Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

332. Memorandum From the Under Secretary of State (Ball) to President Kennedy⁰

Washington, October 25, 1963.

SUBJECT

• Trade Relations with the Soviet Union

The Soviet Ambassador¹ informed me today that the Soviet trade delegation headed by the Soviet First Deputy Minister of Foreign Trade, Borisov, will be prepared to discuss the general question of United States-Soviet trade relations as well as the specific problem of wheat sales. The Ambassador agreed that the first discussion on this subject might be held in the middle of next week, in an unpublicized manner, and, for the first meeting, would be held to two or three persons on each side.² I informed Dobrynin that Thompson³ and I would represent the United States at this first meeting. My thought was that we should first ascertain what the Soviets have in mind as to the scope of the negotiations. The following appear to be the chief elements of the problem:

1. Large or Small Deal. We shall first have to decide our own policy and ascertain the Soviet views as to whether, in these discussions, we will seek a major settlement of trade problems or simply some modest expansion through liberalizing current restrictions without involving Congressional authorization.

When Gromyko was recently in Washington,⁴ I expressed to him the opinion that we probably could not reach a broad settlement of trade problems, including legislative action, until after our elections. I think this is probably recognized by the Soviet side. On the other hand, there have recently been indications that they would consider a lend-lease settlement which could conceivably open the way to a major deal. The Soviets have always stated they were seeking the end of any discrimination against them in the trade field. The only important fields of discrimination are the denial of Most-Favored-Nation treatment, the restrictions on credit by the Johnson Act, and controls on arms and strategic items.

2. Credits. The Johnson Act prohibits loans to countries in default in the payment of their obligations to the United States. In the past, we have generally interpreted this to prevent extension of credit terms beyond one hundred and eighty days. The Attorney General has ruled that the Johnson Act does not prohibit extensions of credit “within the range of those commonly encountered in commercial sales of a comparable character.”⁵ We could presumably interpret this to allow the extension of credit by private firms to the Soviet Union for the sale of industrial plants for three and possibly even five years. Our Allies are now giving or guaranteeing credits up to five years for such equipment, and we are now engaged in an exercise in NATO to prevent the extension of even longer credit terms which the British, in particular, are inclined to give. If the Soviets thought they could get credit from us for as much as five years, they would probably have less interest in a lend-lease settlement, although they will still wish to obtain MFN treatment. To remove the prohibitions of the Johnson Act with respect to the Soviet Union, it would be necessary to arrive at a lend-lease settlement as well as the settlement of certain Government loans in default. These could, of course, be included in the lend-lease settlement.

3. Lend-lease Settlement. The last Soviet offer of a lend-lease settlement was for three hundred million dollars and our last offer was eight hundred million dollars, not including ships furnished to the Soviet Union. When we attempted to renew negotiations in January 1960, the Soviets attempted to make a condition of settlement, the simultaneous conclusion of a trade agreement giving MFN treatment to the Soviet Union and the granting by the United States Government of long-term credits. It is probable that the Soviets are now prepared to give up the latter condition.

4. Most-Favored-Nation Treatment. The extension of MFN treatment to the Soviet Union is now forbidden by law. In any lend-lease negotiations, the Soviets would certainly take the position that they could not be in a position to meet payments for interest and amortization unless they could have Most-Favored-Nation access to our markets. It seems questionable whether in the present political climate Congress would be willing to grant MFN treatment to the Soviet Union even to secure a substantial payment on lend-lease. Even with MFN treatment, it is doubtful whether the Soviets could sell substantial amounts of commodities in the United States.

5. Arms and Strategic Items. Neither we nor probably the Soviets expect any substantial change in current restrictions on the export of strategic items to the Soviet Union, although there is some leeway in our definition of what constitutes strategic materials.

6. Licensing Requirements. In practice, in carrying out licensing requirements for exports to the Soviet Union, we have frequently denied licenses for items such as agricultural machinery which could only be considered strategic under the widest interpretation of that term. It is in this field that it would be easiest for us to facilitate some expansion in trade with the Soviet Union. Mr. Khrushchev raised with Secretary Freeman⁶ the question of Soviet purchase of a larger number of fertilizer plants in the United States and the Soviet Ambassador recently indicated to Thompson that he understood his Government was expecting an answer to this approach.

7. Conclusions. In our first talks with the Soviet delegation, I believe we should keep our sights low, since I believe it is unrealistic to think we could get legislation giving them Most-Favored-Nation treatment at this time and without this, I do not think we can expect them to settle their lend-lease accounts. It would seem to me that we might, however, reach an agreement somewhat along the following lines:

a) Expression of our willingness to license the export of certain types of equipment, such as agricultural machinery, fertilizer plants, textile machinery, etc. (A United States firm has been asked to participate in an international consortium for the sale of a huge oil refinery to the Soviet Union. The United States participation would be chiefly the sale of technology. This is being investigated by Commerce, but we will probably have to reject it.)

b) Interpret the Attorney General’s ruling to allow the extension of private credits on large industrial plants up to three or (five ?) years.

c) Let it be known that the foregoing is Government policy. Many firms are now unwilling to make bids or do business with the Soviet Union because of their belief that it will be impossible to obtain export licenses.

d) We should probably sound out the Soviets on the possibility of their adhering to international copyright and patent conventions, although their agreement is unlikely and, in the belief of some, is neither very realistic nor necessary since most exporters protect themselves by refusing to sell small quantities for the Soviets to copy.

George W. Ball

0. Source: Kennedy Library, National Security Files, Subject Series, Trade, East/West. Secret.
1. Anatoly F. Dobrynin.
2. For documentation on the U.S.-Soviet talks on wheat, see vol. V, Documents 224 ff.
3. Llewellyn E. Thompson, Ambassador at Large.
4. For documentation on meetings with Soviet Foreign Minister Andrei A. Gromyko in Washington on October 10, see vol. V, Documents 221–223.
5. Reference is to the October 9 letter from Attorney General Kennedy to Under Secretary of State Ball; see Document 330.
6. Secretary of Agriculture Orville L. Freeman visited East European countries, including the Soviet Union, in August 1963.