File No. 893.77/1452
Minister Reinsch to
the Secretary of State
No. 519
American Legation,
Peking,
January 18, 1915.
Sir: Referring to previous correspondence, on
the subject of the supply of materials for the Hukuang Railways, I have
the honor to submit herewith copies of confidential despatches (Nos. 55
and 57)2 addressed to the
Legation by Mr. Arnold (then Consul General at Hankow), dated November 7
and 12, respectively, on the present status of the tenders for bridge
material for the Canton-Hankow (British) section, under Indents 11, 12,
and 31.
From Mr. Arnold’s first despatch on this subject (No. 55), it appears
that the Chief Engineer of the so-called British section, Mr. A. G. Cox,
has acted in deliberate and acknowledged disregard of the resolutions on
standardization adopted by the Conference of Chief Engineers, held at
Hankow in May last, which were intended to formulate certain practical
means of realizing the principle of impartial preference provided by the
terms of the Hukuang Loan Agreement, and which were formally ratified by
the Ministry of Communications as applicable to the supply of materials
for the Hukuang Railways.12 Mr. Cox not only denied having received
instructions as to the applicability of those resolutions, but he also
claimed that the phrase “The most favorable bidders”—a phrase which he
himself had introduced at the conference in amendment of Mr. Randolph’s
draft of Clause 7 of the resolutions concerning bridges, supporting and
carrying his amendment by arguments which are given in the minutes, of
which copies are understood to have been forwarded to the Department by
the Hankow Consulate General in June—conferred upon him authority to
reject any bids not complying with specifications drawn by him in
conformity with the engineering practice of a particular market. By this
quibble upon a phrase which he himself introduced into the resolutions
with quite different explanations of its scope and purport, he would
make it optional with himself to exclude all possibility of any but
British competition for the supply of materials for the construction of
the Canton-Hankow section. No new factor, but merely a confirmation of
the attitude thus indicated, is added by his resentment of the
[Page 151]
fact that the American
Government has asserted an interest in the principles upon which
contracts are to be awarded for the materials to be used in the
construction of the line entrusted to him. It seems amply clear that,
whatever the nature of his motives, Mr. Cox considers himself wholly
independent of the provisions embodied in the Hukuang Loan Agreement,
and either ignorant or disdainful of his obligation to administer his
office as a chief engineer, under the direction of the Chinese
authorities, as a trust for the four national groups signatory to the
loan agreement.
This attitude on his part is the immediate concrete obstacle to the
possibility of impartial opportunity for the participation of American
manufacturers. The issue is not settled, but merely postponed, by the
action of the Chinese authorities in setting aside the tenders hitherto
issued and calling for new bids—not on the ground that the principle of
impartial preference had been nullified by the refusal of the Chief
Engineer to consider the bids of American manufacturers (which were in
fact the lowest), but on the technical ground of having decided in favor
of a loading of E40 instead of E45. It would seem as though Mr. Cox had put himself to some
trouble to impress upon Mr. Arnold the fact that he proposed under any
circumstances to apply to the bids submitted in response to the new
specifications the same discrimination against American products in the
competition for the supply of practically all the bridge materials
required for the portion of the line from Hankow (Wuchang) to
Changsha.
The crux of the problem thus presented is to find an effective means of
inducing a modification of the position he has adopted. It would seem
that the most direct method of enforcing upon him a realization of his
responsibilities to the American Group (and to the interests which it
represents) is through his Chinese employers. Attempts have heretofore
been made to impress upon the interested Chinese authorities not only
the obligations imposed upon them by the loan agreement, but also the
economy of a standardization making possible free competition, on all
sections of the Hukuang Railway, among the four national markets. Such
representations have always received the academic assent of the Chinese
officials concerned—of Chou Tze-chi and of Liang Tun-yen, as Ministers
of Communications, and of Feng Yuan-ting and of Jeme Tien-yow, as
Directors-General; but they have all (perhaps not unnaturally) evaded
personal responsibility, pleaded the impracticability of opposing
British interests supported by the British Legation, and emphasized the
difficulty of overruling the technical judgment of the engineer
entrusted with the work. Their simultaneous good disposition and
unwillingness to meet an issue of principle are well illustrated by the
reissue, with a new specification for loading, of the bridge indents to
which reference is made above.
It seems beyond hope that the Chinese authorities can be induced to take
any resolution on principle in this matter; and the one possibility of
effective action seems to be to lay before them a clearcut issue upon
concrete and easily determinable facts concerning which there can be no
wrangling or evasion. It has therefore seemed to me advisable to
supplement the note of November 12 last (of which a copy is enclosed
herewith), making to the Minister of Communications
[Page 152]
certain suggestions for the practical
realization of the principle of impartial preference, with a further
note requesting him to issue to the chief engineers of the several
sections of the Hukuang Railways instruction definitely requiring them
to administer their duties as trusts for the impartial benefit of the
various national interests involved, with particular reference to the
interpretation of the Standardization Conference resolutions in such a
manner as to accomplish the purpose of affording an actual equality of
opportunity for the employment of the several national engineering
practices. In communicating this further note to the Minister of
Communications, I propose to make clear to him by oral explanations that
in the event of a failure of the Chief Engineer of the Canton-Hankow
section to accord to the bids of American manufacturers the
consideration obviously intended by the resolutions of the Hankow
Conference, the Government of the United States would reserve the right
to demand (a) the cancellation of any award made by the Chief Engineer
in disregard of our rights, and (b) the dismissal of Mr. Cox. By
informal conversations with the British Legation and by such other means
as seem expedient, I shall furthermore make this attitude of the
Legation known, in advance of the award of the contracts, in quarters in
which an appreciation of the situation might tend to avert an issue on
the question.
I am inclined to believe that the Chinese authorities would themselves
welcome the definition of a clear issue which might enable them to
withstand the impositions of a subordinate who, with the backing of
certain British influences, is seeking to exploit Chinese in behalf of
British interests. Should they, however, fail to recognize the advantage
accruing to them through such a clarification of the issue, and prove
unwilling to meet their responsibilities, it seems to me advisable to
force upon their consciousness a realization of the fact that neither
interest nor obligation would require the American bankers to continue
contributing funds for a line which, in defiance of the contract under
which the money had been raised, might be carried through for the
special profit of one of the four lending nations.
I have [etc.]
[Inclosure 1]
Minister Reinsch
to the Minister of Communications
American Legation,
Peking,
November 12, 1914.
Excellency: In connection with the
discussions which have been going on during the past months with
regard to the construction of the Hukuang Railways, I beg to give to
your excellency every assurance that the American Group is not
actuated by any desire to embarrass or delay the execution of this
work, but that, on the contrary, its sole desire is to secure the
establishment of such conditions as will make its efficient
execution possible on the basis of business-like and economic
principles favorable alike to your Government and to all the
Groups.
While recognizing the great importance of the section committed to
the American Engineer-in-Chief, and the great value as an instrument
of commercial development which this section will have when
completed, the
[Page 153]
American
Group nevertheless fully approves of, and is ready to cooperate
with, the policy of concentrating the work primarily upon the
British section so as to assure its completion at an early date,
considering that the early establishment of through communication
between Hankow and Canton is of great importance. The American
Group, therefore, is always keeping in view the interest of the
Chinese Government and of the Hukuang system as a whole.
The American Group has learned with gratification that your
excellency and the Director-General of the Hukuang system are
determined to give full support by general instructions and in
detail to the principles contained in the resolutions of the
Conference of Engineers held at Hankow in May last; and it trusts
that these principles which, on the basis of free discussion,
represent a fair statement of that impartial preference which is
guaranteed by the Loan Agreement itself will be enforced in the
management of the individual sections. It would appear essential to
such impartial preference
- 1st:
- That the specifications upon which tenders are called for
shall impartially recognize the standard engineering
practices of the four nations concerned, leaving the details
of construction to be determined in accordance with the
approved engineering practice of the nationality of the
respective bidder:
- 2d:
- That the provision that the most favorable bidders are to
be awarded the contract shall be given its natural
interpretation: i. e., that ordinarily the lowest bid is the
most favorable unless specific valid reasons can be assigned
for accepting a higher bid, and
- 3d:
- That, as the present maximum specified for direct orders
to be awarded without tenders for bids is so high as to make
possible the awarding of most of the work without inviting
tenders, it is suggested that the maximum now fixed at
£5,000 should be reduced; that £1,000 as a maximum would be
amply large for the purpose intended.
If the resolutions of the May Conference are carried out by all
parties in a loyal spirit, there is complete assurance that this
important enterprise will proceed with efficiency, economy and due
speed.
I avail [etc.]
[Inclosure 2]
Minister Reinsch
to the Minister of Communications
American Legation,
Peking,
January 18, 1915.
Excellency: In a communication dated
November 12 last I had the honor to make to your excellency certain
suggestions in reference to the practical realization of the
principle of impartial preference, established by the Hukuang Loan
Agreement, as among the markets of the four nations furnishing the
funds for the construction of the Hukuang Railways. Among these
suggestions were the following, in reference to the application of
the resolutions on standardization adopted by the Conference of
Chief Engineers, held at Hankow in May last, and since formally
ratified by your Ministry as applicable to the supply of materials
for the Hukuang Railways:
- 1st.
- That the specifications upon which tenders are called for
shall impartially recognize the standard engineering
practices of the four nations concerned, leaving the details
of construction to be determined in accordance with the
approved engineering practice of the nationality of the
respective bidder;
- 2d:
- That the provision that the most favorable bidders are to
be awarded the contract shall be given its natural
interpretation: i. e., that ordinarily the lowest bid is the
most favorable unless specific valid reasons can be assigned
for accepting a higher bid.
I regret to inform you that it has come to my knowledge that in a
conversation with Mr. Julean H. Arnold (then American Consul General
at Hankow), Mr. Cox, the Chief Engineer of the Canton-Hankow
section, stated in November last that he had received no
instructions which would obligate him to observe the resolutions of
the Standardization Conference, and that even if he were so
instructed he would consider himself warranted in rejecting any
tender which did not precisely comply with his specifications, on
the ground that such a tender would not be “the most favorable”
within the meaning of Clause 7 of the
[Page 154]
resolutions concerning bridges. As I need
scarcely point out to you, such a quibble upon the phrase “the most
favorable bidder”—a phrase which, it may be remembered, Mr. Cox had
himself introduced into the resolutions with quite different
explanations of its scope and purport—would defeat the whole object
of the Standardization Conference by enabling any of the chief
engineers to exclude the possibility of competition by any national
market other than the one in accordance with whose engineering
practice he might choose to draw his specifications.
The discussions I have had with your excellency have convinced me
that you share the view held by the American Government as to the
trusts constituted by the Hukuang Loan Agreement in favor of the
nationals of the four lending nations, and that you are fully
conscious of the responsibility thus imposed upon the competent
Chinese authorities for the loyal and impartial administration of
these trusts alike by the Chinese officials and by the foreign
engineers, and the agents and employees of the Chinese Government. I
therefore count upon your sympathetic reception of the further
suggestions in this matter which I feel prompted to make in view of
the attitude avowedly taken by one of the chief engineers to whom
the duties and responsibilities of the Chinese Government, as
trustee, have been delegated in so far as concerns the work of
construction. I therefore venture to request that, in order to avoid
any misconception as to the nature of their responsibilities, your
Ministry should instruct the chief engineers of the several sections
that they must regard themselves as administrators of trusts which
impose upon them the obligation to assure to the four national
markets that impartial preference, in the matter of the supply of
materials, for which provision is made in the Loan Agreement.
I would also request that in conveying these general instructions to
the various chief engineers, you should also point out to them that
the resolutions of the Standardization Conference are to be
interpreted and applied in the light of that view of their
responsibilities, and that, concretely, the phrase “the most
favorable bidder” is to be considered as meaning the lowest bidder,
unless specific valid reasons, compatible with the principle of
impartial preference, can be assigned for the acceptance of a higher
bid.
In making these requests, I venture the opinion that a clear
understanding of the nature of the responsibilities imposed upon the
chief engineers, and an unequivocal interpretation of the
resolutions of the Standardization Conference, would tend
effectively to define the issues involved and would thus make it
easier, alike for the Chinese Government and for the other interests
involved, to realize the purposes of the agreement under which the
Hukuang Railways are being constructed, and to obviate the causes of
complaint which have hitherto unfortunately been so frequent
I avail [etc.]
[Note—With the object of giving more
practical effect to the principle of impartial preference, as
among the markets of the four nationalities concerned, in
respect to the supply of equipment and materials, a conference
of directors and engineers-in-chief of the Hukuang railways was
held, under the chairmanship of the Director-General (Dr. Jeme
Tien-yu) at Hankow in May, 1914. The following articles were
adopted by the conference in reference to bridges (May 20 and
21) and in regard to locomotives and rolling-stock (May
25).]
Hankow Conference Resolutions concerning Equipment
and Materials for Hukuang Railways, May 20–25, 1914
(Reported to the Department by Vice Consul General
Jameson, Hankow, June 5, 1914. File No. 893.77/1386)
bridges
1. Consulting engineers to be appointed by the Ministry of
Communications in each country with authority to approve or reject
the designs and workmanship of the manufacturers and to officially
accept the structure on behalf of the section for which the
structure is intended.
[Page 155]
2. All indents must be forwarded by the managing directors of the
various sections to the Director-General, who in sending indents to
the purchasing agents will forward copies simultaneously to the
Group Banks in New York, London, Paris and Berlin for distribution
and advertisement, and the representatives of the Group Banks in
Peking for distribution to the local representatives of the
American, British, French and German manufacturers.
3. Sealed bids with recommendations to be presented to the
Director-General at Hankow by the consulting engineers of the
various countries interested ninety days from the date indents are
forwarded by the Director-General to the Group Banks in New York,
London, Paris and Berlin. Local manufacturers forward their bids
direct to the Director-General at Hankow.
4. All tenders to be publicly opened in the presence of the bidders’
representatives on that date.
5. The specifications of the material to be used throughout in
tendering for the supply of bridges and bridge material and for the
manufacture and fabrication of same shall be in strict accordance
with the recognized standards and best practices prevailing in Great
Britain, France, Germany and the United States of America.
For material as accepted from Great Britain, the specifications for
same shall be as recommended by the British Standards Committee as
affiliated with the International Association for Testing
Materials.
For materials as accepted from the United States of America, the
specifications for same shall be in accordance with the
specifications recommended by the American Society for Testing
Materials, affiliated with the International Association for Testing
Materials.
For materials as accepted from Germany, the specifications for same
shall be in accordance with the specifications as recommended by
Konigl. Preussische Staatseisenbahn Verwaltung (Royal Prussian State
Railway Administration).
For materials as accepted from France, the specifications for same
shall be in accordance with the specifications as recommended by a
similar society in accordance with the specifications as recommended
by a similar society to the above and affiliated with the
International Association for Testing Materials.
6. The chief engineers shall submit the type of bridge required,
together with the span, length over-all, depth or height, width or
loading, when tenders are invited, and the bidders shall submit
tenders each in accordance with the approved specification of the
nationality of the bidders.
7. The most favorable American, British, French and German bidders
complying with the adopted specifications to be immediately awarded
the contract.
locomotives and rolling stock
- 1.
- Consulting engineers to be appointed by the Ministry of
Communications in each country with authority to approve or
reject the designs and workmanship of the manufacturers and to
officially accept the locomotives and rolling stock on behalf of
the section for which the locomotives and rolling stock are
intended.
- 2.
- All indents must be forwarded by the managing directors of the
various sections to the Director General, who in sending indents
to the purchasing agents will forward copies simultaneously to
the Group Banks in New York, London, Paris and Berlin for
distribution and advertisement, and the representatives of the
Group Banks in Peking for distribution to the local
representatives of the American, British, French and German
manufacturers.
- 3.
- Sealed bids with recommendations to be presented to the
Director-General at Hankow by the consulting engineers of the
various countries interested ninety days from the date indents
are forwarded by the Director-General to the Group Banks in New
York, London, Paris and Berlin. Local manufacturers will forward
their bids direct to the Director-General at Hankow.
- 4.
- All tenders to be publicly opened in the presence of the
bidders’ representatives on that date.
- 5.
- The specifications of the material to be used throughout the
tendering for the supply of locomotives and rolling stock and
for the manufacture and fabrication of same shall be in strict
accordance with the recognized standards and best practices
prevailing in Great Britain, France, Germany and the United
States of America.
Only usual tests of quality shall be required and no chemical
analysis to be prescribed. Furthermore, the production of the steel
shall be left to the manufacturers.
[Page 156]
In construction and design of details each country to use its own
standards, method of construction, quality of workmanship and tests
and all of the foregoing, providing they are standard in one of the
four countries, are to be acceptable to the other three
countries.
All tenders to be accompanied by a certificate from the manufacturer
indicating upon the basis of which specifications the tender is
made, bidders being privileged to select one of the four following
specifications:
- 1.
- The specifications recommended by the British Standards
Committee.
- 2.
- The specifications recommended by the American Society for
Testing Materials.
- 3.
- The specifications recommended by the Königl. Preussiche
Staatseisen-bahn Verwaltung (Royal Prussian Satte Railway
Administration).
- 4.
- The specifications recommended by the Cahiers des charges
unifiés des compagniers farnçaises de chamins de fer.
- 6.
- English and metric standard system of measurements. In the
event of specifications being issued in the metric system
the English equivalent to the nearest sixteenth of an inch
higher is to be accepted, and in the event of specifications
being issued in the English system the correspondingly
higher metric equivalent is to be accepted.
- 7.
- The engineer-in-chief specifies in the tenders the type of
construction of the engines, including the general
measurements required, as accurately as possible. All
details referring to maximum axle pressure, power of engine,
gradients, curves, etc., must be mentioned in the
tender-specifications.
- In the tender-specifications accurate description of
special engine fittings should be made by the
engineer-in-chief.
- 8.
- The construction of the engines shall be under the control
of the consulting engineer. He is also responsible for tests
of material used for their construction. Any proposals made
by the consulting engineer should be carefully considered.
Parts which are rejected on account of faulty material or
bad workmanship must on no account be used.
- 9.
- The most favorable American, British, French and German
bidders complying with the adopted specifications to be
immediately awarded the contract
