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Foreign Office Memorandum
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STRICTLY CONFIDENTIAL
W IV 3296

MEMORANDUM

The German-Soviet Trade Agreement concluded on August 19 covers the following:

1. Germany grants the Soviet Union a merchandise credit of 200 minion Reichsmarks. The financing will be done by the German Golddiskontbank. This method of financing includes a 100 percent guarantee by the Reich. It is a credit based on bills of exchange. The bills of exchange are to be drawn for each individual transaction and have an average currency of 7 years. The interest is 5 percent. Under a secret final protocol, one-half percent of this is refunded to the Russian special accounts in Berlin, whereby the actual interest rate is reduced to 4 1/2 percent.

2. The credit will be used to finance Soviet orders in Germany. The Soviet Union will make use of it to order the industrial products listed in schedule A of the agreement. They consist of machinery and industrial installations. Machine tools up to the very largest dimensions form a considerable part of the deliveries. And armaments in the broader sense (such as optical supplies, armor plate and the like) will, subject to examination of every single item, be supplied in smaller proportion.

3. The credit will be liquidated by Soviet raw materials, which will be selected by agreement between the two Governments. The annual interest will likewise be paid from the proceeds of Soviet merchandise, that is, from the special accounts kept in Berlin.

4. In order that we might secure an immediate benefit from the credit agreement, it was made a condition from the beginning that the Soviet Union bind itself to the delivery, starting immediately, of certain raw materials as current business. It was possible so to arrange these raw-material commitments of the Russians that our wishes were largely met. The Russian commitments of raw materials are contained in schedule C. They amount to 180 million Reichsmarks: half to be delivered in each of the first and second years following the conclusion of the agreement. It is a question, in particular, of lumber, cotton, feed grain, oil cake, phosphate, platinum, raw furs, petroleum, and other goods which for us have a more or less gold value.

5. Since these Soviet deliveries made as current business are to be compensated by German counter-deliveries, certain German promises of delivery had to be made to the Russians. The German industrial products to be supplied in current business as counter-deliveries for Russian raw materials are listed in schedule B. This schedule totals 120 million Reichsmarks and comprises substantially the same categories of merchandise as schedule A.

6. From the welter of difficult questions of detail which arose during the negotiations, the following might also be mentioned: guaranteeing of the rate of exchange of the Reichsmark. The complicated arrangement arrived at appears in the confidential protocol signed on August 26 of this year. In order not to jeopardize the conclusion of the agreement on August 19 of this year, the question was laid aside and settled afterwards. The questions of the liquidation of the old credits, the shipping clause, an emergency clause for the event of inability to deliver of either party, the arbitration procedure, the price clause, etc., were settled satisfactorily despite the pressure of time.

7. The agreement, which has come into being after extraordinary difficulties, will undoubtedly give a decided impetus to German-Russian trade. We must try to build anew on this foundation and, above all, try to settle a number of questions which could not heretofore be settled, because of the low ebb which had been reached in our trade relations. The framework now set up represents a minimum. Since the political climate is favorable, it may well be expected that it will be exceeded considerably in both directions, both in imports and exports.

8. Under the agreement, the following movement of goods can be expected for the next few years:

Exports to the U.S.S.R.

Imports from the U.S.S.R.

200 million Reichmarks credit deliveries, schedule "A".

180 mill. RM. raw material deliveries, schedule "C".

120 mill. RM. deliveries as current business, schedule "B".

200 mill. RM. repayment of 1935 credit.

approx. 100 mill. RM. capitalized interest from present and last credit.

X mill. RM. unspecified deliveries on current business.

X mill. RM. unspecified deliveries of Soviet goods under German-Soviet Trade Agreement of Dec. 19, 1938.

The movement of goods envisaged by the agreement might therefore reach a total of more than 1 billion Reichsmarks for the next few years, not including liquidation of the present 200 minion credit by deliveries of Russian raw materials beginning in 1946.

9. Apart from the economic import of the treaty, its significance lies in the fact that the negotiations also served to renew political contacts with Russia and that the credit agreement was considered by both sides as the first decisive step in the reshaping of political relations.

SCHNURRE

BERLIN, August 29, 1939.

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