The Acting Secretary of State to the Ambassador in China (Hurley)
706. With regard to relation of draft commercial treaty16a to the question of corporation registration (Be Embassy’s telegram 648,17 final paragraph), attention is directed to article III paragraph 2 of the draft treaty providing that, within territory of one party, corporations of the other party shall have their juridical status recognized, and to article III paragraph 3 providing such corporations shall be accorded therein right to engage in specified activities upon the same terms as national corporations. Article III paragraph 4 adds that such corporations shall also receive most-favored-nation treatment therein, in addition to national treatment under preceding paragraph, [Page 1213] in the event, which would be exceptional, that corporations of other foreign countries receive better treatment than national corporations. Also note that most other parts of draft treaty which accord rights to corporations provide for national treatment, often with any additional rights which may be obtained through most-favored-nation treatment. Only in exceptional cases, for example as to mining (article V), does the draft treaty accord to corporations most-favored-nation treatment alone. It would be unfortunate to give Chinese Government impression that rights of foreign corporations under draft treaty would be based principally on most-favored-nation, rather than national, treatment.
Reference is also made to additional comment on article II paragraph 2 transmitted by Department’s telegram 50218 for insertion in the memorandum19 for use in negotiating treaty. The statement therein, that the language concerning conformity with applicable laws is not intended to permit either party to impose upon nationals of other party restrictions not equally applicable to its own nationals, applies also to the same combination of this “applicable laws” language and the national treatment clause in the case of corporations (article III paragraph 3), as well as to all other similar combinations of provisions as to applicable laws and national treatment. This language in article III paragraph 3 is intended to prevent local legislation of one party from imposing upon corporations of other party such discriminatory treatment as the last sentence of urtel 648 implies would be permissible under the applicable laws provisions.