Memorandum by the Chief of the China Division (Bennett) to the Director of the Special Areas Branch (McCormick)18

The Chinese Supply Commission continue to raise questions (orally) as to the terms of the “Pipeline Agreement” and the reason for delaying the formalizing of the commitment between Dr. Soong and Mr. Crowley.19 In particular, the Chinese, having heard that ocean transportation may not be included in the long term credit arrangement after June 30, 1946, are now concerned lest a cut-off date be set for financing under 3 (c) terms.

Up to February 28, 1946, $23,000,000 of the pipeline has been shipped (including accessorial charges at 15% and ocean freight). In the French and Russian 3 (c) Agreements20 are details as to accessorial charges, costs of goods, date for accuring interest, date for first payment of interest and principal, etc. Already in their status reports on shipments, the Chinese Supply Commission are using 10% as the estimated accessorial charge.

From conversations with various members of the Commission, it is clear they are familiar with the French, Russian and British agreements and are prepared to argue for some of the special terms in those agreements, such as 10% off invoice cost in the Russian and deferred interest and/or principal payment dates in the Russian and British.

At the present rate of shipment possibly 75% of the goods will be shipped by June 30, 1946 and I cannot but feel that losing control of the goods before the terms are settled is likely to place the U. S. in a very poor position for negotiating later.

The Chinese want these goods keenly enough to come to an agreement, but once they have possession of the goods they will undoubtedly insist on “most favored nation” terms, citing Dr. Soong’s letter of August 24, 1945 to Mr. Crowley and the latter’s reply.

  1. Both of the Office of the Foreign Liquidation Commissioner (OFLC), Thomas B. McCabe.
  2. For exchange of letters between the President of the Chinese Executive Yuan (Soong) and the Foreign Economic Administrator (Crowley) on August 24 and September 18, 1945, see Foreign Relations, 1945, vol. vii, pp. 1133 and 1155, respectively.
  3. Former signed February 28, 1945, Department of State, Executive Agreement Series (E.A.S,) No. 455, or 59 Stat, (pt. 2) 1304; and latter signed October 15, 1945.