Foreign Office Memorandum
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W 1027/40 g. Rs.


The Agreement is based on the correspondence-mentioned in the preamble-between the Reich Minister for Foreign Affairs and the Chairman of the Council of People's Commissars, Molotov, dated September 28, 1939. The Agreement represents the first great step toward the economic program envisaged by both sides and is to be followed by others.

1. The Agreement covers a period of 27 months, i. e., the Soviet deliveries, which are to be made within 18 months, will be compensated by German deliveries in turn within 27 months. The most difficult point of the correspondence of September 28, 1939, namely, that the Soviet raw material deliveries are to be compensated by German industrial deliveries over a longer period, is thereby settled in accordance with our wishes. This was not possible without a hard fight. Only the personal message of the Reich Foreign Minister to Stalin brought the final settlement. The stipulation of 18 and 27 months represents a compromise solution, since at stated intervals-namely, every 6 months-the mutual deliveries of goods must be balanced according to the fixed ratio. If this balance does not exist, i. e., particularly if the German deliveries fall behind the ratio of the Soviet deliveries fixed by the Agreement, the other side is entitled to suspend its deliveries temporarily until the fixed ratio is reestablished. This stipulation is annoying, but could not be eliminated by us, as Stalin himself had adopted it during the final talks.

2. The Soviet deliveries. According to the Agreement, the Soviet Union shall within the first 12 months deliver raw materials in the amount of approximately 500 million Reichsmarks.

In addition, the Soviets will deliver raw materials, contemplated in the Credit Agreement of August 19, 1939, for the same period, in the amount of approximately 100 million Reichsmarks.

The most important raw materials are the following:

1,000,000 tons of grain for cattle, and of legumes, in the amount of 120 million Reichsmarks
900,000 tons of mineral oil in the amount of approximately 115 million Reichsmarks
100,000 tons of cotton in the amount of approximately 90 million Reichsmarks
500,000 tons of phosphates
100,000 tons of chrome ores
500,000 tons of iron ore
300,000 tons of scrap iron and pig iron
2,400 kg. of platinum Manganese ore, metals, lumber, and numerous other raw materials.

To this must also be added the Soviet exports to the Protectorate, which are not included in the Agreement, in the amount of about 50 million Reichsmarks so that the net deliveries of goods from the Soviet Union during the first treaty year amount to a total of 650 million Reichsmarks.

In addition, there are other important benefits. On the basis of the correspondence of September 28, 1939, the Soviet Union had granted us the right of transit to and from Rumania, Iran, and Afghanistan and the countries of the Far East, which is particularly important in view of the German soybean purchases from Manchukuo. The freight rates of the Trans-Siberian Railroad were reduced by 50 percent for soybeans. The transit freight charges are to be settled by a clearing system and amount to approximately 100 million Reichsmarks.

Adding certain other items (clearing share in purchase of raw materials by the Soviet Union in third countries), it may be assumed that during the first 12 months Soviet deliveries and services will amount to a total of about 800 million Reichsmarks.

3. Thus far, only part of the Soviet deliveries has been fixed for the second treaty year. During the first 6 months of the second treaty year the Soviet Union will deliver to Germany 230 million Reichsmarks worth of raw materials of the same kind as in the first treaty year. It is contemplated that negotiations will be resumed before the expiration of the first treaty year and the quantities for the exchange of goods for the second treaty year fixed and even increased beyond the volume of the first treaty year.

4. The German deliveries comprise industrial products, industrial processes and installations as well as war materiel. The Soviet deliveries of the first 12 months are to be compensated by us within 15 months. The Soviet deliveries of the first 6 months of the second treaty year (13th to 18th month) are to be compensated by us within 12 months (from the 16th to the 27th month).

5. Among the Soviet deliveries within the first 18 months are 11,000 tons of copper, 3,000 tons of nickel, 950 tons of tin, 500 tons of molybdenum, 500 tons of wolfram, 40 tons of cobalt. These deliveries of metals are intended for the carrying out of the German deliveries to the Soviet Union. Since these metals are not immediately available in Germany and will not be delivered until the treaty is in force, it will be necessary to bridge the initial period by using metals from our own stocks for the German deliveries to the Soviet Union and to replace them from the incoming Soviet metal deliveries. Any different arrangement, such as the advance delivery of metals which we demanded at first, could not be achieved.

Furthermore, the Soviet Union declared her willingness to act as buyer of metals and raw materials in third countries. To what degree this promise can be realized in view of the intensified English counter-measures cannot be judged at the present time. Since Stalin himself has repeatedly promised generous help in this respect it may be expected that the Soviet Union will make every effort.

6. The negotiations were difficult and lengthy. There were material and psychological reasons for this. Undoubtedly, the Soviet Union promised far more deliveries than are defensible from a purely economic point of view, and she must make the deliveries to Germany partly at the expense of her own supply. On the other hand, it is understandable that the Soviet Government is anxious to receive as compensation those things which the Soviet Union lacks. Since the Soviet Union does not import any consumer goods whatsoever, their wishes concerned exclusively manufactured goods and war materiel. Thus, in numerous cases, Soviet bottlenecks coincide with German bottlenecks, such as machine tools for the manufacture of artillery ammunition. It was not easy to find a compromise between the interests of both sides. Psychologically the ever-present distrust of the Russians was of importance as well as the fear of any responsibility. And People's Commissar Mikoyan had to refer numerous questions to Stalin personally, since his authority was not sufficient.

Despite all these difficulties, during the long negotiations the desire of the Soviet Government to help Germany and to consolidate firmly the political understanding in economic matters, too, became more and more evident.

The Agreement means a wide open door to the East for us. The raw material purchases from the Soviet Union and from the countries bordering the Soviet Union can still be considerably increased. But it is essential to meet the German commitments to the extent required. In view of the great volume this will require a special effort. If we succeed in extending and expanding exports to the East in the required volume, the effects of the English blockade will be decisively weakened by the incoming raw materials.

BERLIN, February 26, 1940.


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