103.9169/2792
The Ambassador in China (Gauss) to the Secretary of State
[Received March 15.]
Sir: I have the honor to enclose75 for the Department’s information, a copy of a memorandum on arrangements being made by FEA75a for obtaining Chinese strategic materials within U. S. price ceiling limits. These arrangements, which in part are based on a modified form of barter, were the subject of telegrams exchanged through the Department by Chungking FEA representatives and FEA at Washington since September, 1943, as indicated in the memorandum.
Summary of Memorandum. Prices of Chinese strategic materials have risen to such heights as to preclude their purchase by our Government under its price ceilings. As the Chinese Government failed to make a reverse Lend-Lease agreement (including strategic materials) or to alter the unrealistic exchange rate, the FEA representative at Chungking, with the Embassy’s approval, recommended to FEA that a modified form of barter be adopted whereby strategic materials could be purchased within our price limits. FEA approved [Page 887] the barter scheme in principle and an initial transaction, involving bristles and American dyestuffs, has now been concluded. Chinese silk merchants, hearing of these negotiations, obtained permission from the Chinese Government to allow them to try to make some arrangement whereby the export of silk could be resumed. They subsequently made an offer (which does not appear to be of interest to FEA) which calls for the sale of silk in India and purchase of commodities there for import into China. The exchange of tung oil for lubricating oil is being considered. In order to afford relief to the tin and tungsten mining industries, FEA recently agreed to amend its contracts with the National Resources Commission whereby delivery of tin and tungsten would be made at Kweilin instead of at Kunming. The Embassy suggested, however, that FEA’s proposal to pay for Chinese tin with gold bullion be held up pending solution of the problem of financing United States Army expenditures in China. A proposed arrangement, whereby duck and goose feathers might be obtained within reasonable price limits by adoption of a barter scheme similar to the one made for bristles, has been referred to FEA at Washington. End of Summary.
Respectfully yours,