893.74/333b: Telegram
The Secretary of State to the Minister in China ( Schurman )
128. The Department is separately telegraphing you a message to Schwerin from Young of Radio Corporation,16 which embodies the substance of a suggestion previously communicated to the Department by a letter from Corporation and discussed June 21 with Division of Far Eastern Affairs by the Corporation’s general attorney, William Brown.
The following are (omitting unessential clauses) the terms in which this suggestion was presented in the Corporation’s letter of June 18:
“With reference to whether in its negotiations with the British, French and Japanese, the Radio Corporation will avail itself of its option under the contract with the Federal Company of California to declare the Federal contract in China operative regardless of non-approval of the Chinese Government and thus avoid what the Department would term its entrance into the negotiations empty-handed, we do not feel we need to exercise this option in order to make an advantageous arrangement with our associates. The greatest of pressure has been brought on the Radio Corporation of America to induce us to enter the Consortium, and we have no doubt whatever that we can enter it on almost any reasonable terms, of our own making, without regard to the Federal contract.
If we are to declare the Federal contract operative without the Chinese consent to the modification, we can only do it on three conditions:
- (a)
- That the State Department will construe the Chinese contract with the Federal Company of California in the same sense as the proposed supplemental articles to agreement of September 19th, 1921, between the Federal Telegraph Company and the Republic of China and that the State Department will notify the Chinese Government of such construction;
- (b)
- The declaration of the Federal contract as operative without the Chinese signature would mean, of course, that the Radio Corporation, without its interests being guarded as they would be were the modification of the contract signed, would be expected to finance the project, and, of course, it would require them to be secured in some other way. The only way that occurs to us would be for the State Department to signify its willingness that the Radio Corporation of America take over the Federal Company of California under terms which would be equitable to both parties, the State Department first perhaps advising with the Attorney General of the United States, if it thought best, as to the legality of this course. In event of inability of the Radio Corporation of America and the Federal Company of California to agree, which is not anticipated, we would be willing to leave the valuation and kindred matters to the arbitration of some disinterested party, of perhaps the reputation of the Honorable Elihu Root;
- (c)
- That the State Department would give its assent to the Radio Corporation–Chinese interest making traffic agreements with the Japanese, French and British for radio communications in China. It is to be understood, of course, that the Radio Corporation would under such traffic arrangements guard the American interests and the principle of equal opportunity to the best of its ability.”
In the course of the same letter the Corporation stated that it “has no objection to our Minister in Peking being informed that the Radio Corporation has had no negotiations with the Japanese Government, or its representatives, as to Radio development in China since the Limitation of Armament Conference, a year and a half ago.”
In the conversation with the Division of Far Eastern Affairs on June 21 Brown was informed that the Department could offer no judgment whatsoever as to the Corporation’s proposed purchase of the Federal interests unless and until Schwerin should have indicated his willingness to entertain the proposal. It was recalled to him that with the object of achieving direct independent communications with China and contesting the existing claims to monopoly by other nationalities the Department had given the fullest support to the Federal; and that through such support the Federal had acquired vested interests which the Department was obligated to support and protect. The Radio Corporation had come into the situation after this result had been achieved, and such standing as it had in the matter was based upon a contingent interest in the Federal’s rights. Under these circumstances, the Corporation would understand that the Department could not approve any plan which would derogate from the policy of independent Chinese-American communications, or which would ignore the vested rights of the Federal in this matter. As for the principle of direct communications, the [Page 807] furthest the Department could see its way to go would be to authorize an arrangement of the American with the foreign wireless interests on the basis of the experts’ recommendations. As for the interest of the Federal, the Department could consider no proposal which would crowd that Company out.
Your telegram No. 237, June 25, 1 p.m. Schwerin’s first comment indicates an apparent misunderstanding. This Government is not prepared to have American wireless interests participate in Radio Consortium for China, but proposes that they should operate independently for the purposes of transpacific communication on the basis of the Federal contracts as specified by the experts’ recommendations. From this it follows that Department could not approve Radio Corporation’s entering foreign combination and dropping Federal, as contemplated by alternative (b) of his fourth comment. In deference to his feeling that a knowledge by the British of the terms of the proposed amendments to Federal contracts might be used to the disadvantage of the Company, the Department is withholding detailed information on this subject, merely informing British Embassy that the proposed amendments would not substantially affect the contracts or be incompatible with any eventual arrangement on the basis of the experts’ recommendations. His third comment is not understood but if as supposed it relates to the possibility of assuring the British and other interested Governments of willingness to have arrangements made on the basis of the experts’ recommendations, he should understand that the Department would not contemplate doing so in any case unless convinced of the impossibility of the Federal’s obtaining fulfillment of its contracts as an independent project.
Your telegram No. 239 June 25, 8 p.m. Chief of the Division of Far Eastern Affairs on June 22 discussed fully with the Chinese Minister the necessity for immediate action on the Federal contracts, and the Minister promised to take the question up officially with the Foreign Office and privately with Dr. Koo in the hope of enlisting his personal influence with the Acting Minister. The Department’s views were embodied in a personal letter of June 23 from the Chief of Division to the Chinese Minister,17 who has since advised him that he has telegraphed its substance together with his own very strong supporting recommendations to Koo.
Please discuss the above fully with Schwerin and advise the Department of your own as well as of his views.