Foreign Relations of the United States, 1961–1963, Volume V, Soviet Union

362. Memorandum of Conversation⁰

Washington, October 10, 1963, 11:30 a.m.

SUBJECT

• US-USSR Trade

PARTICIPANTS

• US
  • The Secretary
  • Under Secretary Ball
  • Under Secretary for Political Affairs Harriman
  • Ambassador Thompson
  • Assistant Secretary Tyler
  • Mr. Akalovsky, ACDA/IR
• USSR
  • Foreign Minister Gromyko¹
  • Deputy Foreign Minister Semenov
  • Ambassador Dobrynin
  • Mr. Kovalev, Adviser to the Foreign Minister
  • Mr. Makashev, Assistant to the Foreign Minister
  • Mr. Bubnov, Soviet Embassy
  • Mr. Sukhodrev, Foreign Ministry

The Secretary expressed gratification that Mr. Gromyko had come to Washington and that this discussion could take place. He observed that there were several unfinished points to be discussed and suggested that perhaps Mr. Gromyko could indicate which of them could be discussed first.

Mr. Gromyko commented that the Secretary and he had covered several questions in New York and that perhaps it would be useful to continue the exchange of views on those questions. He noted, however, that some points had been practically not dealt with in the New York conversations. In this connection, he recalled that some time ago the Secretary had mentioned the possibility of discussing commercial relations between the US and the USSR and had indicated he might comment on this matter at a later point. He wondered whether the Secretary could express his views on this problem now.

The Secretary said that we were interested in taking up with the USSR the discussion of possibilities in the trade field and of the problems necessarily involved with it. He thought Mr. Gromyko had probably observed in the press that the Senate Foreign Relations Committee, as a result of a meeting held yesterday, had decided to re-examine the trade policy with the Soviet Union and the other socialist states. This was because the Senate Foreign Relations Committee had a lively interest in the possibility of progress in this area. However, the Secretary pointed out that the lend-lease problem, which had been with us for some time, still existed and was related to the existing legislative barriers, primarily those relating to commercial credits, etc. The Secretary then recalled his remark in Moscow that we had some commercial practices in connection with which difficulties might also arise, but said we would try to deal with them as constructively as possible. In addition, there were problems on such matters as copyright, patents and dumping, where adjustments would be required on the Soviet side.

The Secretary continued that there were some inherent operational difficulties in trade between a free competitive system like ours and a highly organized and planned system such as that existing in the USSR. Nevertheless, he believed such difficulties could be resolved, noting they appeared to have been resolved in trade relations between the USSR and other “capitalist” countries. The Secretary thought while the Executive Branch was dealing with Congress on these matters, perhaps quiet discussion between the US and USSR could be initiated either in Washington or in Moscow to explore the problems which exist in the field of trade. He then invited Under Secretary Ball to comment, noting Mr. Ball was an expert in economics.

Under Secretary Ball observed that, as distinct from European states, the US had not had the practice of bilateral trade agreements. This would require much exploration, because we were not familiar with that practice and there were a number of statutory and constitutional problems involved here. However, he believed that the problems the Secretary had referred to were soluble. One problem which he thought would cause trouble was that of most-favored-nation treatment, i.e., the problem of tariff legislation, but even that depended on the type of commodity. Mr. Ball continued that these matters could be developed only when we proceeded further in our discussions, if it was decided to have such discussions. He believed there were possibilities for an expansion of trade between the two countries and that an exploration of these possibilities would be profitable to both sides.

The Secretary pointed out that after coming back from Moscow he had taken administrative action, where possible, to ease trade between our two countries, and noted that he would not have taken such action before his trip to Moscow. The action he referred to applied primarily to the granting of export licenses. He then inquired what Mr. Gromykoʼs views were regarding the possibility of exploring, either in Washington or in Moscow, the problem under discussion.

Mr. Gromyko wondered whether it was correct to understand that the US was considering changes, to the extent this was possible, both in legislation and in operational procedures. As to the former, he commented that the form would not be important; e.g., the USSR might not be mentioned by name. As to the latter, he said he understood that this aspect might be easier to change.

The Secretary agreed with Mr. Gromykoʼs last remark, but pointed out that this would be true only if such changes did not challenge Congressional policy.

Under Secretary Ball commented that from the standpoint of procedure it might perhaps be easier first to see what could be done within the existing legislative framework and only then to turn to the broader problem of legislation.

The Secretary noted other “socialist” countries had approached us on matters of trade. As Mr. Gromyko knew, one of the difficulties here was the existence of unsettled financial obligations on the part of those countries, but we had reached agreement with Bulgaria and Czechoslovakia so that this should not be a problem. The most immediate problem was that of most-favored-nation treatment, particularly in the case of Yugoslavia and Poland. Although such treatment might perhaps be granted by Congress to Yugoslavia this year, the Secretary doubted that it would be granted to Poland because there was a great deal of unhappiness in Congress, as well as in the Executive Branch, about the attitude of the Polish Representative on the ICC in Laos. In this connection, the Secretary observed that, while these two matters were perhaps objectively unrelated, one should recognize that there was a relationship here. The Secretary agreed with Mr. Ball that we should first concentrate on what could be done within the existing legislative framework, pointing out that it would be most undesirable to make an early effort on such matters as the Johnson Act and experience a failure.

Mr. Gromyko said that he wished to emphasize once again what had been said earlier by the USSR at the highest level, namely, that discriminatory practices created difficulties for improving relations between our two countries in the broadest sense of that term. It was for this reason that the USSR believed that it would be better to have those practices abolished. If the United States, and the President personally, believed that some action would be ripe for execution eventually, such action would be a major step in improving our relations. Mr. Gromyko said he had understood the Secretary to say that such eventual action would embrace both the general US trade policy and the operation practices by which US companies were guided in trade with the USSR, or, more correctly, in the absence of such trade. He said he was pleased to hear this and reiterated that this would be good from the broad standpoint of US-USSR relations; this would be in the interest of both the US and the USSR as well as the world at large, and neither side would gain any unilateral advantage. As to how and when these matters could be discussed between our two countries, Mr. Gromyko felt either Moscow or Washington would be practical, but noted that he wished to consult with his Government and would give a reply in a few days. In any event, he believed that if the US was prepared to discuss these matters in the immediate future there would be no procrastination on the part of the USSR.

The Secretary commented that from our standpoint it would be more convenient, at least in the early stages, to have those discussions in Washington, because of our need to be in touch with Congress and the Department of Commerce. He noted, however, that this was not a hard position, but simply a matter of convenience from our standpoint.

Mr. Gromyko said the USSR would take into account the Secretaryʼs remark. Referring to Mr. Ballʼs comments, he wondered whether he had understood correctly that Mr. Ball foresaw some difficulties in having a formal agreement.

Under Secretary Ball commented this pattern was different from the one we had been using, but perhaps it was possible. In any event, he did not rule it out.

The Secretary asked Mr. Gromyko whether Soviet trade arrangements with Western Europe were based on bilateral trade agreements.

Mr. Gromyko replied in the affirmative and said this was the usual pattern.

The Secretary asked Mr. Ball whether the US had bilateral trade agreements with anyone.

The Under Secretary replied that as Europe had moved from the situation existing immediately after the war, where there had been a shortage of foreign currency to a situation of free convertibility of currency and of free trade, our trade with Western Europe was based on multilateral agreements. However, European countries had had experience in bilateral arrangements. As to the US, we would need some adjustment in our practices.

The Secretary then said that our two countries would have to find products they could buy from each other, because apparently our trade would be bilateral. The problem was that our two countries produced similar things, and therefore we would have to explore this matter and try to find an economic basis. In this connection, he noted there was now a surplus of US tourist exchange going to the USSR; if that surplus continued, it would enable the USSR to buy more on the US market.

Mr. Gromyko said he wished to remind the US side that the US and the USSR had had a trade agreement before the war. He believed that the situation obtaining at that time had justified such an agreement, but then the war came and things changed completely.

He then said he wished to take up some of the points the Secretary had raised. In particular, he wondered whether the US had thought about the problem of credits, and also what relation the US saw between the problem of lend-lease and US-USSR trade relations. As to the latter point, he recalled that three or four years ago, Mr. Mikoyan had stated the Soviet view on this matter, but noted that practically no discussion of the problem had taken place since then.

The Secretary commented that the latest attempt to resolve this problem had failed because the USSR had wished to discuss at the same time the problems of trade and credits. He pointed out that the problem of lend-lease was involved in our legislation so that it would have to be resolved.

The Under Secretary commented that lend-lease was related to credits. There were two problems as regard credits: 1) there was the Johnson Act which provided that no loans could be granted before lend-lease was settled and 2) there was the question of definition of credits, because if credits were on such a long-term basis that this would make it look like assistance, this would create difficulties. The position we took on wheat was to interpret the Johnson Act as not applicable to normal commercial payments, but we could not apply this interpretation to such things as machinery, etc.

The Secretary commented this meant that we could not extend credits as they had been extended by some West European countries, without amending the Johnson Act.

The Under Secretary agreed that we could not unless lend-lease was settled.

Mr. Gromyko said he wished to emphasize that his remarks were only exploratory and should not be understood as an application for loans.

The Secretary said he understood that and stated we were prepared to examine these problems in all of their aspects if the development of our relations continued as we hoped it would. He then expressed the view that it was unfortunate that the cold war period following the last war had interfered with the classic concept of trade, namely, that trade should benefit both sides. In this connection, he recalled that Mr. Khrushchev had endorsed this concept. The Secretary regretted that there had been developments during the post war period which had distorted this classic concept.

Mr. Gromyko believed it would be best if the entire problem were resolved. However, he thought that if the two sides should be unable to agree on some of its aspects, e.g., on such a matter as lend-lease, which strictly speaking was not part of the trade problem anyway, lack of agreement on such aspects should not hamper the development of other aspects of trade relations between our two countries. He did not believe there should be a tight package.

The Secretary commented that he could agree with this in theory, but noted that the problem must be examined.

Mr. Gromyko wondered what the Secretaryʼs views were in terms of time, i.e., when legislative and operational changes could be expected.

The Secretary said that one thing was certain: no change could be expected during this session of Congress. Congress was swamped with legislation this year, and anybody suggesting additional new legislation would have a very hard time. In any event, we were not ready yet politically and consequently we would have many months to examine all these problems.

The Under Secretary expressed the view that we should see what steps or progressive adjustments could be brought about, noting this could facilitate change in legislation.

Mr. Gromyko wondered whether the Secretary could comment on the second part of his question.

The Secretary replied that the US had kept these matters under review; there had been some movement on them, and perhaps further movement was possible. He noted that this depended on individual items and that the Secretary of Commerce and he were frequently consulting on these matters. While he believed further movement was possible, he felt that it would be misleading to make a generalized statement. In this connection, he thought Ambassador Dobrynin must have seen statements by Secretary Hodges and Secretary Freeman which had a bearing on this matter. While he himself had not said much on this subject, he believed that fresh possibilities existed in this area.

Mr. Gromyko said the President of Amtorg in New York had told him about inquiries on the part of US companies regarding trade with the USSR, but apparently those inquiries had not resulted in anything. He thought perhaps those matters were under consideration in the Administration, because the components were apparently inquiring in terms of future possibilities rather than immediate transactions.

Ambassador Dobrynin interjected that two or three cases, including textiles, had been resolved favorably.

The Secretary then inquired whether Mr. Gromyko dealt with trade matters a great deal.

Mr. Gromyko replied in the negative but noted that the Ministry of Foreign Trade was headed by his former deputy, Mr. Patolichev, so that the Foreign Ministry was familiar with the problem.

The Secretary then stressed the psychological value for trade of movement by the USSR on such matters as copyright. In this connection, he noted that some “socialist” states had agreed to certain arrangements in this field; indeed, Bulgaria had accepted the International Copyright Convention.

Mr. Gromyko facetiously remarked that the Secretary had probably raised this point in order to knock him out, because he knew nothing about the subject. He acknowledged that this point had been raised with the Soviet Union on several occasions and observed that Soviet organizations dealing with the matter were not particularly enthusiastic about it. He thought the matter would probably be discussed again, but said he did not know what would come out.

The Secretary observed that Mr. Gromyko would surely agree that there were some points which, while not of great practical importance, were significant from a psychological standpoint.

At this point the Secretary invited the group to join him for lunch where the discussion could be continued.²

0. Source: Department of State, Secretaryʼs Memoranda of Conversation: Lot 65 D 330. Secret; Limited Distribution. Drafted by Akalovsky and approved in S on October 16 and in U on October 23. The meeting was held in the Secretaryʼs office.
1. Gromyko was in the United States to attend the U.N. General Assembly session.
2. No record of the luncheon conversation has been found, but at a dinner at the Soviet Embassy at 8 p.m. Rusk, Ball, and Gromyko discussed the kinds of trade that might develop and at what level exploratory talks might take place. (Memorandum of conversation; Department of State, Central Files, FT US-USSR) At dinner Gromyko also mentioned the negotiations for a consular convention, nuclear-free zones, and travel restrictions. Memoranda of the conversations on these subjects are ibid., Secretaryʼs Memoranda of Conversation: Lot 65 D 330; and ibid., Central Files, DEF 18-9 and POL 36 USSR.