893.24/1486½: Telegram
Memorandum of Conversation, by Mr. Alger Hiss, Assistant to the Adviser on Political Relations ( Hornbeck )
Subject: Reverse Lend-Lease Agreement With China
Colonel Pennoyer (who had attended a meeting on the above subject in Mr. Dean Acheson’s office yesterday in which it was agreed that this Department would proceed with the drafting of a reverse lend-lease agreement with China for submission thereof to the War Department, the Treasury Department and the Lend-Lease Administration) called at his request.
Referring to the telegram of January 19 from General Stilwell to the War Department,15 paraphrase of which had been circulated to interested officers of the Department by Mr. Feis on January 22, Colonel Pennoyer said that he thought the Department would be interested in the following information:
Assistant Secretary McCloy had first decided to reply to General Stilwell’s telegram simply by directing him to accede to the Chinese position. However, officers of the War Department who have been handling the matter prevailed upon Mr. McCloy to change his decision and instead he directed (I understood the revised decision was arrived at yesterday) that General Stilwell be informed that reply will be made to his telegram when Dr. Soong16 returns to Washington and that General Stilwell be also informed that the War Department is consulting with the State Department on the question under reference. Colonel Pennoyer said that reply along these lines is to be dispatched to General Stilwell today.
Colonel Pennoyer went on to say that the Operations Division had been under the impression that the State Department was applying pressure upon the War Department for a reverse lend-lease agreement to be effected more or less regardless of General Stilwell’s views. I replied that, on the contrary, we had at all times fully appreciated the points on which General Stilwell desired adequate safeguards and agreed with the General’s view on these points. I repeated what Colonel Pennoyer had been told yesterday in Mr. Dean Acheson’s office that so far there has been no official approach by the Chinese for an agreement and that at present we are interested primarily in working out a draft of an agreement which would help the various [Page 528] agencies of this Government to meet their problems relating to China—this includes primarily our armed forces in China, and also the Treasury Department with its responsibility for the Chinese Stabilization Board and black market operations, the various purchasing agencies who acquire strategic materials from China, the Red Cross and other relief agencies, the Lend-Lease Administration and our own Foreign Service officers in China. When that stage is reached we will consider, if the Chinese have still not approached us, the most effective way of getting the question of an agreement raised between us and the Chinese in the light of developments up to that time. I said that I might state personally that I had been given to understand that the War Department has been anxious that a reverse lend-lease be concluded promptly and that I had rather felt that we were under some pressure from the War Department for speed in this connection. Colonel Pennoyer said that this was not the situation. He also said that he experienced great relief as a result of his talks yesterday in Mr. Acheson’s office and this morning with me. He said further that the Operations Division had perhaps been at fault for not communicating previously directly with the Department, pointing out that Lt. Col. Gaud, of the International Division of the War Department, who had talked to Mr. Willoughby several times would be likely to take a somewhat different view of the situation and might simply desire to get as many reverse lend-lease agreements signed as possible and that it might be that my impressions as to the War Department’s attitude had resulted from statements made by Colonel Gaud.
As indication of the Department’s attitude I showed Colonel Pennoyer a copy of our telegram No. 76 to Chungking, January 15, the reply to which (No. 127, of January 23) had been read to him yesterday by Mr. Acheson and copy of which had this morning been sent in paraphrase to the War Department. Colonel Pennoyer said that he was in entire agreement with the form and substance of our telegram to Chungking and with the decisions reached yesterday in Mr. Acheson’s office with regard to prompt drafting and consideration of a draft agreement. He said that after the agreement was in form satisfactory to the concerned agencies in Washington, General Stilwell’s views could then be obtained again and final decision made as to the way in which the question could be taken up with the Chinese.