893.6359 Wolfram Ore/21: Telegram

The Minister in China (Johnson) to the Secretary of State

789. Legation’s 688, August 16, 10 a.m.;13 717, August 30, 3 p.m.; and previous regarding tungsten monopoly. Foreign Office in its note of August 28 in reply to the Legation’s formal protest of July 31 states inter alia:

“Now the Chinese Government has established a tungsten sales bureau making the sale of tungsten ores an enterprise exclusively operated by the Government and this is by no means for the purpose of restoring the system of hong merchants nor of establishing a system similar to hong merchants. Therefore, there is no conflict with the articles (of the treaties) mentioned.”

The treaty articles referred to were those indicated in the Department’s telegram No. 253 of July 21, 6 p.m., with the substitution of 1844 for 1858 in the reference to the Sino-American treaty to be cited.

Tungsten note further evasively states that creation of monopoly sales bureau by Ministry of Industries and the appointment of Arnhold and Company as sales agents of bureau are not in conflict with the principle contained in items A and B of article 3 of the Nine-Power Treaty for the following reasons:

“Item A refers only to rights in a region and item B refers to monopolies or preferences enjoyed by foreign countries. The agreement concluded in this instance between the Ministry of Industries and Arnhold and Company is a contract for goods and contains no elements of a sales monopoly.”

The Legation has drafted reply to the Foreign Office contravening each of the points raised. In regard to the Nine-Power Treaty citation the Legation has particularly invited attention to the final paragraph of article 3 which Foreign Office refrained from mentioning in its subsequent evasive reply. After quoting this paragraph Legation’s draft reads:

“In organizing the monopoly and in placing the machinery for carrying it out in the hands of the British first, the Chinese Government definitely violates the principles clearly enunciated in the above-quoted extracts from the treaty.”

The above is believed to be in full accord with the Department’s attitude as set forth in its telegram No. 105, March 25, 5 p.m., 1930,14 in reference to proposed Shansi Provincial Tobacco Monopoly but [Page 597] since Foreign Office implies that present monopoly is not in violation of treaties because it is technically vested in a Ministry of Industries official sales bureau rather than directly in some foreign firms the Legation’s proposed reply is indicated to the Department with a request for its instructions.

As stated in my 688, August 16, 10 a.m.;15 and 717, August 30, 3 p.m., the refusal of the Southwest Political Council, the military leaders of which control 80 percent of the tungsten-producing area in China, to be a party to the monopoly scheme conceived by the Nanking authorities renders the scheme largely nugatory at this time but the principle involved is an important one.