Papers Relating to the Foreign Relations of the United States, 1926, Volume I

893.74/730a

The Secretary of State to the Japanese Ambassador (Matsudaira)⁷⁴

Memorandum

The Secretary of State has recently been informed by the Japanese Ambassador that the Japanese Government desired to receive a reply to the memorandum of the Japanese Ambassador on the subject of wireless telegraphy in China which was left with the Secretary of State on June 1, 1925.⁷⁵ Careful consideration was given by the Government of the United States to the Japanese Ambassador’s memorandum above referred to and its views on this subject were orally conveyed to the Foreign Minister of Japan by Mr. John Van A. MacMurray, the American Minister to China, on the occasion of his visit to Tokyo on June 30, 1925.⁷⁶ Nevertheless the Government of the United States is desirous of clearing up any uncertainties which may still exist as to its position in this matter, with a view to hastening an amicable settlement of this question, and to that end submits the following expression of its views.

The Government of the United States is gratified to note that the Japanese Government in the suggestions it makes has no other desire than to reach a practical solution of the difficulty that will best serve the lasting interests of China and will at the same time obtain friendly cooperation among the Powers interested in radio enterprise in that country. With such desire the Government of the United States is in complete accord.

The Government of the United States has made note of the observation of the Japanese Government that the Mitsui Company, pursuant to contracts entered into in 1918,⁷⁷ has completed a radio station at Peking. As pointed out by the Japanese Government the establishment and operation by the Mitsui Company of the Peking station have never been questioned by the Government of the United States or by the Federal Telegraph Company. Nor has the right of Japanese subjects freely to contract with the agencies of the Chinese Government in this regard been questioned.

The Japanese Government recalled that it had felt constrained to take exception to the establishment by the Federal Company of wireless stations at Shanghai and elsewhere since the establishment of such stations was considered to be an infringement of the contractual right already acquired by the Mitsui Company from the Chinese Government. The Japanese Government observed that it still held to the belief that such contractual right, as opposed to the claim of the Federal Company, was not inconsistent either with treaty provisions between the United States and China or with the principle of equal opportunity and that it found ample support in a series of international precedents. It is the understanding of the United States Government that the contractual right of the Mitsui Company which is especially referred to by the Japanese Government is set forth in a supplementary clause of the contract between the Mitsui Company and the Chinese Ministry of the Navy, which was agreed to on March 5, 1918, and which reads as follows:

“During the period of thirty years mentioned in Article 4 of the Contract, the Government shall not permit any other person or firm to erect, nor shall it erect by itself any wireless station in China for the purpose of communicating with any foreign country.”⁷⁸

and that it is this clause which the Japanese Government maintains is neither inconsistent with the treaty provisions between the United States and China nor with the principle of equal opportunity. The Government of the United States regrets that it is unable to find itself in accord with the position of the Japanese Government on this point. It is the view of the United States Government that the clause in question is inconsistent with the terms of Article XV of the Sino-American Treaty of 1844,⁷⁹ which provides that American citizens in China shall not be “impeded in their business by monopolies or other injurious restrictions;” with the provisions of the exchange of notes, dated November 30, 1908, between His Excellency K. Takahira, Japanese Ambassador to the United States, and the Honorable Elihu Root, Secretary of State, in which it was set forth that “the policy of both Governments … is directed … to the defense of the principle of equal opportunity for commerce and industry in China.”⁸⁰ This principle has, therefore, long been accepted by the Chinese, the Japanese and the American Governments. It was the restatement of an old and accepted principle and not a new engagement which found expression in Article III of the treaty between the United States of America, Belgium, the British Empire, China, France, Italy, Japan, The Netherlands and Portugal, relating to principles and policies concerning China, which was signed at Washington on February 6, 1922.⁸¹ This Article reads as follows:

“With a view to applying more effectually the principles of the Open Door or equality of opportunity in China for the trade and industry of all nations, the Contracting Powers, other than China, agree that they will not seek, nor support their respective nationals in seeking—

(a) any arrangement which might purport to establish in favor of their interests any general superiority of rights with respect to commercial or economic development in any designated region of China;

(b) any such monopoly or preference as would deprive the nationals of any other Power of the right of undertaking any legitimate trade or industry in China, or of participating with the Chinese Government, or with any local authority, in any category of public enterprise, or which by reason of its scope, duration or geographical extent is calculated to frustrate the practical application of the principle of equal opportunity.

“It is understood that the foregoing stipulations of this Article are not to be so construed as to prohibit the acquisition of such properties or rights as may be necessary to the conduct of a particular commercial, industrial or financial undertaking or to the encouragement of invention and research.

“China undertakes to be guided by the principles stated in the foregoing stipulations of this Article in dealing with applications for economic rights and privileges from Governments and nationals of all foreign countries, whether parties to the present Treaty or not.”

It should be added that the attitude taken by the United States Government in connection with the claims of the Mitsui Company for the exclusive right to establish radio stations in China is similar to the attitude assumed by it in connection with the contract entered into by the Great Northern Telegraph Company and the Chinese Government, whereby the former claimed a monopoly of cable communications in China.⁸²

The Japanese Government stated in its memorandum of June 1, 1925, that it appeared that the American counter-project was intended to secure for the Federal Company the exclusive control of all radio stations to be constructed by the Company. With reference to this point the attention of the Japanese Government is invited to the terms of the contract between the Federal Telegraph Company of California and the Chinese Government of January 8, 1921,⁸³ and the supplementary agreement of September 19, 1921,⁸⁴ which provide that the stations to be erected under the contract are to be managed by a joint partnership entitled the “China-Federal Radio Administration” rather than placed under the exclusive control of the Federal Company.

The Japanese Government also stated that it appeared that the American counter-project was intended to secure for the Federal Company a monopoly of the radio service between the United States and China. In making this statement the Government of Japan apparently had reference to Article XIV of the supplementary agreement of September 19, 1921, between the Federal Telegraph Company of California and the Chinese Government, which reads as follows:

“The Government agrees that all moneys and income accruing to it from the operation of said stations or from the operation of the China-Federal Radio Administration shall be immediately upon the receipt thereof deposited in the Asia Banking Corporation, or such other bank or banking institution as may be from time or (sic: to?) time designated by the Federal Telegraph Company, and that all radio messages from China and for the United States of America are to be handled exclusively by the Federal Telegraph Company for a time twenty (20) years from the date of the completion of the last station erected and provided for under the agreement of the 8th day of January 1921. It is further agreed that for and throughout said twenty (20) year period, the land upon which said stations are constructed, and all buildings and improvements thereon, shall be kept and maintained free and clear of all liens, charges, and incumbrances of every kind and character whatsoever excepting only the lien of the bonds hereby secured, and the obligations of the Government to the Federal Telegraph Company.”

The meaning of the clause in this Article which reads “that all radio messages from China and for the United States of America are to be handled exclusively by the Federal Company for a time twenty (20) years from the date of the completion of the last station erected and provided for under the agreement of the 8th day of January, 1921” is that all radio messages transmitted to the United States by the China-Federal Radio Administration, from the stations constructed for that Administration by the Federal Company, are to be received and handled in the United States exclusively by the Federal Company for the period specified. It is in fact merely an arrangement by which the stations in China, in which the Federal Company is interested jointly with the Chinese Government, are, as regards their traffic to the United States, to work in circuit with the stations operated in the United States by that company. It is obvious that such an arrangement does not operate to exclude the possibility of operation of other circuits that may be established. The United States Government does not therefore conceive that a traffic arrangement of this character constitutes a monopoly or exclusive privilege, nor that it would constitute a monopoly in China, or, it may be remarked, in the United States. The Japanese Government is perhaps aware that, from the beginning of the Federal Company’s negotiations with the Chinese Government, the United States Government has given appropriate diplomatic support upon the express condition that the project should involve no monopolistic element or abridgment of equality of opportunity. The Japanese Government may be assured that this will continue to be the policy of the Government of the United States.

The Japanese Government observed that it was not convinced of the immediate need of China for two high powered radio stations for external communications; that the expenditure charged to China could not fail to intensify the strain on her already overburdened treasury; and that experience had shown that radio communication is not financially profitable, at least for a number of years after its initiation. These questions have not been discussed between the Governments of the United States and China since the Federal Company’s project has been regarded as a purely commercial enterprise. In this connection the views of the American interests concerned, with which views the Government of the United States is disposed to agree, are set forth in a memorandum attached hereto as an enclosure.

In a memorandum of the Japanese Ambassador dated December 24, 1924,⁸⁵ the Japanese Government made the following proposals:

“That the principles governing the Consortium be applied to the contracts secured by the Mitsui Company and the Federal Telegraph Company.

“These contracts are thus to be pooled and superseded by a loan agreement for wireless enterprise in China of the same nature as ordinary railway loans that may be undertaken by the Consortium.

“The parties to the proposed loan agreement shall be, on the one side, the Chinese Government and, on the other, a financial group representing American, British, French and Japanese interests. The financial group is to consist of the Federal Telegraph Company, the Marconi Company, the French General Wireless Telegraph Company and the Mitsui Company, and is to be constituted upon full communication and understanding with the Consortium.

“The operation of wireless telegraphy in question shall be placed under the exclusive control of the Chinese Government, while the financial group is to supply the services of engineers and accountants in order to assist China in the enterprise.”

Referring to the Japanese Government’s proposals above quoted the Government of the United States in a memorandum dated February 28, 1925,⁸⁶ stated that it was in doubt whether the arrangement suggested by the Japanese Government would be acceptable to the Chinese Government and that it desired to be reassured on that point before giving further consideration thereto. The Japanese Government stated in its memorandum of June 1, 1925, that it was hoped that the terms of its proposals, which it believed to be more in accord with the interests of the Chinese than were the terms of the American proposal, would eventually be found acceptable to the Chinese.

Since the date of the Japanese Embassy’s memorandum of June 1, 1925, the Government of the United States has been informed that the Japanese Government, in response to a proposal of the Chinese Government of August 28, 1925,⁸⁷ for a joint American-Japanese radio loan, informed the Chinese Government that it found in that proposal an acceptance of the proposals which it had made to the United States on December 24, 1924, which would take in the interests of all of the Powers concerned in this question. The Government of the United States would be interested to know what response the Chinese Government has made to this suggestion of the Japanese Government.

The views of the American interests concerned in regard to the proposals of the Japanese Government are attached as a second enclosure to this memorandum.

The Government of the United States has carefully considered the arguments of the American interests concerned respecting the consortium proposed by the Japanese Government. It is disposed to believe those arguments are sound. It is further disposed to view with favor the suggestions of the American interests concerned of a cooperative arrangement by which the Mitsui and the Federal Stations completed and brought up to date might coordinate their efforts to obtain the best operating efficiency, then pool their gross receipts and divide them on an equitable basis. The Government of the United States would venture to express the hope that the Japanese Government will believe that such an arrangement for cooperation would better serve the interests of the Japanese company concerned than would the proposal of an international consortium, or at least that the suggested arrangement for cooperation may furnish an acceptable basis for discussion between the parties financially concerned.

In this connection the Government of the United States would recall that on September 25, 1926, the Japanese Ambassador had a conversation with the Secretary of State, during the course of which he stated that the Japanese Minister at Peking had lately had a conversation with the new Minister for Foreign Affairs for China concerning these matters and that the Chinese Minister for Foreign Affairs had suggested that it would be well for Japan, the United States and China first to have a conference on these matters before taking the question up with the other Governments. The Government of the United States in setting forth its views with regard to the points raised in the Japanese Government’s memorandum of June 1 and in furnishing somewhat at length, in the enclosures hereto attached, the views of the American interests concerned has desired to indicate how fully it is in accord with the suggestion of the Japanese Government that the parties financially interested should meet together in an attempt to work out in common accord a solution that will serve the lasting interest of China and obtain friendly cooperation among interested parties. It would therefore express the hope that in the suggestions herein made the Japanese Government will find an acceptable basis for the discussions which all parties apparently believe to be desirable.

The discussions regarding those matters have heretofore been limited to Japanese, Chinese and Americans. The Government of the United States would therefore suggest that a meeting be held to discuss the proposal above outlined and that each meeting, at least in the first instance, be limited to accredited representatives of the Chinese Ministry of Communications, the Mitsui Company and the Federal Telegraph Company of Delaware.

The Radio Corporation of America, while financially and technically interested in the problems to be discussed, is not a party to the Federal contracts. This Corporation has indicated a desire to entertain as its guests in the City of New York accredited representatives of the Chinese Ministry of Communications, the Mitsui Company and the Federal Telegraph Company of Delaware that they may there study wireless communication systems and find, if happily they may, a means whereby the Japanese and American interests may by cooperation between their respective projects amicably solve the wireless difficulty which has for so long been the subject of discussion between the Governments of China, Japan and the United States. If the Government of the United States may be informed that the foregoing suggestion is acceptable to the Governments of Japan and China, it will be pleased to communicate that fact to the Radio Corporation of America to the end that invitations may be accordingly issued.

Washington, October 28, 1926.

[Enclosure 1]

If China depends for overseas wireless service upon the Peking station alone, the development of such service will be retarded to the injury of China and as well to the injury of other countries and their nationals. The Peking station is not thought to be technically efficient; it is badly located; but a small portion of China’s overseas traffic originates in the Peking area; the station must depend for the greater part of its traffic upon the land lines, incurring in consequence for its messages additional expense, delay and liability to mutilation. The station cannot furnish effective competition with the cable and perhaps could never develop revenues sufficient to pay for itself. Moreover one receiver and one transmitter alone could not establish efficient circuits with the many wireless stations of the world. The delays on such circuits would discourage not encourage development of the service. On the other hand, the American interests concerned believe that a comprehensive and efficient wireless service can be formed in China by cooperation between the Mitsui and the Federal projects both completed and brought up to date; that such a system would prove profitable and produce revenues sufficient to pay for both projects. The American companies, disposed to enter into such a cooperative arrangement, are willing to put large sums of their own money to the hazard of the correctness of their beliefs. In the opinion of the American interests concerned the Japanese Government, entertaining the fears it does concerning the strain upon China’s treasury the completion of these projects would entail, does not correctly evaluate the increased revenues sure to result from new facilities of high efficiency. American communication companies find that facilities newly created, create revenues by which they are sustained and stimulate rather than diminish the revenues of those facilities which existed before. And further, the question of whether the results to be expected would justify the expenditures which must be made, would appear rather to be one for decision by the parties financially interested, who, better than their Governments, can determine the soundness of their business arrangements.

[Enclosure 2]

The Japanese Government suggests as a solution the cancellation of the Mitsui and the Federal contracts and the organization of a consortium including Japanese, British, French and American radio interests to make with the Chinese Government whatever arrangements may be found necessary for the establishment and operation of China’s overseas wireless service. In its memorandum the Japanese Government points out that the Mitsui Company has completed its station at Peking. The American companies for their part would point out that the completion of the Mitsui station is the very fact which would make this suggestion in its present form impossible of acceptance. Cancellation of the contract would not cancel the completed station. The Mitsui Company would properly expect payment for the station it had built. Under its contract with the Chinese Government payment is the only right the Mitsui Company has. The monopoly asserted is only a security for that right. If through the organization of an international consortium the Mitsui Company should secure payment, then all its rights under its arrangement with the Chinese Government would have been realized. In exchange for this, the Japanese Government suggests the Federal Company shall surrender all its rights under its contracts. On further consideration the Japanese Government will doubtless agree that acceptance of this suggestion would result in the complete abandonment by the Federal Company of its legal position relative to the establishment of radio stations in China without any corresponding concession on the part of the Mitsui Company. Moreover the Japanese Government has perhaps not had opportunity correctly to estimate the difficulties of developing overseas wireless communication through the instrumentality of a consortium. The negotiation of entirely new arrangements with China, representatives of five nations participating in such negotiations; the construction of wireless installations when four interested parties would each strive with the others to furnish equipment; the hodgepodge construction resulting from the compromises inevitable in such situation; the operation of wireless stations by a management composed of representatives of five different nationalities each, controlled from a different world center; the poor quality and the high cost of service resulting from arrangements so made and stations so built and operated would apparently preclude such method furnishing the practical and helpful solution so much desired by the Japanese Government.

In the opinion of the American interests concerned the best sort of consortium would be one of final results. Many grave difficulties would be avoided if the Japanese and the Americans would complete their respective projects, bring them up to date, thereafter separately manage them according to the provision of their several contracts but coordinate their efforts to obtain the best operating efficiency, then pool their gross receipts and divide them on an equitable basis. The American interests concerned would be disposed to enter such a consortium. They believe it would furnish an efficient wireless service and would provide revenues to pay for all the installations. Cooperation is normal in radio. Japanese and Americans successfully cooperate in maintaining the Japanese-American circuit. They could be mutually helpful in their wireless projects in China.

74. Copies of this memorandum and its enclosures were sent to the Ambassadors in Great Britain and France, Nov. 4, 1926.
75. Foreign Relations, 1925, vol. i, p. 906.
76. See telegram No. 117, July 1, 1925, from the Ambassador in Japan, ibid., p. 909.
77. MacMurray, Treaties, 1912–1919, vol. ii, pp. 1519–1523.
78. See ibid., p. 1519 n.
79. Miller, Treaties, vol. 4, p. 559.
80. Foreign Relations, 1908, pp. 510–512.
81. For text of treaty, see ibid., 1922, vol. i, p. 276.
82. See ibid., 1921, vol. i, pp. 414–416, 442; for text of contract of the Great Northern Telegraph Co., see MacMurray, Treaties, 1894–1911, vol. i, p. 59.
83. See telegram No. 14, Jan. 8, 1921, from the Minister in China, Foreign Relations, 1921, vol. i, p. 408; for text of contract, see List of Contracts of American Nationals With the Chinese Government, etc., annex viii (Government Printing Office, 1925).
84. See telegram No. 37, Sept. 27, 1921, from the Minister in China, Foreign Relations, 1921, vol. i, p. 450; for text of supplementary agreement, see List of Contracts, etc.
85. Foreign Relations, 1925, vol. i, p. 890.
86. Ibid., p. 900.
87. See telegram No. 360, Aug. 29, 1925, from the Minister in China, ibid., p. 919.