested to do so by the President of the United
States of America."
U. S. Officials Only 9
In addition, the Soviet side holds that the
Master Lend-Lease Agreement does not impose
the definite obligations upon the USSR which
the US outlines, but was intended as a pre-
liminary agreement providing a framework
under which final determination of terms and
conditions for aid were to be arranged. Mr.
Arutiunian, a member of the Soviet delegation,
on June 11, 1947 made the striking statement
that the Soviet Government had not expected
to have to return any of the lend-lease equip-
ment to the United States and had not kept
its records as it would have done if that were
to be the case; further, that the lend-lease
agreement contained no obligation to return
lend-lease articles. After his attention had
been called to certain clauses of the agreement
and to the receipts which the US holds for the
naval vessels, he appeared to feel that he had
made a misstatement. The remark is worth
noting, nevertheless, as an indication of the
premises upon which the Soviet representa-
tives approached the negotiations during this
period.
While the US side proposed to reach a settle-
ment on the basis of inventories, or reasonable
estimates thereof, of articles which were not
destroyed, lost or consumed, and arrive at an
agreement as to compensation for these items
or an arrangement for their return to the US,
the Soviet side approached the negotiations in
terms of an over-all political settleirient. Am-
bassador Novikov made it clear at the very
first meeting (April 30, 1947) that the Soviet
side desired and expected to reach an over-all
settlement rather than to work toward a gen-
eral agreement by way of an examination and
settlement of specific claims. Although the
Soviet side concurred in the US suggestion that
the various detailed questions be referred to
technical working groups, it did not supply the
necessary data.
Another fundamental point of contention
concerns the terminology and translation of
Article V. This situation has at times proved
almost ridiculous although not unprecedented
in Soviet foreign relations. The English text,
the only official text, stipulates that articles
"not destroyed, lost or consumed" which the
President deems useful to the United States
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will be returned at the end of the emergency.
The USSR contended that only lend-lease ar-
ticles which were "unused" at the termination
of hostilities are subject to return to the US,
and has further interpreted this to mean "un-
distributed to ultimate consumers."
As early as mid-1945 the United States had
asked the Soviet Government, along with other
lend-lease recipients, to supply an inventory
of articles not destroyed, lost or consumed.
The Russians failed to supply any information
on this subject even after negotiations were
begun. In the absence of these data, the Amer-
ican side, in order to provide a basis for set-
tlement in keeping with the principles used
with other countries, was forced to construct
its own estimate of a preliminary inventory of
such items on the basis of American records
of articles arrived in the USSR. This inven-
tory was presented to the Soviet delegation
on May 13, 1947. At the meeting of the com-
bined working group on June 11, 1947, Mr.
Arutiunian attacked the American inventory
as being of no real value. He said that al-
though it was possible to arrive by guesswork
at such a figure, it was not a practical proce-
dure in connection with the settlement nego-
tiations. He presented an inventory of arti-
cles "undistributed" as of September 2, 1945
valued at $261,817,000. This is only a fraction
of the estimate of the American inventory,
which itself is only a small portion of the total
cost to the US of over $11 billion for lend-lease
articles and services for the USSR. The con-
cept of "undistributed" or "unused" articles,
introduced by this inventory, was expanded as
a basic Soviet position in the note of Decem-
ber 16, 1947, and adhered to vigorously
throughout the meetings between Ambassador
Panyushkin and Mr. Thorp.
In its note of December 16, 1947 the USSR
offered to pay for the "undistributed" articles
on long-term credit but mentioned no figure.
In its note of June 25, 1948, suggesting that the
discussion of principles be set aside, the USSR
offered to pay $170 million over a period of 55
years "as representing fair compensation for
lend-lease articles furnished to the USSR
which were not destroyed, lost or consumed at
the end of the war." How the Soviet side ar-
rived at this figure is not clear. The Soviet in-
ventory of "undistributed" items included "un-
distributed" vessels and, military equipment as
well as civilian-type articles, but the elimina-
tion of those items alone would not reduce the
$261 million inventory figure to $170 million.
The only conclusion which can be drawn at
this point, in the absence of Soviet data, is that
$170 million is purely a figure for bargaining
purposes. Furthermore, only future develop-
ments can reveal the extent to which the en-
tire Soviet position with respect to the princi-
ples governing the settlement is an improvised
negotiating tool, or even a line promulgated
with a view to its propaganda value at a later
date.
Some Progress on Vessels and Patents
As indicated above, the lack of any meeting
of the minds on principles has not prevented
limited progress toward a solution of certain
specific problems. The USSR has agreed to
buy the 36 war-built merchant vessels at the
price stipulated by the United States, In its
latest note the USSR further offered to pur
chase 45 prewar--built vessels and a tug and
to effect payment for three prewar-built ves-
sels which were lost after March 18, 1946, al-
though the amount offered is only a fraction
of the Americ