893.74/126
The Chargé in Great Britain (Wright) to the Secretary of
State
London, April 19,
1921.
[Received May 2.]
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.]
[Enclosure]
The British Secretary of State for Foreign
Affairs (Curzon) to the American
Chargé (Wright)
[London,] 14 April,
1921.
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.
- 2.
- 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.
- 3.
- 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.
- 4.
- 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.
- 5.
- 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.
- 6.
- 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.
- 7.
- 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.
- 8.
- 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.
- 9.
- 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?
- 10.
- 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.
- 11.
- 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.
- 12.
- 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.
- 13.
- 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.
- 14.
- 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.
- 15.
- 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.
- 16.
- 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.
- 17.
- 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.
- 18.
- 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.
- 19.
- 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.
- 20.
- 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.
- 21.
- 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.]
