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

No. 1466

Sir: Reference is made to the Legation’s despatch No. 2801 of June 26, 1934,28 in regard to “The Industrial Encouragement Act” which, by mandate under date April 20, 1934, was promulgated by the Chinese Government.

In this connection, the Department has given special consideration to the methods, as stated in article 2 of the Act under reference, by which encouragement may be given to the development of domestic industry. With the possible exception of the proposed granting of “encouragement” funds, the other means by which assistance may be rendered, namely, reductions in or exemptions from export duties and raw material taxes, reduction in freight rates charged by government-owned communication systems, and exclusive rights of manufacture in specific areas for specific periods of time, would appear to be of such a nature as to contravene the letter or the spirit or both of treaty commitments of the Chinese Government. It would thus appear that detailed representations in the premises might appropriately be made [Page 568] to the Chinese Government. The Department, however, is inclined, in the absence of protests by other interested powers and, in particular, of specific instances in which American interests are adversely affected by implementation of the Act under reference, to the opinion that the Legation should, in addressing the Foreign Office, refrain from citing the specific treaty rights which the provisions of the Act would appear to infringe. It is therefore suggested that the Legation confine its note to a brief statement to the effect that, although the Legation readily understands the natural desire of the Chinese Government to assist domestic industry, certain of the means, as outlined in “The Industrial Encouragement Act”, by which it is hoped to attain the desired end, would appear to contravene various treaty commitments of the Chinese Government and that, in consequence, the Legation reserves such rights of American nationals as may be adversely affected by the operation of the Act under reference.

The Legation will of course wish to give further study to the subject and, possibly, to consult with the representatives of the other principally interested powers with a view to ascertaining and, if advisable, to reporting to the Department any further developments of consequence.

Very truly yours,

For the Secretary of State:
William Phillips
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