The Chargé in Great Britain (Wright) to the Secretary of State

No. 4511

Sir: With reference to my telegram No. 325 of to-day’s date,44 concerning the contract of the Federal Telegraph Company for the construction of wireless stations in China, to which the Department’s telegram No. 85 of February 11 last45 referred, I have the honor to transmit herewith copies of the Memorandum of February 15,44 based upon the Department’s aforementioned telegram, copies of the Foreign Office Note of the 14th instant in reply thereto, the original of which was handed to me yesterday by Lord Curzon in the course of a conversation at the Foreign Office at his request, and copies of my Memorandum44 embodying the comments of Lord Curzon during that interview.

[Page 430]

The shortness of time prior to the despatch of to-day’s pouch renders it impossible to embody the relevant portion of his remarks in this communication; but, notwithstanding the fact that certain of his observations may be found to have a wider bearing than upon the particular matter which forms the subject of this despatch, it appears desirable to bring the subject to your attention in the form of the memorandum aforesaid.

Mr. Wellesley, Chief of the Far Eastern Division of the Foreign Office, informed the member of the Embassy who delivered to him on February 15 the above mentioned Memorandum, that he had talked the matter over with Sir Godfrey Isaacs46 and that it seems that the contract in question was a distinct infringement of the Marconi Company’s undertakings with the Chinese Government. During the conversation, the sense of the concluding paragraphs of the Department’s telegram No. 85 of February 11 were borne in mind but the only additional observation made by Mr. Wellesley was to the effect that any agreement having priority of time would not, of course, be abrogated by the terms of the Consortium; upon which it was made clear to him that it is the opinion of the Government of the United States that the present question involving the claim of a British company to exclude American interests from carrying on enterprises in China by reason of priority of rights, is one entirely apart from that portion of the matter which concerns the Consortium.

The observations of Lord Curzon regarding the aims and possibilities of the Consortium, and the policy of Great Britain and the United States in the Far East, are sufficiently important as to warrant the Department’s perusal thereof in connection with these affiliated matters, and I shall again allude to his comments thereon in subsequent despatches on these subjects.

I have [etc.]

J. Butler Wright

The British Secretary of State for Foreign Affairs (Curzon) to the American Chargé (Wright)

Sir: On the 15th February Mr. Davis47 communicated to this office a memorandum in which he referred to the signature, on the 8th January last, of a contract with the Chinese Government for the construction and opening of wireless stations at Shanghai, [Page 431] Peking, Harbin and Canton by the Federal Telegraph Company, an American concern.

Mr. Davis expressed the amazement of the United States Government that, under the instructions of His Majesty’s Government, His Majesty’s Minister at Peking should have protested to the Chinese Government against this contract and should have pressed for its cancellation.
Mr. Davis’s note reveals the fact that there are several aspects of this matter in regard to which the opinions of the United States Government differ from those of His Majesty’s Government. I therefore propose to place before you the following considerations, which I trust will convince the United States Government that the action of His Majesty’s Government in protesting against the contract between the Chinese Government and the Federal Telegraph Company of San Francisco is less ill-founded than Mr. Davis’s memorandum would seem to infer.
As the result of negotiations that had been proceeding for some time, an agreement was signed between the Chinese Government and the Marconi Company on the 24th May, 1919.48 Under this agreement a joint-stock limited liability company was constituted in partnership between the Chinese Government and the Marconi Company, entitled the “Chinese National Wireless Telegraph Company.” The objects of the company were to be the manufacture of wireless telegraph and telephone apparatus, material and supplies; the sale of such apparatus, material and supplies; and the repair and maintenance of wireless installations then existing or thereafter established in China. For the period of the agreement the Chinese National Wireless Telegraph Company was to have the exclusive use in China of all Marconi patents, rights, designs, drawings and processes, past, present and future, for wireless telegraphy and telephony. The Chinese Government, on their part, recognising that in the case of a public utility such as wireless telegraphy and telephony substantial support is essential to success, agreed that, if the goods supplied by the company were neither lower in quality nor higher in price than those offered by other firms, the Government would during the duration of the contract, a period of twenty years, apply to the company for all its wireless supplies, and would further entrust them with the repair and maintenance of all Chinese Government wireless telegraphs and telephone equipment in China.
In view of these explicit obligations on the part of the Chinese Government it is indisputable that the contract signed by the Chinese Government with the Federal Telegraph Company on the [Page 432] 8th January last (if a contract for the erection of stations on behalf of the Government) constitutes a direct violation of the earlier obligations of the Chinese Government to the Chinese National Wireless Telegraph Company.
The United States Government base their present representations upon the assumption that the rights assigned to the Chinese National Wireless Telegraph Company constitutes a monopoly or preference of such a nature as to debar United States citizens from contracting freely with the Chinese Government, and they suggest that the action of His Majesty’s Government in holding the Chinese Government to their contractual engagements with the Marconi Company raises a doubt as to the efficacy of recent efforts to affirm effectively the principles of equality of opportunity and of the “open door” in China.
Should this be the case, His Majesty’s Government would undoubtedly share the concern of the United States Government; they trust, however, that the following observations will serve to dispel any misgivings which the United States Government may entertain in that respect.
In the first place, it is only fit that the United States Government should be informed of the motives actuating the formation of the Chinese National Wireless Telegraph Company. That company was formed for the genuine purpose of assisting the Chinese Government in their desire to develop wireless communications in China by the manufacture of the necessary equipment in China by Chinese. Lacking the requisite experience, the Chinese Government turned to the Marconi Company, and formed with them the Chinese National Wireless Telegraph Company which is intended to function only until such time as, with factory duly established and experience gained, the Chinese Government are themselves in a position to buy out the Marconi Company and stand upon their own feet. His Majesty’s Government are not aware of any ground upon which the propriety of such an arrangement can be challenged.
Mr. Davis declares that no Government can rightfully assert on behalf of its nationals a claim to exercise any such monopoly or preference as would debar United States citizens from the right to contract freely with the Chinese Government for any category of supplies. With due deference, this hardly seems to His Majesty’s Government to be an accurate presentation of the issue. Is not the question rather whether there is any reason why the Chinese Government should not, if they so desire, enter into an agreement with a company by which the Government undertake for a period of twenty years to obtain all their requirements in wireless telegraph and telephone apparatus, material and supplies from that particular source, [Page 433] provided the terms offered are not worse than those obtainable elsewhere? If, as His Majesty’s Government contend, there is no such reason, and the Chinese Government, having entered into an agreement of the above nature then proceed to enter into a second agreement which violates the first, is not the Government concerned clearly entitled, and even bound, to intervene with the Chinese Government for the protection of the contractual rights of its nationals?
In the present instance, His Majesty’s Government, after the most careful scrutiny, can see no legitimate objection to the preferential rights enjoyed by the Chinese National Wireless Telegraph Company under their agreement with the Chinese Government. Any contract for the supply of goods must imply a preference in favour of the contractor, in so far as he has secured the contract over others; should all preference of this nature be debarred, commerce generally would become impossible. Such preferences are indeed the essential concomitants of trade.
The question thus narrows itself down to whether in this particular instance the “preference” of which the United States Government complain amounts to a “monopoly”, and His Majesty’s Government are of opinion that it does not.
A monopoly in the ordinary sense may be defined as a right by which one person or body becomes the sole medium through which a particular commodity can be marketed in a given area. This definition is evidently inapplicable in the present case. In the first place, the contract with the Chinese National Wireless Telegraph Company only covers purchases by the Chinese Government, and does not apply to any supplies which may be required by other Governments, institutions or individuals who may operate wireless telegraph in China; and, in the second place, the right which the Chinese National Wireless Telegraph Company enjoy under their agreement of the 24th May, 1919, is explicitly dependent upon their offers being at least as good as those of any competitor. The United States Government will hardly wish to deny that such a provision is wholly inconsistent with the idea of a monopoly, to which the objection is that the monopolist is the only possible seller or purchaser, as the case may be, thus eliminating all possibility of competition.
No Government can look to obtain advantageous terms for the supply of goods from contractors for public utilities unless the interests of the contractor are clearly safeguarded. It is not unnatural in such cases to insert a proviso securing to the contractors advantages without which they might not be prepared to sink capital in such undertakings. The grant of preferential rights on such occasions acts at once in the general interest of the public and in that of the contractor, and thus tends to encourage development and progress.
It is not inapposite to record here that in connection with the very case which the United States Government cite in support of their arguments—that of the China Electric Company, a Sino-Japanese-American concern—precisely the same point was most carefully studied by His Majesty’s Government. After a careful consideration of existing treaty provisions in China, it appeared to His Majesty’s Government that the rights of that company did not conflict with the anti-monopolistic clauses of the treaties and could not be objected to on other grounds. Consequently, although His Majesty’s Government were at that time unaware that the United States Government had disavowed the preferential rights of the China Electric Company—a point upon which Mr. Davis lays such stress in his memorandum under reply—His Majesty’s Government nevertheless refrained purposely from questioning the rights of the China Electric Company either overtly or covertly.
In the present case, where the preferential rights of the Chinese National Wireless Telegraph Company appear to be much the same, His Majesty’s Government see no reason to depart from the conclusions which they reached after due deliberation with regard to the China Electric Company.
Having thus considered the question of principle, allusion must be made to certain further points in Mr. Davis’s memorandum. In the first place, the United States Government would appear to intimate that, if His Majesty’s Government do not abandon the attitude they have taken up, the United States Government will be obliged to consider the revival of the rights of the China Electric Company under their 1917 agreement, and thus seek to invalidate the three Marconi agreements of the 27th August, 1918, of the 9th October, 1918, and of the 24th May, 1919.
The China Electric Company’s agreement refers to telegraphy and telephony, and makes no mention of wireless apparatus. Under article 11 (a)49 of the contract in question the Chinese Government undertake to place with the China Electric Company such orders for machinery, apparatus or other materials in connection with the telephone and telegraph system as the company is in a position to fill in the time to be agreed upon. As, according to the information of His Majesty’s Government, neither the China Electric Company nor its Japanese affiliated company, the Nippon Electric Company, makes any pretence of manufacturing wireless apparatus, the application of this clause of the agreement to the supply of wireless apparatus to the Chinese Government can hardly have been contemplated; and this view is strengthened by the fact that the China Electric Company [Page 435] has even negotiated with the Chinese National Wireless Telegraph Company for the purchase of wireless equipment. It would in fact be patent to the world that, if the United States Government were to claim at this date that the China Electric Company’s agreement extends to wireless supplies, this claim was being deliberately made for the first time in order to block the rights of the subjects of a friendly Power. His Majesty’s Government decline to believe that the United States Government can seriously contemplate such a step.
A further point in Mr. Davis’s memorandum which seems prima facie obscure, but which is doubtless susceptible of simple explanation, is the fact that, though the China Electric Company’s agreement was, according to Mr. Davis’s statement, signed as long ago as the 20th October, 1917, yet it was not until the 27th January, 1919, that the United States Government formally notified the company and the Chinese Government that they would not recognise or support the preferential rights conferred thereunder. In view of the negotiations then in progress with the Marconi Company, it is unfortunate that the disavowal after the long period of fifteen months, which is now for the first time revealed in Mr. Davis’s memorandum of the 15th February, 1921, was not disclosed earlier. Such a disclosure might well have had a bearing upon the negotiations then in progress between the Chinese Government and the Marconi Company.
Like the United States Government, His Majesty’s Government attach the greatest importance to Anglo-American co-operation in the Far East, where the principles animating British and United States policy are fundamentally the same. It would be a matter of infinite regret were the conflict which has occurred between British and United States wireless interests in China to mar the prospects of such co-operation between the nationals of the two countries. But the United States Government will realise that where legitimate vested British interests are at stake His Majesty’s Government would, in existing circumstances, be failing in their duty did they not firmly support these interests when challenged, from however friendly a quarter the challenge may come.
There is yet a further aspect of this question to which His Majesty’s Government deem it right to invite the attention of the United States Government. Under the agreement of the 12th September, 1911, by which the Poulsen Wireless Corporation acquired their rights in the Poulsen patents from the vendors, Messrs. Pedersen, Poulsen and Blechinberg, they became bound by certain definite obligations. Under clause 10 of that agreement the Poulsen Wireless Corporation agree that “the vendors shall have the exclusive right to make use and sell each and all inventions, improvements and discoveries [Page 436] now belonging to, or that in future shall belong to said corporation, relating to any subject treated of in any of said patents, or relating to any use of which any of said inventions are capable, for and in all countries, outside of United States, Cuba, Porto Rico, the territory of Hawaii, the Philippine Islands and the Midway Islands, and the corporation shall give notice of such inventions, improvements and discoveries to the vendors in the same way as the vendors are obliged to give such notice to the corporation in regard to new inventions, improvements and discoveries made by them in accordance with the stipulations contained in the annexed assignment.” Furthermore, that assignment of the same date is specifically subject to the understanding that the Poulsen Wireless Corporation shall not be entitled to the use of the said patents, &c., nor have the right to erect, establish or participate in erecting, establishing or running any stations or to sell any apparatus to be used for wireless telegraphy or telephony in any country or part of the world other than those specified in the agreement. According to my information, the Poulsen Wireless Corporation, subsequently to acquiring the American Poulsen rights, proceeded to form the Federal Telegraph Company for the purpose of exploiting those rights. There can thus be no doubt that the Federal Telegraph Company are equally bound by the obligations imposed upon the Poulsen Wireless Corporation under their agreement and assignment with the vendors. As regards the position of the Marconi Company, the Poulsen Wireless Telegraph Company (Limited), an English company, in which they hold the controlling interest, has acquired the Poulsen rights for all countries other than the United States of America and American territory (which, as above indicated, are in the hands of the Federal Telegraph Company) and certain European countries which remain in the hands of a Danish company. In the event, therefore, of the Federal company having recourse in China to the Poulsen patents, or to any modified or improved form of them, they would apparently be guilty of a breach of agreement, and His Majesty’s Government hesitate to believe that in doing so they would have the support of the United States Government.
In conclusion, I need hardly remind you that His Majesty’s Government will always be ready to consider any proposal that the United States Government may like to make, the object of which is to substitute international co-operation for international competition in China; nor do they in any way wish to limit the field to which the above principles can with advantage be applied.

I have [etc.]

of Kedleston
  1. Not printed.
  2. Ante, p. 411.
  3. Not printed.
  4. Not printed.
  5. Managing Director, Marconi’s Wireless Telegraph Co., Ltd.
  6. John W. Davis, then Ambassador to Great Britain.
  7. For pertinent clauses of the agreement, see footnote 5, p. 408.
  8. See footnote 2, p. 406.