The Ambassador in China (Hurley) to the Secretary of State

No. 406

Sir: I have the honor to enclose a copy of a communication prepared at my request by the Chungking office of the Foreign Economic Administration, describing certain services performed by the FEA [Page 1092] on behalf of the Soviet Government in providing transportation for such important commodities as tin, tungsten, bristles, mercury, silk, tung oil and bismuth, from South China to Assam via Kunming.

It appears from the FEA statement that its work on behalf of the U. S. S. R. has been confined to movement of commodities from China to Assam by air, but that such movement has amounted to upwards of one-third of the total transported westbound in the past two years. It appears further that commodities moving by ATC69 are paid on the basis of U. S. one dollar per ton mile and that “payment is effected through Lend-Lease to the U. S. S. R.”. Freight moving on the other hand under the Services of Supply—Chinese National Aviation Company contract, is said to be carried free.

I have inquired further of Mr. Stanton70 regarding the foregoing and he has given me orally the following additional information:

Most of the Soviet freight has moved by CNAC (free) rather than by ATC.
The statement relative to ATC movement that “payment is effected through Lend-Lease” in fact means that the amount involved is merely “added to the account”; insofar as Mr. Stanton is aware, this account is not being currently paid.
With regard to the SOS–CNAC contract, it appears that all the space westbound is being paid for by our Government, the argument reportedly being that since the American Government has little westbound freight, our Government incurs no additional expense by giving the space gratis to the U. S. S. R.

Mr. Stanton had no answer to the question why our Government has contracted for and is paying for the entire westbound space which we ourselves do not need, or why—if we are paying for it but not using it for ourselves—we are not charging the U. S. S. R. as at least a partial reimbursement to our Government. Mr. Stanton’s only comment on this was to the effect that the decision had been made in Washington.

While I note the statement in Mr. Stanton’s enclosed letter that “at no time during the movement of these commodities has there been a shortage of westbound hump space” and that “consequently the movement of U. S. A. materials has in no way been delayed thereby”, I wish to point out that insofar as I am aware this Embassy has not participated in any way whatsoever in the making of these arrangements for the transportation of Soviet Government freight. The Embassy has not been consulted to my knowledge in regard to the policies involved or to the accountability for the services rendered.

In these circumstances, which apparently involve transportation of Soviet Government freight from China to Assam at the expense of [Page 1093] the American taxpayer, I wish to make clear that the Embassy is obviously not in a position to accept any responsibility arising from the execution of this program, and to suggest that an immediate investigation be undertaken, at the instance of the State Department, by the agencies concerned. I should be pleased to be informed of the results of such an investigation.

Respectfully yours,

Patrick J. Hurley

The Special Representative of the Foreign Economic Administration in China (Stanton) to the Economic Counselor of Embassy in China (Briggs)

Dear Mr. Briggs: You have asked for my comments on the relationship existing between FEA and the USSR Government in connection with the latter’s purchase of strategic commodities in China and their movement out of this country. FEA’s assistance has been entirely confined to the latter phase of operations and at no time have we acted for the USSR in the purchase in China of commodities for their account.

It is my understanding that the origin of these Russian purchases is to be found in certain commodity loans extended by the USSR to China some years ago. Repayment of these loans has been, and is being, accomplished by delivery on the part of certain Chinese Government agencies to the USSR Trade Representative in China of certain commodities selected by him. These, in the approximate order of their importance, have been as follows: Tin, tungsten, bristles (and riflings), mercury, silk, tung oil, and bismuth.

Inasmuch as FEA on behalf of the United States Commercial Company is interested in the acquisition of certain of these materials, it may be asked whether or not unnecessary and undue competition exists in the filling of our mutual requirements. It is my belief that this is not the case inasmuch as commodities delivered to the USSR are valued at the price established between the Chinese Government selling agencies and FEA for our current purchases. (Thus, in the case of tin, the equivalent of so many tons of tin delivered to the USSR Trade Representative at the current price at which we are purchasing from NRC will be applied in U. S. dollars to liquidate an equivalent amount of the outstanding loan, which, it is understood, is expressed in U. S. currency.) Thus, the matter of competitive bidding would not appear to be involved.

[Page 1094]

Active assistance to the USSR has been accorded by FEA in the movement of these materials by air from China to India. In point of fact, this assistance consists in FEA acting as shipping agent under instructions from the WPB Washington to make available to the USSR Trade Representative the facilities of ATC and/or CNAC planes under contract to U. S. Army SOS. Our responsibility lies in arranging shipments, supervising same, and accounting for the quantity of materials involved. Necessary recording is made both at this end and at point of delivery in Assam where Messrs. Cox and King’s Ltd. receive the cargo as agents for the USSR Government. It may be emphasized that no Russian materials are moved without the establishment in Washington of an air priority by the WPB and that this is accomplished upon representations to the WPB from Moscow.

Parenthetically, there may be stated the obvious fact that at no time during the movement of these commodities has there been a shortage of west-bound hump space. Consequently, the movement of USA materials has in no way been delayed thereby.

The following approximate figures show the total quantities of strategic materials shipped by air through FEA during 1943 and 1944 together with that part of these totals which comprised USSR materials:

(Figures are of gross weights)

1943 total shipment 32,831,000 lbs.
Of this for USSR account:
Tungsten 2,002,000 lbs.
Silk 58,000 lbs.
Mercury 238,000 lbs.
Tin 7,140,000 lbs.
Total 9,438,000 lbs.
or 34.7%
1944 total shipment 32,765,000 lbs.
Of this for USSR account:
Wolfram 11,676,000 lbs.
Tung Oil 248,000 lbs.
Mercury 222,000 lbs.
Silk 133,000 lbs.
Bismuth  23,000 lbs.
Total 12,302,000 lbs.
or 37.5%

Under present arrangements payment of freight at approximately US$1.00 per ton mile is required on shipments by ATC, and such payment is effected through Lend-Lease to the USSR. Under the terms [Page 1095] of the SOS/CNAC contract, westbound space after meeting U. S. Army demands is at the disposal of FEA and no charge is made therefor. From this allocation to FEA, there is granted the space necessary for USSR cargo and consequently no charge is made to the USSR in this respect. In point of fact, the amount of freight charged to Lend-Lease has been very small indeed, as since the necessity for this payment has been enforced USSR shipment has been virtually confined to CNAC planes.

To complete this summary, I should mention that on occasions FEA in China has purchased from the USSR Trade Representative certain quantities of strategic materials which had been previously delivered to him by Chinese Government agencies as above outlined. This is notably so in the case of bristles which, incidentally, are purchased by us for allocation at varying percentages to USA and to UK. The last such purchase from the USSR was concluded in late 1943 or early 1944. As stated above, at no time have we purchased strategic materials from the Chinese Government for subsequent allocation to the USSR.

If you have any further queries in connection with the foregoing, please communicate them to me.

Very sincerely yours,

W. T. Stanton
  1. Air Transport Command.
  2. W. T. Stanton, special representative of FEA in China.