Foreign Relations of the United States, 1969–1976, Volume XIV, Soviet Union, October 1971–May 1972

268. Telegram From Secretary of State Rogers to the Department of State¹

Moscow, May 24, 1972, 1515Z.

Secto 15.

1. Following is cleared memcon between Secretary and Soviet Minister of Foreign Trade Patolichev May 23.

2. Begin text.

Subject: US-Soviet Trade and Economic Relations.

PARTICIPANTS:

• SOVIET:
• Foreign Trade Minister N.S. Patolichev
• Deputy Foreign Trade Minister A. Manzhulo
• Deputy Foreign Trade Minister V.S. Alkhimov
• Chief, American Countries Division, N.V. Zinov’yev
• U.S. Desk Officer, Mft, Mrs. Ye. A. Voronkov
• Deputy Chief of Protocol, V.A. Rakhmanin
• U.S.:
• Secretary of State Rogers
• Mr. Peter Flanigan
• Mr. Dean Hinton
• Mr. Lewis Bowden

Date and place: May 23, 1972, Ministry of Foreign Trade, Moscow, USSR

The Secretary led off by saying our respective leaders had in their morning discussions today emphasized the desire for a substantial increase in trade between our two countries. He had come to see Minister Patolichev with a view to examining concrete ways to solving the main problems standing in the way of such expansion.

The Secretary mentioned possible feed grain purchases by the USSR from the US, indicating that Mr. Flanigan had already talked to Patolichev in Washington about that and the whole range of problems in the trade field between us. We had come to know the Soviet positions on these matters quite well. Some of the problems doubtless would take a longer time but we hoped some could be successfully dealt with this week. The Secretary then reminded Patolichev that Secretary Peterson had made a grain purchase proposal to him while he was in Washington. He would be interested in knowing their response.

Patolichev replied they had studied the proposal thoroughly and in a positive spirit, but they were not yet in a position to give us a definitive answer. He said he simply didn’t have the money. Moreover, measures were being taken in Soviet agriculture which would have a positive effect on the situation. (By this he clearly meant the Soviet grain output this year.) He said that people in Washington had told him there was a drought in the Rostov area but he had been informed on returning from the US that it was raining there, so things didn’t look so bad. He thought perhaps this whole subject would be touched on by our leaders.

Minister Patolichev then expressed the belief that one day of meetings should be set aside this week to economic matters and it was decided that mutually convenient times would be found.

Mr. Flanigan said he had understood from this morning’s summit meeting that working groups were supposed to be formed in the various fields and examine the possibility of some agreements. The Secretary concurred that our leaders had indeed said it would be good to find some agreements of an economic nature. He added that if we could get rid of some of the main political problems then we could move to some large deals. Meanwhile, we should concentrate on what was possible at this time.

Patolichev said he understood our proposal in Washington on feed grains to be our last offer. He was forced to point out that the Soviet Union had never bought grain abroad at such a high rate of interest and that he had so indicated in Washington to Secretary Peterson. Then the Minister summarized the thoughts he had expressed in Washington about a shorter term feed grains agreement now to cover the period until PL 480 expires, at which time perhaps a longer term agreement could be worked out. He pointed to the advantages a long-term commitment from the USSR would have for the US, since it would involve buying a certain amount per year regardless of the grain crop in the USSR. He specified a commitment over three years to buy $750 million worth of feed grains—$200 million the first year but with the outstanding debt at any one time not to be more than $500 million. He concluded that he had reported our conditions of sale to his superiors but it was obvious that our two positions were not close. He also stated that he had reported that a grain deal at this time would create a good atmosphere among the public and in Congress, as well as facilitate the solution of other problems between us.

Mr. Flanigan observed that as of now the only credits available for such purchases was from the CCC and that the Soviets were aware of this.

Patolichev said he hoped we could revert to this subject later in the week. He would recommend that we come up with some more agreeable proposals. The Secretary replied that our briefcases were empty.

Minister Patolichev returned to the question of this year’s harvest. He said that the year had started out looking very bad but that things were getting better fast. In the Volga and North Caucacus areas the winter grain had been badly hit but now after considerable efforts, things had been put into good shape. Mr. Flanigan said we were happy to learn that the grain situation was improving but as everyone knew demand for grain was also rising. The Soviets agreed, saying they eat enough bread to feed two billion people in other countries.

Secretary Rogers then asked what about the Joint Trade Commission. Mr. Flanigan noted that Secretary Peterson had given Patolichev a paper outlining the goals and functioning of such a commission. He suggested we work up language about setting up such a commission which could be put into a communiqué. Patolichev agreed and designated Mr. Manzhulo from his side for drafting.

Mr. Flanigan then shifted to lend lease, observing that we each understood the other’s point of view. He noted that the only big problem remaining is the total figure. He thought that we would keep trying to find a solution to that problem at the same time the Joint Trade Commission was carrying out its assigned functions. He said our leaders might find some acceptable middle ground on the total figure. Patolichev agreed, saying it was obviously in the interests of both countries to end the lend lease business so that the US could grant credits and export more machinery and equipment to the USSR.²

The Secretary suggested they consult with their principals on our feed grains proposal and promised we would consult ours about the US position on the total lend lease figure.

Rogers

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 719, Country Files, Europe, USSR, Vol. XXII, May 1972. Confidential; Exdis.
2. Telegram Secto 23 from Moscow, May 25, transmitted a message from Flanigan to Assistant Secretary of State for Economic Affairs Willis C. Armstrong stating that the Soviets were insisting on lend-lease repayment terms equivalent to those given to the British in 1947. Flanigan asked Armstrong to compute what annual debt service payment would retire the debt and accrued interest, plus interest on the unpaid portion at 2 percent, in 30 years—assuming that the Soviets had agreed in 1947 to a debt of $500 million with interest at 2 percent compounded. He also asked for the equivalent interest rate of a new $500 million, 30-year loan with payments starting in the first year. (Ibid., RG 59, Central Files 1970–73 DEF 19–8 US–USSR) In telegram 92887 to Moscow, May 25, Armstrong replied that assuming terms equivalent to those accepted by the British with no Soviet payments between July 1, 1946, and July 1, 1971, and assuming that the Soviets now agreed to begin payments as of July 1, 1972, with 2 percent interest on the unpaid balance—which included both the stated principal of $500 million and accumulated simple interest on the missed payments, he calculated a total sum of $795 million. The true interest rate on the stated principal of $500 million over the next 30 years would be 5¾ percent. (Ibid.)