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the United States Government does not wish to become a party to such an agreement.

2. The proposed agreement will provide for an Anglo-Russian guarantee, under certain conditions, of a minimum revenue for the Persian Railways, but the United Kingdom and Russian Governments will remain responsible for paying freight charges to the railway in respect of the carriage of goods and personnel for which they are responsible. Thus there is no question of either the United Kingdom or the Russian Government taking over the railway financially, in the sense of being entitled to an agreed share of the profits or receipts of operation. It remains, so far as both the United Kingdom and Russia are concerned, a foreign owned railway in a foreign country, to which both Governments have to make payments for services rendered. Similarly the fact that, under a directive from the Chiefs of Staff, the railway was operated before April 1943, by the British and after that date by the Americans, has made no difference to this fundamental position.

3. Nevertheless an anomalous position has been allowed to come into existence as regards the payment for the carriage on the railway of American lend-lease goods going to Russia, and it is desired to agree upon a rectification of that position without delay. Although the bulk of the goods carried by the railway has consisted of American lend-lease goods consigned to Russia, the United States Government has so far paid no bills in respect of the freight charges on such goods. The cost of such bills has in fact been financed by advances made to the railways by the United Kingdom Government: in December 1943 it was estimated that 80% of the bills against which payments were being made by the United Kingdom were in respect of the cost of transporting United States lend-lease goods.

4. The burden of this temporary financing has imposed a heavy strain on the United Kingdom Government, especially as the rial payments which are involved necessitate an outlay in gold of 60% of their value. Accordingly the United Kingdom Government consider that the present arrangement should be brought to an end as soon as possible and an appropriate adjustment made which will give effect to the principle (which it is assumed is fully accepted by the United States Government) that the United States and the United Kingdom Government are each responsible for meeting the cost of the carriage to Russia over the Persian railways of United Kingdom "aid to Russia” goods and, American lend-lease goods respectively.

5. It is thought that an attempt to secure an adjustment ante-dated to the beginning of the traffic to Russia would involve elaborate calculations which would be rendered very difficult by the virtual impossibility of producing accurate records of the exact origin and nature of goods carried on the railways in the early days. Accordingly the United Kingdom Government has put forward the proposal for adjustment summarized in the following paragraph in the hope that this will provide a simple and equitable division of financial responsibility.

6. The proposal is that we should obtain from the Persian Railways a complete record of the total railway bills to date and we should then divide these in the same proportion as arrivals of American goods in the Persian Gulf bear to arrivals of British goods. It is appreciated that this division will not be strictly accurate, but it is thought that it would form a reasonable basis for division. Indeed, it would appear to favour the Americans somewhat since British goods have latterly tended to be sent via the Iraq and Khanaqin routes.

7. It would not be proposed that a settlement on the above lines would affect (i) the incidence of cost of the carriage of goods to Russia by United States and United Kingdom road transport organizations operating in Persia; (ii) the right of either the United States or the United Kingdom Governments to recover from Russia the whole or part of the respective sums expended under the above arrangement by either Government on the carriage of goods to Russia; (In practice any United Kingdom claim would be confined to one in respect of civilian goods carried to Russia); (iii) the incidence of the cost of transporting on the railway goods required by the United States and United Kingdom military forces in Persia.

8. The United Kingdom Government hope that the United States Government will be prepared to accept and to implement an arrangement on the lines summarized in paragraph 6 above.

891.77/10-1144

The Director of the Office of Near Eastern and African Affairs

(Murray) to the Counselor of the British Embassy (Wright)

WASHINGTON, November 24, 1944. DEAR MICHAEL: We have considered carefully the points raised in your letter of October 11, 1944 (your reference 131/46/44), concerning payment of the Persian railway freight charges for American lend-lease goods transported to Russia.

This matter has been further reviewed in the Department and in a meeting with the Foreign Economic Administration. While the point of view of the British government is appreciated, we cannot escape the conclusion that the question of adjustment of the freight bills for lend-lease shipments to Russia on the Persian railways cannot be settled independently of the other financial issues in connection with the operation of the Persian railways, or of the responsibility of the British and American Governments for the transportation of lendlease goods across Persia.

It is the opinion of the Department and of FEA that the total contributions of the British and American Governments in connection with aid to Russia in this area must be worked out so as to include the cost of installations, running equipment, maintenance, personnel and similar factors. Once the British and American Governments have arrived at what they feel to be an adequate presentation of their individual expenses, representatives of the two Governments would confer on this matter and a final balance would be struck off.

With this in mind, we have requested the Foreign Economic Administration and the Combined Chiefs of Staff to prepare a statement of the complete American contribution to the aid to Russia program in this area. It is hoped that your Government will do likewise and that when these two accounts have been completed, a joint accounting can be worked out which will be satisfactory to all parties concerned.71 Sincerely yours,

WALLACE MURRAY

PROBLEMS CONCERNING THE POSITION OF THE AMERICAN

ADVISERS IN IRAN; THE MILLSPAUGH MISSION

891.51A/1017: Telegram

The Chargé in I ran (Ford) to the Secretary of State

TEHRAX, February 21, 1944—9 p. m.

[Received February 23—12:20 a. m.] 116. Foreign Minister Saed summoned me to long personal conference this afternoon regarding Millspaugh.73 Immediate cause was resignation rumored some days ago and confirmed today of General

71 In a further letter to Mr. Wright on March 27, 1945, Mr. Murray reviewed the Directive of the Combined Chiefs of Staff under which the southern section of the Trans-Iranian Railroad was being operated and the decision by the War Department that the assumption of responsibility for this operation as agent for the Persia and Iraq Force entailed no new financial responsibilities for the United States (see memorandum of July 29 by Mr. Minor, p. 383). Mr. Murray concluded his letter with : "it appears, therefore, that since the existing arrangement under which the Trans-Iran railroad has been operating depends upon an order issued by the Combined Chiefs of Staff to both the Persian Gulf Command and to Paiforce, the proper channel through which to obtain a decision on the question of responsibility for freight charges is the Combined Chiefs of Staff.” (891.77/3–2745) 72 Continued from Foreign Relations, 1913, vol. IV, pp. 510–561.

Arthur C. Millspaugh, American Administrator General of Finances in the Iranian Government; the Millspaugh Financial Mission was composed of approximately 60 American experts, of whom each of about 15 senior members was charged with the management of an important segment of the Iranian economy.

73

Shafai, Minister of Commerce and Industry.74 Saed stated categorically this resignation was essentially a protest by the Government against (1) Millspaugh's tendency to regard Government arms factory as a commercial undertaking for money making purposes instead of a political instrument for implementing Iranian Soviet relations and (2) his insistence that Soviets pay for at least part of arms and munitions 75 they have received before Millspaugh will approve payment of wages of munitions workers. Saed insisted this state of affairs could be tolerated no longer, that Millspaugh had taken his stand vis-à-vis the Soviets without having consulted Foreign Ministry regarding possible political considerations at issue, that in meddling in such affairs the Doctor was stepping outside realm economics and interfering in Iranian politics, and that in a long interview this morn

a ing with Millspaugh he had endeavored apparently without success to show Doctor error of his ways. Saed hoped that I too would see Millspaugh and insist that his position respecting operation of arms factory be forthwith abandoned, since 9,000 munitions workers unpaid for 2 months could only hurt both Government and Millspaugh without helping either financial position or Soviet relations.

I shall see Millspaugh tomorrow but pending possible directive from Department do not propose to do more than outline to him gist of Foreign Minister's remarks, leaving to him responsibility of either maintaining or altering his stand. He is of course acting in good faith since he is merely seeking to protect Iran's financial interests, but Saed has clearly indicated that any move tending to antagonize Soviets will not have support either of Shah or Iranian Government. Saed pointed out this afternoon that his country had lost heavily on virtually every contractual arrangement that had been entered into with Soviets, and he cited CQRS contracts, rice and piece goods agreements,76 et cetera but he stated emphatically that continued good relations with Soviet Union just at this time were worth many times the millions of tomans such relations had already cost Iran.

Remainder of my 2-hour session with Foreign Minister was devoted largely to general exposition by him of his unhappy conclusion that Millspaugh was making a dismal failure of his program in Iran. Saed was neither very original nor consistent in his statements and I gathered that he was voicing second-hand opinions which might well have been a composite of Iranian-British-Soviet thought. He

75

** Brig. Gen. Ismail Shafai, an appointee of the Shah, Mohammad Reza Pahlavi, in the Cabinet reorganization of mid-December, 1943.

For correspondence regarding interest of the United States in the IranianSoviet arms contract of January 23, 1943, see Foreign Relations, 1943, vol. iv, Pp. 628 ff.

** For correspondence relating to interest of the United States in the IranianSoviet rice-cotton piece goods contract of November 2, 1943, see pp. 306 ff., passim. 71 For correspondence regarding Dr. Millspaugh's mission to assist in the administration of the finances of Persia, 1922–1927, see Foreign Relations, 1927, vol. III. pp. 523 ff.

repeatedly stressed that he had personally been responsible for bringing American advisers to Iran but that from the beginning he had felt that this country did not need their technical skill so much as for them to act as cushion between British-Soviet conflicting political interests. Virtually with his next breath Saed was expressing conviction that (1) Millspaugh's mentality had remained exactly where it was 20 years ago," (2) Millspaugh refused to employ Iranians, many of whom were well qualified to do work for which high priced American amateurs were being brought to Iran, (3) he (Saed) had become extremely doubtful either of Millspaugh's ability or of that of most of his staff, many of whom spent only few days or weeks in Iran before returning home in disgust, all at expense of Iranian people, and (4) while Millspaugh had been granted every demand he had made of Iran he had failed thus far to make as intructive [any constructive?] contribution toward betterment of conditions in this country.

This situation warrants the most careful attention but until political picture has been clarified in light of forthcoming convening of Majlis,78 now scheduled for next Saturday, I feel any immediate action on our part is unnecessary. Saed is an honest man, is essentially friendly, and it would be a pity if he should turn or be turned against our adviser program. Several times this afternoon I sensed in his unaccustomed forcefulness a rehearsal for premiership.

FORD

891.002/397 : Telegram

The Chargé in Iran (Ford) to the Secretary of State

[Extract]

TEHRAN, March 7, 1944-5 p. m. [Received March 8–9:05 a. m.]

165. ...

I asked Prime Minister what measures he would suggest to save adviser program should he lose power. He replied that he thought the only possibility would be to present to the Shah a united American-British front. He said British have always supported advisers in their conversations with him.

It is of course possible that Soheily has an ulterior motive in making

18 The Iranian Parliament.

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