893.24/1627: Telegram
The Secretary of State to the Chargé in China (Atcheson)
Washington, July 30,
1943—6 p.m.
990. Your 1307, July 27, 11 a.m. of which 2 sections in 4 numbered paragraphs have so far been received.
- 1.
- Department has had no discussion with the Chinese Embassy or Dr. Soong in regard to reverse lend-lease other than upon the two occasions described in Department’s 637, May 19, 9 p.m.47 and 659, May 24, 9 p.m.48 and has been awaiting responses on the part of the Chinese Embassy to Department’s communications. It is believed that Mr. Lucker must have misunderstood the status of our discussions with the Chinese Embassy and Dr. Soong.
- 2.
- Department has assumed that discussions relating to the proposed agreement and actual negotiations thereof can probably be most conveniently conducted here. Paragraph in Department’s 752 of June 14, 3 p.m.49 to which you refer was in no sense meant to indicate that Fowler was to participate in actual negotiations. As stated in the fourth sentence of that paragraph, it has been contemplated that it may possibly be desirable to explore, if and when the agreement is entered into, the question of placing thereunder certain inland transportation costs of strategic materials. Please make this clear to Mr. Fowler.
- 3.
- Department and other interested agencies have from the outset contemplated that actual purchases of strategic materials from China would not be covered by the proposed agreement, and the Counselor of the Chinese Embassy was so informed orally in the conversation described in Department’s 659, May 24, 9 p.m. You may so inform Mr. Arthur Young and Mr. Fowler pointing out at the same time that the entire concept of lend-lease agreements is that they are entirely Voluntary and that agreements on this subject merely set forth general principles to be followed by the parties thereto, details of actual transfers to be worked out subsequently by mutual agreement between the appropriate foreign and American authorities.
- 4.
- Department has experienced difficulties and delays in reaching full understanding with other interested agencies as to accounting procedures to be followed under proposed reverse lend-lease agreement. In view of the novelty and complexity of the proposed exchange and currency arrangements, this is not surprising and Department is inclined to be encouraged by the progress already reached toward unanimity. On or about July 20 Department presented to the [Page 564] War Department an informal memorandum dated July 8 which had been previously informally approved by Lend-Lease Administration and the Treasury Department. This memorandum set forth the Department’s understanding as to the principles which are to govern the disposition and use of Chinese currency which may be received under the proposed reverse lend-lease agreement. Department has in the past few days been informed informally that the War Department is in general agreement with the understanding set forth in the memorandum and that a summary of the memorandum together with the War Department’s comments is being sent by telegram to General Stilwell who is being authorized to discuss the matter with the Embassy and with the Treasury representative at Chungking. The substance of the present informal agreement among the interested agencies is more or less along the lines with which the Chargé was familiar before he left Washington. It is proposed that Chinese currency furnished under reverse lend-lease will be asked for and received in a lump sum. Subject to military exigencies the currency so received will in the first instance be utilized as compensation adjustment for the salaries of American civilian officials in China and the pay of American armed forces in China, the amount of the compensation adjustment to be computed by the Treasury Department under existing statutory authority. Additional Chinese currency received as reverse lend-lease aid will be utilized, presumably on the basis of similar computations, for payment of rent by civilian American agencies in China and for procurement and construction purposes by the American armed forces in China. Copies of the Department’s memorandum of July 8 and other relevant documents are being forwarded by air pouch.
- 5.
- In view of the fact that according to present indications of the War Department’s intentions (a) most Chinese reverse lend-lease aid would be in the form of Chinese currency and (b) all or practically all Chinese currency which might be received under reverse lend-lease would be expended only in conjunction with the expenditure of United States dollars in amounts regarded as equivalent on the basis of reasonable exchange value to the total amount of Chinese reverse lend-lease currency expended, the Department does not consider that it is likely that under the proposed agreement China would be asked to give to us under reverse lend-lease more than China receives from us under lend-lease. In addition Department concurs in the views expressed by you in the last sentence of paragraph 1 of your telegram under reference.
- 6.
- Department hopes that the foregoing information will enable you to answer the inquiries which Mr. Arthur Young has raised and to make plain to the OEW representatives the Department’s position as to the conduct of the negotiations. Please ask Mr. Young for the time [Page 565] being and until General Stilwell has had an opportunity to comment on the latest proposals to regard the information contained in paragraphs 4 and 5 as for his own background information only and as illustrative rather than definitive.
Hull