893.74/126: Telegram
The Secretary of State to the Ambassador in Great Britain (Harvey)
370. Referring to your despatch 4511, April 19, you will hand to the Ministry of Foreign Affairs a note substantially as follows:
“The Government of the United States has given careful consideration to the note which you addressed to this Embassy under date of April 14 last,57 in reference to the protest made by the British Government against the contract concluded January 8th last between the Chinese Government and the Federal Telegraph Company, and I have been instructed to convey to you its appreciation of the assurance which your note contains, that the British Government would undoubtedly share the concern of the United States Government if there were warrant for the assumption that the rights assigned to the Chinese National Wireless Company constitute a monopoly or [Page 444] preference of such a nature as to debar American citizens from contracting freely with the Chinese Government.
It is noted, however, that the British Government supports the Marconi Company in its claim that by the contract of May 24, 1919,58 constituting a joint enterprise with the Chinese Government under the name of the Chinese National Wireless Company, there was created a valid obligation on the part of that Government to obtain from that company for a period of 20 years all its requirements for wireless purposes, provided the goods offered ‘are not lower in quality nor higher in price’ than those obtainable elsewhere; and the note contends that there is no reason why the Chinese Government should not create such preferential rights, which it is urged are not only conducive to development and progress, but free from legitimate objection and in particular ‘wholly inconsistent with the idea of a monopoly’.
The American Government cannot concede that the arrangement described is unobjectionable from the viewpoint of the provision (in Article 15 of the American Treaty of 1844) by which it is provided that its citizens in China are not to be impeded in their business by monopolies or other injurious restrictions. For despite the repudiation of any monopolistic element, which is made in paragraph 12 of your note, it appears to be the fact that the British Marconi Company itself construes its preferential rights as constituting a monopoly in its favor, and it has in fact contracted with another American firm upon the basis of the possession by its subsidiary, the Chinese National Wireless Company, of such ‘a monopoly of radio devices in China’, and of ‘a monopoly of radio in China ‘such as would enable the British Company to effect’ exclusive traffic arrangements so far as concerns communications from, to and through the Chinese Republic and from, to and through the territory’ in which the American company may operate.
In view of the position thus explicitly and formally taken by the British Marconi Company as to the monopolistic rights which it claims through its Anglo-Chinese subsidiary, the Government of the United States cannot but feel that this claim exemplifies practically the encroachment upon the principle of the open door which must be anticipated to follow from the establishment of such a preferential right as the British Government is in this case disposed to uphold. Such a position seems the inevitable practical result of any effort to qualify the principle of equality of economic and commercial opportunity in China by the establishment of a favored situation for any particular interest.
It was in the apprehension that such a result must follow, that this Government refused its sanction to a similar provision in the Western Electric Company’s contract of October 20, 1917, to which reference was made in the Embassy’s memorandum of February 15 last.59 In this connection it is perhaps appropriate, though not strictly relevant to advert to the intimation contained in paragraph 18 of your note that there is some obscurity due to the fact that the refusal of the American Government to support the preference clause in that Company’s [Page 445] contract was not communicated to the company until 15 months later, when the Marconi Company’s negotiations were in progress. This suggested obscurity will no doubt be dissipated when you are advised that that clause first came under the particular scrutiny of the American Government when the company sought the support of the Legation at Peking in reference to a dispute with the Chinese Government, which arose in September, 1918, as to the construction to be placed upon the provision in question. At that time the Legation, which was quite unaware that the Marconi Company was seeking a similar preferential clause or was even contemplating such an arrangement as was concluded in the following May, advised the American interests concerned that it could in no case support, without special instructions from the Department of State, a provision which seemed clearly incompatible with the principle of the open door and with the treaty prohibition against monopolies and injurious restrictions; and in a telegram dated September 23rd60 it asked the Department’s instructions on this question, pointing out that a relaxation of the principle involved would afford a precedent for the establishment of enterprises in China which might for instance claim a priority in the furnishing of all supplies and equipment for the railways in China. It was this tentative ruling of the Legation which was in due course approved, and formally communicated to the company in January, 1919.61
While dealing with the subject of the Western Electric Company’s contract, it is further to be noted that Article 11 (A)61 referring to ‘machinery, apparatus or other materials in connection with the telephone and telegraph systems’ of the Ministry of Communications, contains no limitation excluding wireless devices. Your note would infer that such an exclusion is implicit in the fact that, as you are informed, neither the Nippon Electric Company nor the China Electric Company manufactures wireless apparatus. I would remark, however, that the Western Electric Company, the parent organization of both of these companies, occupies a prominent position among the manufacturers of such apparatus. My Government does not therefore feel able to concur in this inference, and cannot accept the implication that its support of the literal wording of the contract could be construed as actuated by any desire to block the rights of British subjects.
In further reference to the particular case at issue, your note in its 20th paragraph raises various questions as to the right of the Federal Telegraph Company to make use of certain patents in China. I must advise you that on these points the American company not only contests the claim of the British Marconi Company to any valid assignment of these patent rights in China, but directly traverses certain of the information which you have received regarding the position of the Federal Company in relation to these patents. In the absence of any indication of bad faith in this matter on the part of the American Company, my Government would certainly not feel justified in prejudging the issues of fact and of law which are involved and which are indeed within the sole competence of the courts to determine.
[Page 446]My Government appreciates the assurance you have conveyed to it as to the readiness of the British Government to consider any proposals that it may like to make in the interests of international cooperation in China: but it is frank to express its belief that no such cooperation can be effective or helpful either to the interests of China or to the common interests of the Treaty Powers unless founded upon a policy of vitalizing and extending the principle of the open door rather than countenancing limitations or restrictions upon its implications.
The Government of the United States has never associated itself with any arrangement which sought to establish any special rights or privileges in China which would abridge the rights of the subjects or citizens of other friendly states; and it is the purpose of this Government neither to participate nor to acquiesce in any arrangement which might purport to establish in favor of foreign interests any superiority of rights with respect to commercial or economic development in designated regions of the territories of China, or which might seek to create any such monopoly or preference as would exclude other nationals from undertaking any legitimate trade or industry or from participating with the Chinese Government in any category of public enterprise.”
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You will further indicate that the discussion of this case would now appear to have covered all relevant issues, and that in the view of this Government it seems unnecessary to pursue the question further.
The Department is taking a similar attitude with regard to the Danish and Japanese protests, and in response to an inquiry is addressing the Chinese Legation in the sense of the final paragraph of the note quoted above.
Please advise the Department immediately by telegraph upon the delivery of the note.