Foreign Relations of the United States Diplomatic Papers, 1936, The Far East, Volume IV

893.506/36

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

No. 111

Washington, March 9, 1936.

Sir: The receipt is acknowledged of the Embassy’s confidential despatch No. 20 (from Nanking) of October 17, 1935,¹⁰ in regard to a request made by the representatives in China of American insurance companies that representations be made to the Chinese Government with a view to obtaining certain modifications of the Insurance Enterprise Law, promulgated on July 5, 1935, which modifications the companies allege are essential for the proper conduct of insurance business in China by foreign companies. There are enclosed¹¹ with the despatch copies of letters from the representatives of the American insurance companies giving their views on this legislation; a copy of a letter from the British Embassy transmitting copies of a note and a memorandum from the British Ambassador to the Chinese Foreign Office; and a copy of a memorandum, prepared by Counselor Peck,¹² reviewing the position and rights claimed by the American insurance companies under existing treaties and setting forth his conclusions. The Embassy states that it is in substantial accord with the conclusions reached on Counselor Peck’s memorandum which are to the effect that the treaties do not confer on American insurance companies the right to operate in China in disregard of Chinese laws and it requests the Department’s instructions as to the nature of the rights which may be claimed by the American insurance companies in China and as to the nature of the recommendations, if any, which the Department desires that the Embassy make to the Chinese Government in the matter.

It is observed that the request of the American companies appears to be based on the contention that under existing treaties they “are under no legal obligation to comply with any regulations issued by the Chinese central or local authorities” and that although they do not request complete exemption from the application of the Insurance Enterprise Law they have registered definite objection to the application to them of certain provisions of the law, particularly the provisions relating to registration, guarantee deposits, limitations of activities of insurance companies to treaty ports, et cetera.

The companies have not cited any particular treaty or treaty provisions in support of their claim to exemption from Chinese regulation of their business. With a view to determining whether their claim has any treaty basis, the Department has examined all treaties between the United States and China which are in force. This examination has disclosed that there is no treaty provision which specifically confers any rights on or grants any exemption to American insurance companies as such in China. However, Article III of the Treaty of 1903¹³ contains the following provision which seems to be pertinent to the question under consideration:

“Citizens of the United States may frequent, reside and carry on trade, industries and manufactures, or pursue any lawful avocation, in all the ports or localities of China which are now open or may hereafter be opened to foreign residence and trade; …”¹⁴ (underscoring by Department).

It is clear from the Chinese text of the treaty that the word “avocation” is used in the sense of vocation, or regular or habitual employment.

While the Department has taken the position that it will not assert in behalf of American nationals in China rights which are not conferred by the treaties either expressly or by clear implication, the Department does not consider that treaty rights or immunities must be held to be limited to enterprises which are specifically named in the treaties. In Article III of the Treaty of 1903 above quoted, insurance business is not named specifically, but it will not be questioned that insurance is included in the English and Chinese texts of the phrase “all other lawful avocations” and that it was so recognized at the time the treaty was concluded, as insurance business was then well established in China and throughout the world as a legitimate business activity. It should be noted, however, that the right granted by this treaty is limited to the treaty ports of China, and in the absence of a more extensive grant in a treaty between China and some other power to the benefits of which the United States would be entitled by virtue of the most-favored-nation clause, insurance companies could not claim the right to conduct their business beyond the limits of the ports opened to foreign trade. It appears, therefore, that American insurance companies may properly claim a treaty right to carry on insurance business in the treaty ports of China. In the event the companies produce satisfactory evidence in support of their contention that they are entitled to do business in the interior through native brokers or agents, the Embassy would be warranted in asserting such a right in their behalf. This conclusion suggests the query whether the exercise of the right conferred by the treaty is subject to any control or regulation by the Chinese Government or whether the Government of China, having surrendered jurisdiction over American nationals in China, must be held to have relinquished the right to exercise any control over business authorized by the treaties and conducted by American nationals.

It appears to be true, as stated by Counselor Peck, that the Department has never taken the position that extraterritorial status confers on American citizens in China the right to engage in any unspecified variety of activity they desire, free of any form of Chinese control. The Department has, however, consistently maintained the position that American citizens in the conduct of activities permitted by the treaties could not be made subject to Chinese laws and regulations, the effect of which would be to deny or materially impair their extraterritorial status or to nullify a right granted by treaty to carry on an authorized activity. While the Department has always stressed the importance and desirability of cooperation with the Chinese authorities so as to give the fullest recognition to legitimate Chinese interests affected by American activities and to facilitate the intercourse of Americans and Chinese, it has, nevertheless, insisted on the right of American citizens to exemption from the compulsory application of Chinese laws and regulations involving control of American activities by Chinese authorities.

The excerpts from the Department’s instructions which are quoted in Counselor Peck’s memorandum seem to confirm the views expressed herein, particularly the instruction of August 2, 1922¹⁵ (to the Legation at Peking), relating to fire insurance companies in Canton; the instruction of August 28, 1923,¹⁵ relating to American practitioners of medicine; and the instruction of June 5, 1930,¹⁶ relating to hospitals. The case of the China Searchlight Publishing Company,¹⁷ cited by Mr. Peck as an indication that the Department did not consider the activities of American citizens immune from interference by the Chinese Government, involved the grossly improper activities of an American citizen in conducting a campaign of vilification against the Chinese Government and officials and was regarded by the Department as a gross abuse of the hospitality of China which could not be countenanced by this Government, although unfortunately there appeared to be no American law under which any effective action by American representatives could be taken. In this situation the Chinese Government was informed that the Government of the United States would interpose no objection to the suppression by the Chinese authorities of the publication of the company mentioned. This case clearly was exceptional and could hardly be regarded as an admission by the Department of the right of the Chinese authorities to control American activities.

While the Department is, therefore, unable to concur fully in the views expressed by Mr. Peck as to the Department’s attitude with respect to the question of Chinese control of American authorized activities in China, it recognizes the force of his observations that the insurance business affects in a particular manner the rights and interests of Chinese citizens and that the conduct of this class of business should be subject to adequate governmental control and that in the absence of effective American supervision of American insurance companies in China this Government could not in good faith question the right of the Chinese Government to take reasonable measures to protect the public, particularly Chinese citizens, and to prevent abuses which might result from the operation of insurance companies not subject to any governmental control.

In summary, it appears from the above that the American insurance companies may properly claim a treaty right to conduct insurance business in treaty ports and that they may possibly be able to establish a right to do business in the interior; and that the Department has consistently maintained the position that American citizens in the conduct of activities permitted by the treaties could not be made subject to Chinese laws and regulations, the effect of which would be to deny or materially impair their extraterritorial status or to nullify a right granted by treaty to carry on an authorized activity. Therefore, with a view to conserving our treaty position and obtaining a modification of the objectionable features of the Insurance Enterprise Law in the interest of the American companies, the Department desires that appropriate oral representations be made to the Chinese Foreign Office. The Department suggests that the Embassy should bring out in its conversations with the Foreign Office that this Government considers that certain provisions of the law, if enforced, would be inconsistent with the treaties and would be unduly burdensome to the companies and that as this Government desires to cooperate with the Chinese Government with a view to obtaining the proper conduct of the insurance business carried on by American concerns this Government trusts that the Chinese Government will appropriately modify the law in order to eliminate the conflict between the law and the treaties and to enable the foreign companies to cooperate with the Chinese authorities charged with the administration of the law.

Before approaching the Chinese Foreign Office, the Embassy may care to discuss with the American insurance companies the matter of the proposed oral representations to the Foreign Office and the desirability of their effecting a satisfactory arrangement with the Chinese authorities which would enable them voluntarily to comply with the law. Also, the Embassy may find it profitable before taking any steps whatever to inquire of the British Embassy in regard to the progress of the negotiations initiated by that Embassy with the Chinese Government.

The Department desires that the Embassy keep it informed of developments.

Very truly yours,

For the Secretary of State:

R. Walton Moore

10. Not printed.
11. Enclosures not printed.
12. Willys R. Peck, Counselor of Embassy in China at Nanking.
13. Signed at Shanghai, October 8, 1903; Foreign Relations, 1903, p. 91.
14. Omission indicated in the original instruction.
15. Not printed.
15. Not printed.
16. Foreign Relations, 1930, vol. ii, p. 541.
17. See telegram No. 247, September 8, 1932, 6 p.m., to the Consul General at Shanghai, ibid., 1932, vol. iv, p. 660.