VAZ: Diplomacy, Politics, and Urban Legends (Part Two)

Fiat’s Soviet project faces politically-charged setbacks.

No one could ever accuse Lyndon B. Johnson, President of the United States from 1963 to 1969, of lacking confidence in his own power or in the power of his office and country. Quite the contrary, as Greece’s ambassador found out in 1964, when Johnson told him in no uncertain terms what he thought of the smaller nation’s sovereignty⁽¹⁾. Yet, a persistent feature in US and US-aligned political discourse proved to be a double-edged sword for him: the words ‘Russia’, ‘Soviet Union’, ‘communism’ and ‘socialism’ were and remain veritable berserk buttons⁽²⁾ for legions of politicians, pundits, and voters on the right of the political spectrum. This sort of sentiment, of course, is not unique to US political discourse, but it remained especially acute, even more than a decade after the McCarthyite purges of the late 1940s and early 1950s, which created near-hysteria at the time.

When such sentiment is prevalent in a society, it is easy for certain factions to leverage it for political gain. This is exactly what the Republicans did in this case: they passed amendments to the Export-Import Bank Act of 1945 that were designed explicitly and specifically to block the proposed loan to Fiat⁽³⁾. The relevant congressional hearings make for some extremely interesting and revealing reading. However fascinating one may find these hearings, though, the amendments caused problems in other deals, such as with Romania, as evidenced in a 23rd June 1967 meeting of US Secretary of State Rusk with a Romanian delegation led by Romania’s Prime Minister, Ion Maurer, and Foreign Minister, Cornerliu Manescu⁽⁴⁾.

In the wake of the Ex-Im loan block.

The aforementioned amendments, combined with the implications of US involvement in the Vietnam War and the upcoming election year, made the Ex-Im Bank loan to Fiat more of a headache for Johnson than something that might garner him votes. This loan was the subject of a meeting⁽⁵⁾ he held on 19th September 1967 with his Italian counterpart, Giuseppe Saragat⁽⁶⁾, in Washington, after the House  of Representatives and the Senate had adopted amendments to the Export-Import Bank authorization legislation designed to block the loan.

President Saragat made his case by repeating several arguments that had already been made by Fiat’s President, Vittorio Valletta⁽⁷⁾, by the United States’ relevant agencies – including the CIA and the Department of Defense – and Johnson’s own Deputy Special Assistant for National Security Affairs, Francis Bator⁽⁸⁾. More specifically, Saragat reminded Johnson that Fiat was  obviously not going to make missiles in the Soviet Union, and that the project was about encouraging “a commercially-orientated economy in the Soviet Union.” This, according to Saragat, would promote a higher living standard there and “play a part in promoting the evolution of democracy in the Soviet Union.”⁽⁵⁾ Most importantly, by achieving these goals, this project would help reduce Soviet military expenditure and promote peace. In fact, the Chairman of the Soviet Council of Ministers, Alexei Kosygin, had explicitly expressed his desire to cut military spending and promote the production of consumer goods to raise the Soviet people’s living standard⁽⁶⁾.

In addition to these points, Saragat argued that the request for the loan was not driven by financial necessity: with 12,000 employees and an annual turnover of approximately $2 billion, Fiat had no need for this money⁽⁵⁾. The $50 million loan requested was one fortieth of Fiat’s turnover and the company’s President could even use his own money to fund the building of the VAZ factory. Additionally, as a private entity, Fiat was not subject to the kind of scrutiny that, for example, Alitalia, the Italian state-owned airline, was. Still, Saragat argued, the loan had a certain psychological value: it would essentially show that the project had the blessing of the US, and so it would demonstrate that it carried no anti-American overtones, and that there was no room for it to be exploited politically or ideologically.

Johnson was on board with the project: he said it was a “constructive and useful step” that would be beneficial to all parties involved and that, because he agreed with its goals, he had asked the Ex-Im Bank to approve the loan. But, he said, “some members of Congress had felt that to approve the loan would be giving aid to the Communists.” Additionally, despite what he called a successful four years in Congress on the domestic and international front, the election year was coming and anything that could be used to embarrass his administration was fully exploited both by the Republicans and by some self-serving members of his own party. This, of course, meant that many things he felt were worthwhile ran into obstacles, and so he said they should wait until after the elections or “until the Republicans take over.” Still, he promised Saragat that he would do everything he could to get the matter reconsidered.

Equipping the VAZ factory with US machinery…

One can easily understand that Saragat’s efforts were in vain, since “Fiat found credit elsewhere”⁽⁴⁾ for its project in the Soviet Union. Still, officials in the Johnson Administration understood that, regardless of this setback, US involvement and cooperation in the VAZ factory would be beneficial for their country. So, in a memorandum dated 9th April 1968⁽⁹⁾, Johnson’s Special Assistant, Walt W. Rostow, argued for the sale of industrial machinery made by Gleason Works of Rochester, New York (famous in automotive circles for the Torsen limited-slip differential⁽¹⁰⁾) to the Soviets.

The memorandum tells us that the Department of Commerce, “with the concurrence of [the] State and Defense [Departments],” was preparing to license the sale of gear-cutting, testing and measuring machines worth $8.9 million to the Soviet Union for the factory Fiat were building. The CIA and the DoD had given the ‘go-ahead’ for this sale, as the equipment was not strategic and had nothing to do with advanced or new technologies that the US might have wanted to keep out of Soviet hands.

The CIA and the DoD were sure these machines would actually be used in the Fiat plant. Furthermore, this sale would not disrupt Gleason’s defence priorities, and similar machinery from the same firm had already been licensed in 1966 for use in a Soviet-built automotive plant. Besides that, Switzerland and West Germany made comparable equipment and would be eager to make the sale. Furthermore, the financing for this equipment was all private, and no US taxpayer money was involved, either as a loan or as a credit guarantee.

Rostow stated that this was “a clear case of advantageous peaceful trade with the USSR,” with the Fiat plant having a political impact in the Soviet Union that was in the US national interest, and it was also good for the US balance of payments. However, he warned that “protests [would] probably follow approval of the license” from the members of Congress who had consistently opposed US aid to the VAZ plant. The Department of Commerce was not planning to issue a press release, but was preparing a statement of facts to address any enquiries or worries.

…Or not?

Fast forward to 1969. Richard Nixon was now in the Oval Office, and had appointed none other than Henry Kissinger as his Assistant for National Security Affairs. In a memorandum dated 27th March 1969⁽¹¹⁾ that he sent to Kissinger, J. Edgar Hoover (Director of the FBI), Richard Helms (Director of the CIA), Melvin Laird (Secretary of Defense), and William Rogers (Secretary of State), Senator Charles Percy recounted his lengthy (two hours and a half) discussion with Soviet Ambassador Anatoliy (sic) F. Dobrynin⁽¹²⁾, a rather astute diplomat who was “very skilled in talking a great deal, seemingly in response to a question without ever directly answering the question.”

When the two men discussed bilateral trade, Dobrynin was highly critical of the United States’ stance. He said the Soviets would like to do more business with the US and that it would benefit both countries, but it was “rather ridiculous for [them] to ship vodka to Denmark and have them rebottle it and sell it to the United States when [they] could sell it direct.” As to the VAZ factory, he said that, when the Italians told the Soviets that they could purchase $30 million of industrial machinery from the US, they were “highly skeptical” and were proven right, because the US “always puts politics ahead of good sound economics.” Because of this, he was not optimistic about US-USSR trading opportunities.

Percy countered that the USSR posed a threat to US national security and that it armed the Vietnamese who were killing “American boys,” and that assisting the Soviet Union to build trucks would be “directly related to the kind of military assistance that they would be providing to North Vietnam.” Dobrynin countered that the Soviet Union was capable of producing whatever it needed and that, if they could not make a deal with the US, they could always make a deal with other countries. A case in point was “the machine tools that the United States would not furnish for the Fiat factory” were all obtainable from Western European countries that were glad to have the business.

The discussion between Dobrynin and Percy leads us to understand that the Republican Party, not content with blocking the Ex-Im Bank loan to Fiat, proceeded to block the export of American-made machine tools to the USSR after Nixon took over. Dobrynin’s observation that the US blocked this sale for political and ideological reasons was further strengthened by the carefully-worded, yet poignant, comments made by Kosygin during the Moscow Summit of 1972.

On 25th May 1972, during the Moscow Summit⁽¹³⁾, Richard Nixon had a meeting with Nikolai V. Podgorny, Chairman of the Presidium of the Supreme Soviet of the USSR, and Alexei Kosygin⁽¹⁴⁾. In this meeting, Kosygin said “with American assistance we built the Gorky Auto Plant⁽¹⁵⁾ and the Volgograd Tractor Plant⁽¹⁶⁾. And you know, about three years ago we entered into a contract with the Italian Fiat Company which built a very big project in this country.” After noting that there was no trouble at all working with the Italians on the project, he added that he had recently visited the Volgograd Plant, where he saw with his own eyes US-made equipment sold to the Soviets by the Italians. There was, however, no mention of US-made equipment in respect of the VAZ factory.

So far, we’ve learned that Lyndon Johnson wanted the US to get involved in the construction and establishment of what was to be the VAZ factory by providing a $50 million loan through the Ex-Im Bank and selling industrial equipment for it. However, despite the opinion of every relevant official and agency⁽⁸⁾⁽⁹⁾, the opposition put paid to his plans. This led Fiat to bankroll the project privately⁽⁹⁾ and procure the necessary equipment from other countries. In the third and final part of this series, we will use the information we have gleaned from the State Department’s Historical Archives to fact-check certain automotive narratives that are still taken at face value.

Sources, quotations, and acknowledgements:

_{(1) Gary Younge – How Greece Exposed Europe’s Potemkin Democracy : The Nation, 28th November 2011}

_{(2) Berserk Button – TV Tropes}

_{(3) United States. Congress. House. Committee on Banking and Currency (1967). To Amend the Export-Import Bank Act of 1945: Hearings, Ninetieth Congress, First Session, On H.R. 6649 … April 11, 12, And 28, 1967 (Washington: Government Printing Office, 1967) [accessed 3rd May 2022]}

_{(4) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 156 [accessed 1st May 2022]}

_{(5) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 134 [accessed 1st May 2022]}

_{(6) Giuseppe Saragat – Wikipedia}

_{(7) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 114 [accessed 27th April 2022]}

_{(8) Foreign Relations of the United States, 1964-1968, Volume XII, Western Europe, Italy, ed. James E. Miller (Washington: Government Printing Office, 2001), Document 124 [accessed 27th April 2022]}

_{(9) Foreign Relations of the United States, 1964-1968, Volume XIV, Soviet Union, eds. David C. Humphrey and Charles S. Sampson (Washington: Government Printing Office, 2001), Document 269 [accessed 1st May 2022]}

_{(10) Torsen – Wikipedia}

_{(11) Foreign Relations of the United States, 1969–1976, Volume XII, Soviet Union, January 1969–October 1970, ed. Erin R. Mahan (Washington: Government Printing Office, 2006), Document 29 [accessed 2nd May 2022]}

_{(12) Anatoly Dobrynin – Wikipedia}

_{(13) Moscow Summit (1972) – Wikipedia}

_{(14) Foreign Relations of the United States, 1969–1976, Volume XIV, Soviet Union, October 1971–May 1972, eds. David C. Meyer, Nina  D. Howland, and Kent Sieg (Washington: Government Printing Office, 2006), Document 276 [accessed 2nd May 2022]}

_{(15) He was referring to GAZ (Gorkovsky Avtomobilny Zavod).}

_{(16) Volgograd Tractor Plant – Wikipedia}