Foreign Relations of the United States Diplomatic Papers, 1940, The British Commonwealth, The Soviet Union, The Near East and Africa, Volume III

611.6131/582½

Memorandum by Mr. Leander B. Lovell of the Division of Trade Agreements

[Washington,] June 14, 1940.

The time is approaching for the annual consideration of commercial agreement negotiations with the Soviet Union. This year the subject is complicated by many non-commercial factors which have arisen since the negotiations last year.⁴¹

The present commercial agreement with the Soviet Union, which expires on August 5, 1940, provides for full most-favored-nation treatment by the United States of imports from and exports to the Soviet Union. Exceptions are provided, among other things, with respect to the “export or sale for export of arms”, et cetera, and the operation of the Neutrality Act of 1937.⁴² A reservation, accompanied by a termination provision, (giving the U. S. S. R. the right to terminate the agreement on thirty days’ notice), is made on the subject of imports of coal from the Soviet Union.

On its part the Soviet Union agrees to “increase substantially the amount of its purchases” from the United States of “articles the growth, produce or manufacture of the United States of America,” such purchases to amount to no less than $40,000,000 in the agreement year.

While figures of Soviet purchases from the United States in recent months have not been made available by the Soviet Government (nor have import figures been published for several months), United States exports of domestic products to the Soviet Union have already amounted to over $60,000,000 in the first nine months of the current agreement year. United States imports from the Soviet Union amounted to about $18,000,000 in the same period. The limitations on trade between the two countries have arisen mainly from developments entirely beyond the scope of the commercial agreement.

With respect to imports into the United States from the Soviet Union, while this Government’s commitment to give Soviet products most-favored-nation treatment when imported into this country is of material benefit to the Soviet Union, the principal limitation on that country’s exports to the United States are not so much American tariff barriers as Russian internal needs. A possible decline in Soviet exports to this country was indicated early last year and no doubt was partly responsible for the lack of a desire on the part of the Soviet authorities for an agreement containing tariff reductions by the United States on products of which the other country is an important supplier. Imports of Soviet manganese and certain types of furs into the United States have been maintained in the first nine months of the current agreement year while many other imports from the Soviet Union have declined.

United States exports to the Soviet Union undoubtedly would have been larger if they had not encountered various difficulties in this country. A moral embargo was applied in December 1939 to the export to the Soviet Union of American “airplanes, aeronautical equipment, and materials essential to airplane manufacture” (including by interpretation molybdenum and aluminum) and of “plans, plants, manufacturing rights or technical information required for the production of high quality aviation gasoline.” (Direct quotation from Department of State releases of December 15 and 20, 1939.)⁴³ All countries, the Soviet Union included, have been subject to the moral restriction against the export of certain strategic materials such as rubber and tin for the supplies of which the United States depends on imports. Moreover, American manufactures of machine tools have raised difficulties to the placing of new orders for such machinery in the United States by the Soviet Union.

In addition to the aforegoing restrictions, there has been the shipping difficulty, and the Soviet Government has been unable to ameliorate this condition by obtaining the use of available American ships since the United States Maritime Commission has disapproved applications of private companies to charter such ships to the Soviet Government.

There is pending in Congress a bill (S. 4025) which would give the Executive the power to embargo the export of practically anything that might be considered to be useful for war purposes. This bill may be expected to become law in the very near future.⁴⁴ As an indication of its applicability to our exports to the Soviet Union, there is attached a table⁴⁵ giving the commodity nature of this trade in the first four months of 1940.

41. For attempts to resolve difficulties arising in relations between the United States and the Soviet Union, see pp. 244 ff.
42. Approved May 1, 1937; 50 Stat. 121.
43. For texts, see Department of State Bulletin, December 16, 1939, p. 686, and ibid., December 23, 1939, p. 714. See also Foreign Relations, The Soviet Union, 1933–1939, p. 801, footnote 2g.
44. This became the Export Control Act of 1940, to expedite the strengthening of the national defense, approved July 2, 1940; 54 Stat. 712.
45. Not printed.