584 



In 1971, the Export Expansion Finance Act (85 Stat. 345) removed 

 the absolute prohibition on Eximbank credit operations in trade with 

 those Communist countries not in armed conflict with the United 

 States. Only North Vietnam is currently prevented by legislation 

 from receiving Eximbank credits. All other Communist countries are 

 eligible for such credits if the President determines that credit trans- 

 actions with a specific Communist country would be in the national 

 interest. In conjunction with the comprehensive U.S. -Soviet trade 

 agreement of October 18, 1972. the President used the authority of the 

 Export-Import Bank Act of 1945, as amended, to .allow Eximbank 

 credits and credit jruarantees to the Soviet Union. 



The Johnson Debt Default Act of 1931* (18 U.S.C. 955. 1970) as 

 amended, prohibits private persons or institutions in the United States 

 from extending loans to, or purchasing or selling bonds, securities or 

 other obligations of a foreign government which is in default on obli- 

 gations to the United States (unless the country is a member of the 

 International Monetary Fund and the International Bank for Recon- 

 struction and Development). At the time of the bill's passage, the 

 Attorney General found that the Soviet Union was among those coun- 

 tries in default in their payments of obligations to the United States. 

 In October 1963, in connection with the proposed sale of wheat to the 

 Soviet Union, the Attorney General issued an Opinion to the effect 

 that the intent of the Johnson Debt Default Act was to prohibit the 

 extension of financial loans to countries in default, but that it did not 

 intend to rule out supplier's credit, which he defined as "the assign- 

 ment or negotiation by an American seller, in the ordinary course of 

 business, of contract rights or commercial paper resulting from sales 

 of goods on normal commercial terms." 94 This Opinion was reaffirmed 

 by the Attorney General in 1967. 



The Attorney General Opinions and the settlement of the Soviet 

 Lend-Lease debt in 1972 have left some questions about the applicabil- 

 ity of the Johnson Act to U.S. -Soviet transactions. The Soviet Union 

 is still technically in default on Russia's World War I debt to the 

 United States. Therefore, private long-term loans are illegal. Private 

 commercial credits, or loans made directly by Government agencies or 

 with the participation of Government agencies (e.g., Eximbank guar- 

 antees) are permitted under the Act. The distinction between private 

 loans and commercial credits is not always clear and is subject to legal 

 interpretation. Generally, any financial arrangement which has an un- 

 derlying business transaction and is made on normal commercial terms 

 is considered exempt from the Johnson Act. 



In past negotiations on credit matters the U.S. position has been that 

 no major concessions were possible until the Soviet Lend-Lease debt 

 was settled. The debi proved to be a major st umbling block to expanded 

 l'.S. Soviet trade. The two Governments unsuccessfully attempted to 

 negotiate a settlement on several occasions. Negotiations took place in 

 I960 and broke up after only two weeks. At that time, the U.S. repre- 

 sentatives demanded $800 million and Soviet negotiators offered $300 

 million. The U.S. assessment of the debt was based on the value of 

 civilian goods or military goods usable in the civilian economy, which 



"* t'.S. House of Representatives, Committee on Agriculture, Communication from the 

 President of the United States. Document No. 163, 88th Cong., 1st sess., Oct. 29, 1963. 



