As directed by Mr. Welles, I called on Mr. Oliphant this morning and
returned to him the papers in regard to the tung oil transaction which
Mr. Oliphant sent to Mr. Welles on December 9. At the same time I gave
Mr. Oliphant the original of the attached memorandum and told him that
we felt definitely that an amendment along the lines set forth in the
memorandum should be made. I told him also that we would like to see the
contract amended so as to provide that title should pass to the American
corporation upon delivery of the commodity in the United States and I
said that we would feel very much happier if this change could be
made.
Mr. Oliphant said that they would have to study these questions. I asked
that the Treasury Department be so good as to inform Mr. Welles what the
Treasury Department, upon completion of its study, purposed doing in
regard to the two points which I had mentioned. Mr. Oliphant said that
this would be done.
Subsequently Mr. Oliphant telephoned and asked whether our points would
be met if there should be substituted in the contract for the proviso at
the end of Article 3 the proviso appearing at the bottom of page 4 of
the memorandum63 which I had left with Mr. Oliphant, and if the
provision with regard to the passing of title should be amended to read
“and title shall pass to the buyer upon arrival alongside wharves in
ports of the United States to be designated by the buyer in its absolute
discretion.” I said that these amendments would satisfactorily take care
of the two points we had raised. Mr. Oliphant then asked whether the
contract, with these two amendments, was satisfactory from our point of
view. I replied that of course we had not undertaken to pass upon the
business aspects of the contract or upon the contract as a whole but had
examined it merely from the point of view of the treaties and from the
point of view of where it seemed advisable that title pass to the
American corporation. I repeated that from these two points of view the
amendments which Mr. Oliphant had said would be made were satisfactory
to us.
Mr. Oliphant then asked whether he should telephone Mr. Welles or whether
I would inform Mr. Welles. I said that I would do so.
[Annex—Memorandum]
Proposed Agreement Between an American
Corporation and a Chinese Corporation for the Sale by the Latter
to the Former of a Stipulated Amount of Tung Oil To Be Financed
in Part by a Loan by the Export-Import Bank to the American
Corporation
If the proposed agreement is a contract between two private
corporations, none of its terms, as disclosed in the draft
agreement, would seem to involve definite conflict with any treaty
of the United States although it is not improbable that it might be
opposed as contrary to the general purpose of Article III of the
Nine Power Treaty to which reference is made hereinafter.
However, if it could be established that the Chinese corporation
represents or acts for or at the instance of the Government of China
it would be difficult to avoid the conclusion that the financing of
the transaction by an agency of the United States would in practical
effect involve an agreement between the Government of China and the
Government of the United States, the principal objective of which
would seem to conflict with the provisions of two treaties to which
the United States is a party.
This statement is based on the provision of Article 3 of the draft
contract which provides:
“that the amount of oil required to be
delivered under this contract in any one year shall not
exceed three-fifths of the total oil produced in China
during that year.”
When it is considered that the area in which the
supply of oil must be obtained represents only a part of the tung
oil producing area of China and that a considerable quantity of that
production is needed for local consumption it will be apparent that
the supply deliverable under the contract might exhaust all of the
available supply in the area in which the contract may be given
effect. This would close or seriously restrict the market to all
other prospective purchasers and would seem to be inconsistent with
Article XV of the treaty of 1844 between the United States and China
and Articles I, II and III of the Nine Power Treaty of 1922.
Article XV of the treaty of 1844 provides that:
“The former limitation of the trade of Foreign nations to
certain persons appointed at Canton by the Government, and
commonly called hong merchants, having been abolished,
citizens of the United States engaged in the purchase or
sale of goods of import or export are admitted to trade with
any and all subjects of China without distinction; they
shall not be subject to any new limitations nor impeded in
their business by monopolies or other injurious
restrictions.”
[Page 585]
The rights which are granted to the United States by Article XV of
the treaty of 1844 are equally available to British, French,
Japanese and a number of other governments under most-favored-nation
provisions of their respective treaties with China and would appear
to afford a basis of protest both to China and to the United States
if all or the greater part of the available supply of tung oil
should be preempted by the United States or its nationals.
Such a result would also appear to conflict with the provisions of
(1) Article I of the Nine Power Treaty which obligates the United
States:
“To refrain from taking advantage of conditions in China in
order to seek special rights or privileges which would
abridge the rights of subjects or citizens of friendly
states …”66
(2) Article II of the Nine Power Treaty under which
“the contracting powers (including China) agree not to enter into
any treaty, agreement, arrangement, or understanding, either with
one another, or, individually or collectively, with any Power or
Powers which would infringe or impair the principles stated in
Article I”; and (3) Article III of the Nine Power Treaty in which
“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 favour 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.”
In view of the fact that the proviso in Article 3 of the draft
contract renders uncertain the quantity of oil to be supplied and
affords no certain and authoritative basis for determining the
quantity which the seller could be held legally obligated to
deliver, it is suggested that the purpose of the article as now
drafted could be accomplished no less effectively and any ground for
objection on treaty basis be eliminated by amending the article to
read somewhat as follows:
“3. Quantity. 220,000 tons (of 2,000 pounds each), or so much
thereof as may be lawfully available to the seller for
export, to be supplied, as nearly as practicable, in
accordance with the following schedule:
[Page 586]
| First year |
25,000 tons |
| Second year |
35,000 tons |
| Third year |
45,000 tons |
| Fourth year |
55,000 tons |
| Fifth year |
60,000 tons |
| Total |
220,000 tons” |
Another amendment of the article which would seem to accomplish the
same purpose would be to revise the proviso to read somewhat as
follows:
“Provided however, that the amount of oil required to be
delivered under this contract in any one year shall not
exceed the quantity lawfully available to the seller for
export during that year.”
