Memorandum of Conversation, by Mr. Kermit Roosevelt, Jr., Assistant to the Assistant Secretary of State ( Acheson )29

Participants: Dr. Liu Chieh, Chinese Minister, and Counselor of the Chinese Embassy
Mr. A. Hiss—PA/H
Mr. Stanton—FE
Mr. K. Roosevelt—A–A

Dr. Liu called on me at his request to receive an informal memorandum clarifying certain aspects of the draft note on Chinese reciprocal aid agreement, which was handed by Mr. Acheson to Dr. Soong on May 15, 1943. A copy of this informal memorandum is attached.

Dr. Liu said that the memorandum seemed clear and would be most helpful to his Government in considering the proposed agreement. Dr. Liu is planning to telegraph the draft agreement and the informal memorandum to Chungking immediately.

Dr. Liu observed that it was his understanding that the Chinese currency turned over to United States authorities would not be earmarked for specific purposes but could be used for the purchase of materials needed by the armed forces or for wages or administrative expenses.

In the course of the conversation it was emphasized that the amounts of Chinese currency to be received by United States authorities, and the amounts of American dollars to be turned over to Chinese authorities, would be the subject of joint consideration. Dr. Liu inquired whether this could mean that no American dollars need be received by China. It was explained to him that we definitely contemplated that American dollars would be provided in connection with certain [Page 542] categories of expenditures. Mr. Hiss also emphasized the fact that the proposed agreement would not affect the purchases of strategic materials to be exported from China by the Board of Economic Warfare or by the Reconstruction Finance Corporation agencies.

Kermit Roosevelt, Jr.

The Department of State to the Chinese Embassy

Informal Memorandum

The general theory underlying the so-called “reverse” Lend-Lease Agreements is similar to the general theory underlying the master Lend-Lease Agreements themselves. In both cases the agreements merely provide general principles under which the war resources of the contracting governments can be most effectively utilized for the joint war effort. It is contemplated under both types of agreements that specific transactions to be effectuated under the agreements will be carried out on the basis of mutual agreement as to details.

In the draft of a proposed “reverse” Lend-Lease Agreement handed to Dr. Soong by Mr. Acheson on May 15, 1943, provision is made for several possible ways by which the government of the Republic of China may, according to future circumstances as they arise, give assistance to the armed forces and other official agencies of the United States Government. Those various types of assistance may be roughly grouped as follows:

The direct supplying of materials or services for the use of the armed forces and establishments of the United States.
The supplying of Chinese currency, such currency to be used by the armed forces and establishments of the United States in procuring supplies and services and for other payments by them in the areas under the control of the Government of the Republic of China. The United States would in turn from time to time deliver to the Chinese authorities amounts of United States dollars allotted for such procurement and for such other payments.

The specific terms and procedures to be followed with respect to transactions of the above types would, of course, be worked out by mutual agreement between the appropriate Chinese and American authorities. It would be contemplated that with respect to the first type of transaction the Chinese Government would be credited on Lend-Lease account with the materials or the services supplied to the United States. In the case of the second type of transaction it would be contemplated that against the amounts of Chinese currency delivered to the United States authorities in China, the Chinese Government would receive dollars computed at the official rate of exchange [Page 543] for such proportion of the total Chinese currency delivered as shall be agreed upon from time to time and that the remaining portion or quota of the Chinese currency so delivered would be credited to the Chinese Government on Lend-Lease account.

It is, of course, to be understood that the whole nature of Lend-Lease aid is one of voluntary not obligatory assistance. Lend-Lease Agreements merely specify the general principles which it is agreed will be followed in those cases in which the Government requested to supply goods or services under the Agreement considers that it is in a position to supply such goods or services. Lend-Lease Agreements do not, of course, in any way prevent the continuance of other procedures of procurement outside the scope of Lend-lease arrangements.

  1. Substance of this memorandum reported to the Chargé in China in Department’s telegram No. 659, May 24, 9 p.m.