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

371. Memorandum of Conversation⁰

Washington, November 8, 1963.

SUBJECT

• U.S. Sale of Wheat to U.S.S.R.

PARTICIPANTS

• (See attached list)

Under Secretary Ball asked if Mr. Borisov had received any reaction from Moscow with reference to the previous meeting.

Mr. Borisov answered that he had received a directive to confirm the arrangements and that, therefore, now practical business transactions could begin. He did have some minor items to clarify, pertaining to the exchange of letters.

Mr. Ball had prepared a draft which he wanted to show to Mr. Borisov and hoped this matter could be completed prior to his departure this afternoon. (The draft of the letter was interpreted to Mr. Borisov by Mr. Kuzminski.)¹

Mr. Borisov said that on all principal matters the letter was acceptable, but that he would like to have two minor changes if possible, though he would not insist on them. Where the quantity was stated to be 2-1/2 million tons he would prefer to have it read “2-1/2 million tons or more.”

Amb. Thompson said that a definite figure was used in order to be able to comply with the requirement that no dealer handle more than one-fourth of the total quantity.

It was agreed to change the wording to read “approximately” 2-1/2 million tons.

A second amendment requested by Mr. Borisov was an extension of the period of shipment to May 31 instead of April 30.

Assistant Secretary Johnson thought there might be some conflict there with reference to the price support legislation which expired May 15.

Mr. Borisov mentioned that at one of the previous meetings Mr. Roosevelt² had proposed extension of delivery time in order to get into the period of lower freight rates. Mr. Borisov had consulted with his foreign trade organization which had agreed to such a change.

Mr. Ball thought this would be agreeable.

As to the rest of the letter Mr. Borisov asked permission to think it over, though in principle it was “O.K.” He went on to say that inasmuch as the wheat question had been resolved, trading firms should now be informed to that effect. At the Embassy reception yesterday he had talked with representatives of several firms who had had no further information beyond the original directive.

Mr. Ball replied that there remained some details to be worked out between the government and private firms in order to keep the price to a minimum. He had not wanted to give any further advice to private trading firms until after having heard from Mr. Borisov this morning. These instructions would now be released.

Ambassador Dobrynin asked how long this might take and was answered by Mr. Ball and Ambassador Thompson that this would be done very quickly and it was agreed, therefore, that the wheat question could be considered to be completed.

Mr. Ball asked Ambassador Thompson to comment on the broader problems of trade between our two countries.

Ambassador Thompson said that he thought Mr. Borisov was familiar with the principal problem pertaining to increased trade between the U.S. and U.S.S.R. It was primarily a question of credit and was subject to the provisions of Congressional legislation, such as the Johnson Act. This in turn was related to the outstanding Lend-Lease balances. The last time that a discussion had been held with Soviet representatives, two conditions for a settlement of the Lend-Lease balances were laid down by the Soviet side: first, the extension of government credit from the Government of the U.S. to the Soviet Union and second, the conclusion of a trade agreement extending most favored nation treatment to the Soviet Union. In view of the fact that the U.S. Government, as such, was not in a position to extend long term loans to other countries, we had never really been able to conclude negotiations even though there was some indication that we could agree on the amount of the outstanding Lend-Lease balances. As to long term credit, the U.S. Government took the position that this was a matter for private concerns to negotiate, provided that the Lend-Lease matter had been settled. Mr. Ball interjected that this, of course, did not exclude the possibility of the government guaranteeing credit extended by private firms to the Soviet trading organization. Ambassador Thompson continued by asking whether Mr. Borisov was prepared to discuss a broader settlement of outstanding trade problems or whether he wanted to deal with individual specific commodities.

Mr. Borisov said that the Soviet Union was ready to negotiate on the broader basis. The head of his government, Mr. Khrushchev, had repeatedly said this in many of his statements. He had emphasized that he was of the opinion that the development of trade leads to the establishment of good relations between countries and that, therefore, such trade should be encouraged. Mr. Borisov thought he really did not need to say this, since all present knew this very well. He was sure they also knew that the establishment of good relations between the Soviet Union and the United States was a fundamental condition of world-wide peace. The Soviet Union was therefore ready to negotiate on a very broad basis. In this connection, a number of questions arose. One such question was whether the U.S. was prepared to cease discriminatory treatment of Soviet commodities, Soviet vessels in American ports and prohibition of certain trade transactions.

Regardless of whether a trade agreement were concluded, such discrimination would have to be discontinued, for, as long as it existed, it was difficult to expand trade. Perhaps some of these discriminatory measures and practices came about as a result of the Cuban situation, but he knew that there were many reasonable people in the U.S. Government and that therefore ways and means to do away with these practices could be found. He had meant to say this in the way of a preamble.

Mr. Ball wanted Mr. Borisov to know that from the point of view of the U.S. Government we were dealing here with three distinct kinds of problems: (1) Congressional legislation, (2) administrative regulations, and (3) the unionsʼ strong position with reference to Soviet shipping. With reference to the first problem, there was no American legislation which hindered expanded trade with the Soviet Union. As to the second type of problem there were only some administrative regulations connected with Public Law 480. (Mr. Chayes added that there were also some regulations pertaining to port security and inspection requirements.) The PL 480 program merely stated that the U.S. Government could not charter ships of nations engaged in trade with Cuba for PL 480 grain shipments. But this only affected the U.S. Government itself, not private companies. (Mr. Chayes introduced a slight correction by recalling that there were certain legislative provisions in the AID bill prohibiting military or economic assistance to countries engaged in the Cuban trade.) Thus, Mr. Ball continued, we come to the problem which we have discussed in previous meetings, namely, the unionsʼ attitude towards loading Soviet and other Eastern European vessels. We had two distinct sets of longshoremensʼ unions in this country: the unions on the Pacific Coast, whose leadership was quite independent of the East Coast and Gulf Coast unions, did not adopt the same strong position towards Soviet and Eastern European shipping, as did the latter. However, even with the East Coast and Gulf unions, this attitude was only their position at this moment. It did not mean that it was permanent and could not be altered. In the last few days, Mr. Ball had had several conversations with the Secretary of Labor, who would try to persuade union leadership to change their position. It should be understood, though, that the Secretary of Labor was not always successful in his attempts at persuasion. Thus, for example, persuasion had failed with reference to the four Canadian vessels which had been struck in Chicago, and the government was now seeking court injunctions to solve that problem. Mr. Ball thought that the shipping difficulties could eventually be worked out if a broader trade agreement were negotiated.

Mr. Borisov pointed out that shipping was only one of the problems. Supposing that the shipping problem had been solved, there still remained the problem of a boycott of Soviet commodities. American firms had been refused licenses for Soviet commodities, and even if a firm succeeded in purchasing Soviet goods, it would still be handicapped. As an example, he cited the fact that in order to import Soviet chromium ore it had been necessary to obtain State Department assistance. He understood, however, that the ore had been unloaded in an East Coast port where the unionsʼ attitude was particularly reactionary. The State Department had been successful enough to influence the unions; about 150,000 tons of the ore had been unloaded and paid for, and the transaction had been completed quite normally. He therefore came to the conclusion that when the U.S. Government was willing to exert its influence it could do so successfully.

Mr. Ball said that he would wish he could share Mr. Borisovʼs hopeful attitude. In some cases the government could, by exerting great efforts, achieve some success. In others again, it could not. But again, he wanted to emphasize that this was the kind of problem which tended to disappear once normal trade relations had been established.

Mr. Borisov said that he had a specific proposal to make and that was to negotiate either a renewal of the old trade agreement which had been discontinued in 1947 or a new one, to be negotiated in Moscow or Washington.

Mr. Ball thought we would be interested in exploring the possibilities of concluding a broad kind of trade agreement.

Amb. Thompson said he did not think it would be useful to either side to be unrealistic as to the practical problems of Congressional attitudes to any trade agreement with the Soviet Union. Such Congressional attitude would be governed by overall relations between the two countries. It was therefore necessary to take steps to develop a climate which would tend to remove such obstacles. He did not think it was possible to remove them in a single step.

Mr. Borisov agreed that he did not think it possible to settle all problems overnight. The question therefore, was what initial steps the U.S. Government was prepared to take in order to develop broader trade. For the Soviet side he could say that they were prepared to place large orders in the U.S. His foreign trade organizations were even now placing large orders for a variety of equipment in Western European countries. Mr. Ball and Ambassador Thompson surely knew that the Soviet Union was in the process of developing a chemical industry. For the time being, they were primarily interested in chemical fertilizer plants. They were prepared as a first step, to place an order for such a plant in this country, but wanted to know what steps the U.S. Government could take to facilitate such a transaction. Mr. Borisov thought this to be a realistic approach to the problem of developing broader trade.

Mr. Ball said that we would be interested in exploring such possibilities.

Mr. Borisov continued to the effect that if this were really possible, he would be prepared to conduct negotiations for that purpose. He wanted to remind Mr. Ball that recently the two countries had exchanged delegations of specialists for the purpose of studying trade problems. The American delegation to the U.S.S.R. headed by Mr. Ernest Rubin of the Department of Commerce had visited ports and other cities in the Soviet Union and had met with many organizations. Their delegation, headed by Mr. Alkhimov had been here. The delegation included the head of a chemical fertilizer association, a Mr. Glintsev. He had sounded out American firms with reference to the sale of a fertilizer plant. The firms had appeared to be interested, but were unanimous in saying that they had not had any directive from “above”. Mr. Borisov proposed to send another group of fertilizer plant specialists if this appeared to be promising.

Mr. Ball thought this would be the best way to get started.

Ambassador Thompson said that two problems presented themselves in this connection. First, the question of licensing would have to be discussed with other Departments. Second, and more important, was the question of payment terms and credit and this was precisely the area where we would encounter problems under the Johnson Act. The Johnson Act, however, only concerned long term credit but did not affect normal commercial credit of 180 days or less.

Mr. Borisov said that in Europe and in Japan the Soviet Union had obtained terms long enough to permit the setting up and developing of production of such plants, that is 6 to 7 years. Supposing that Mr. Glintsev were to come here for the purpose of starting negotiations, and that we could come to terms on all questions including technical, commercial and other questions, what measures would the U.S. Government be prepared to take with reference to Soviet goods?

Mr. Ball thought a suggestion from the U.S.S.R. as to the type of commodities they would be prepared to offer to the U.S. would be of interest.

Mr. Borisov said that it was clear that the question of boycott of Soviet goods would still have to be resolved. Would licenses be granted so as not to boycott Soviet commodities? As to the actual items of merchandise this would be up to the commercial people such as Mr. Shershnev and others, and up to American purchasers.

Mr. Ball said that there were no boycott provisions in any of the legislation of the U.S. The only legal question to be decided was whether most favored nation terms could be extended to the Soviet Union. To clarify, historically, following the passing of the Tariff Act of 1932, a series of negotiations with various countries had led to reciprocal agreements for the reduction of tariffs with many Western European countries. The question of whether such most favored nation treatment could be extended to trade between a country whose private citizens conducted foreign trade and a country where foreign trade was handled on a state basis was something that had to be considered. Congress had repeatedly taken the position that countries with whom over the years negotiations which had led to mutual concessions, had been conducted, were entitled to lower tariffs. They had earned it. But Congress was not prepared to extend most favored nation treatment to other countries, which had not made such concessions. In any case, to the extent that a trade agreement could be negotiated with the Soviet Union the question of tariffs was not too important. He thought that many things which the Soviet Union wanted to export would be either free of duty or would be subject to very low duty only, such as for example, chromium ore. It is for this reason that a list of the commodities would be of interest to us, so that the problem could be studied in its specifics.

Mr. Borisov said that at a previous conversation he had already explained that it was not the Soviet Government itself which did the buying or selling but the foreign trade monopoly which had been established in 1918. It has been this way since then, it is this way now, and they did not intend to change this situation. Purchases abroad were made by an All-Union trade association, which had its own budget, and was responsible for its own activity. This provision was in the charter of the association. It seemed to Mr. Borisov that Americans were not too well informed as to what had happened with reference to Soviet foreign trade within the last two years. A new tariff had been established which contained two primary categories. Very low duties, or none at all, applied to countries which had a trade agreement with the Soviet Union. Higher duties applied to countries which had no trade agreement. Therefore, their foreign trade organizations always had to calculate where it would be more advantageous to buy, taking the tariffs into consideration. For example, a trade agreement with the Federal Republic of Germany provided for very low tariffs. Since no trade agreement with the United States was in existence, higher tariffs applied. The foreign currency department of the Ministry of Foreign Trade supervised all transactions to make sure that purchases were made where this was most advantageous. He therefore thought our Congress, too, was not too familiar with actual conditions in the Soviet Union. In a conversation between Chairman Khrushchev and Secretary Rusk the question of buying in the U.S. had been raised and answered by Mr. Khrushchev that the Soviet Union would buy American goods if they were competitive. When Mr. Borisov said that, as a first step, he was prepared to buy chemical equipment in the U.S., he did not mean that he was prepared to pay a higher price than usual or that he would absorb the higher duty, since the foreign trade association was not permitted to overpay, and in its turn to over-charge its customer organizations. He was sure, therefore, that Mr. Ball would understand this was not a matter of solving problems for him only, but also presented problems to be solved by the U.S.

Mr. Ball said that we would be interested in exploring this matter further, for the present perhaps between Ambassador Thompson and Ambassador Dobrynin.

Mr. Borisov wanted to clarify another question. In a discussion between Ambassador Thompson and Ambassador Dobrynin the question of patents and licenses had been raised. He did not quite understand the place of this problem in the discussion of broadening trade.

Mr. Ball said that he had in mind some concern for the protection of technology in the sale of equipment and plants to the Soviet Union. When an American company sold to a Western European country, it would not expect that such European country would take this technology, copy it and then sell it to others in competition with the American firmʼs products. We were interested in working out this problem. If we were to sell plants and equipment to the Soviet Union we would not want the Soviet Union to reproduce identical equipment and sell it in Western Europe, or even to reproduce the same equipment for use within the Soviet Union.

Mr. Borisov said that obviously there were many cases when American and Soviet inventions were made quite independently of each other and differed in minor details only.

Mr. Kennedy remarked that such similarity presented a problem even where major problems of patent protection and licensing had been solved, that it was this major problem we were dealing with.

Mr. Borisov agreed, but said that this was usually handled by means of special clauses in contracts concluded between seller and buyer. Such clauses did not, of course, provide that the final products of plant and equipment purchased could not be sold abroad.

Mr. Ball did not think this problem presented too many difficulties.

Mr. Chayes said that, in fact, we had studied Soviet law and its provisions for the protection of technology. He felt that in recent years, from our point of view, acceptable arrangements for the protection and licensing of technology had been adopted.

Ambassador Thompson thought the Soviets would find it easier to buy here if they were members of the world-wide patent union.

Mr. Kennedy said that the U.S. was a member of two major international patent organizations.

Mr. Borisov did not think that this matter should be the subject of intergovernmental agreement but should be provided for in each specific case, by means of special clauses in the contract. It appeared to him that this was more a problem of conversation than actual difficulty or danger. The Soviet Union fulfilled its obligations. Moreover, two years ago a special foreign trade organization section dealing with patents and licenses had been set up in order to protect not only foreign patents in the U.S.S.R., but also Soviet patents abroad.

Mr. Shershnev added that the Soviet Union had begun registering its patents in the U.S., as well as American patents in the U.S.S.R.

Mr. Borisov concluded this subject by stating that he felt patents should not present any great problem. As for the last question raised by Ambassador Thompson, with reference to Lend-Lease, the point of view of the Soviet Government was the same as during the last conversation conducted by Ambassador Menshikov in 1960. He would repeat that point of view: the Soviet Union could reach agreement on the settlement of Lend-Lease payments but on the same two conditions—(1) that a trade agreement be concluded and (2) that the question of credit be resolved. Did he understand Ambassador Thompson correctly to the effect that the credit question could be resolved in an overall Lend-Lease settlement?

Ambassador Thompson said that in previous conversations the Soviet Union had always spoken in terms of U.S. Government credits. This was not practical, but once a settlement of the Lend-Lease claims had been achieved, any American firm would be in a position to extend normal commercial terms to the Soviet Union, in some cases possibly with a U.S. Government guarantee.

Mr. Borisov wanted to clarify why he had raised the question of credit. Actually, any significant volume of trade with the U.S. had been discontinued long ago. It was evident that the Soviet Union would have practical difficulties, though he emphasized that this would not be impossible, to pay all at once for everything that it wanted to buy in the U.S. Therefore, it would be necessary to begin rehabilitating their relations with American firms. During the past seven to ten years the Soviet Union had purchased capital equipment on the world market on credit terms. Assuming that the trade agreement could be concluded once again, it would be primarily concerned with purchases of capital equipment. The Soviet Union would want to obtain the same terms here as were available elsewhere. Being exporters of capital equipment themselves, they too sold on credit, for if they did not do so, no one would buy from them. It was a well-known fact that in developing countries American and Western firms were competing with the Soviet Union in selling equipment, and it was natural that whoever sold for less and on better terms got the business. Therefore, their interest in credit was quite logical. Actually, it did not mean the introduction of anything new into international trade. This, then, was the Soviet proposal on a settlement of outstanding Lend-Lease claims.

Mr. Ball thought that this offered a basis for serious discussions. For the present, such talks would perhaps be best conducted between Ambassador Thompson and Ambassador Dobrynin, to see if something could be worked out, that could subsequently be formalized in Moscow or in Washington.

Mr. Borisov said that he would have no objection to such discussions and assumed that Ambassador Dobrynin would not object to them either although, should another convoy be detained in Germany, the Ambassador might be out of circulation for two or three days.

Mr. Ball said that the government would take the necessary steps to get the grain trade active with a view to producing specific offers to the Soviet wheat delegation.

The Soviet group took a few minutes to consult among themselves with reference to Mr. Ballʼs draft of the letter mentioned earlier, and, following the changes suggested there, the meeting was concluded.

LIST OF PARTICIPANTS

• United States
  • Under Secretary of State George W. Ball
  • Ambassador Llewellyn Thompson
  • Assistant Secretary of State G. Griffith Johnson
  • Abram Chayes, Legal Advisor
  • William Krimer, L/S, Interpreter
• U.S.S.R.
  • Anatoliy F. Dobrynin, Soviet Ambassador
  • Sergey A. Borisov, First Deputy Minister of Foreign Trade
  • Viktor M. Manjulo, Chief, Administration for Trade with Western Countries, Ministry of Foreign Trade
  • Eugeni S. Shershnev, Commercial Counselor, Embassy of U.S.S.R.
  • Nikolay I. Kuzminski, Chief, Interpretersʼ Section, Ministry of Foreign Trade

0. Source: Department of State, Central Files, INCO-WHEAT 17 USSR-US. Confidential; Limit Distribution. Drafted by Krimer. The meeting was held in Ballʼs office.

1. The draft has not been found. The final text reads:

   “In confirmation of the conversations we have had during the last few days, the United States Government is prepared to prescribe licensing conditions which will enable the United States grain trade to offer approximately 2-1/2 million tons of wheat for delivery to the Soviet Union on a CAF basis prior to May 31, 1964.

   “The appropriate Departments and Agencies of the United States Government are prepared to take such steps as are within their competence to facilitate the execution of these transactions. I should be glad of your confirmation that the Soviet Union desires to purchase wheat of approximately this amount provided it is available at reasonable prices in relation to the world market.” (Ibid.)

   A copy of Borisovʼs confirming letter, also dated November 8, is attached to Ballʼs letter.

2. Under Secretary of Commerce, Franklin D. Roosevelt, Jr.