Memorandum by Mr. Nelson T. Johnson, Division of Far Eastern Affairs, Department of State

Monday morning January 31 Mr. Craigie called at the Division to discuss with Mr. MacMurray the question of the Handley-Page Airplane Contract. Mr. Craigie stated that the British Government based their refusal to support this contract entirely upon the ground that it contravened paragraph 2 of the Consortium Agreement,48 in that the terms of financing under the Handley-Page Contract called for an issue for subscriptions by the public on Bearer Chinese Government Treasury bills of varying denominations. The British Government was not opposing the contract because it contravened the Arms Embargo.

Mr. MacMurray stated that the point raised by Mr. Craigie was a very real difficulty in that it was hard to determine when terms of financing such as those provided for in the Handley-Page Contract, contravened the terms of the Consortium Agreement.

Mr. Craigie said that his Government had decided that the Handley-Page Contract did indeed contravene the Consortium Agreement and he hoped that we would find ourselves of like opinion, in view of the fact that both the British and American Governments were earnestly desirous of seeing the Consortium Agreement carried into effect and any divergence of opinion on this point would make it increasingly difficult to carry on. The British Government were having difficulty with British firms in this matter.

Mr. MacMurray stated that we were quite aware of the need for agreement in this matter but that we were somewhat at a loss to understand the policy of the British Government which did not appear to be consistent in that the British Government had approved [Page 546] of the terms of the Vickers Loan,49 which had been approved and advertised on the market in London in October 1919, only five months after the British Government had approved the preliminary Consortium Agreement at Paris of May 1919.50 The Marconi Contract51 for wireless equipment would appear to be another contract financed in the same way which had been approved by the British Government on May 24, 1919, shortly after the initialling by the British representatives of the preliminary Consortium Agreement of Paris and long after the several Governments were committed to the policies of the Consortium. It was apparent from this that the British Government had not always considered this method of financing contrary to the spirit and letter of the Consortium undertaking. Mr. MacMurray informed Mr. Craigie that we had instructed our Legation at Peking to take no action whatsoever in the matter of obtaining this contract for American interests, until all documents in the matter had been submitted to the Department in order that it might be determined whether or not the contract conformed with the Consortium Agreement. Mr. MacMurray agreed with Mr. Craigie that it was highly desirable that our two Governments come to an agreement as to what does or does not conform with paragraph 2 of the Consortium Agreement, inasmuch as we, for our own part, foresee much difficulty with American manufacturers if we decide that American manufacturers may not receive a promissory note of the Chinese Government in payment for goods sold.

Mr. Craigie stated that he would bring these views to the attention of his own Government to the end that we might come to some agreement as to the interpretation of the Consortium Agreement in these matters.

N[elson] T. J[ohnson]
  1. Foreign Relations, 1920, vol. i, p. 576.
  2. See enclosure to note of Jan. 18 to the British Chargéd p. 537.
  3. Foreign Relations, 1919, vol. i, p. 439.
  4. For pertinent clauses of the agreement, see footnote 5, p. 408.