893.24/4–2446
Memorandum by the Assistant Secretary of State for Economic Affairs (Clayton) to the Under Secretary of State (Acheson)22
The Chinese Government has been advised that we should like to begin negotiations at once in Washington on the settlement of the war account between our two Governments.
Inasmuch as several matters with regard to the lend-lease portion of the war settlement are unique in character and may have significant political repercussions, I should like to bring them to your attention.
If you approve the recommendations I have stated below, I shall issue appropriate instructions to the U. S. representatives in the settlement negotiations.
1. Military Lend-Lease Assistance in the Period V–J Day to June 30, 1946.
The extension of military aid to lend-lease countries for six months after V–J Day was authorized by the President in his memorandum of September 5, 1945, and a further extension of aid to China alone was authorized by the President in his memorandum of January 19, 1946. The latter memorandum authorizes transfers under the Lend-Lease Act through June 30, 1946 but not after “except as the Secretary of State may subsequently find it necessary to modify this restriction.”
Military lend-lease assistance will have been provided to the Chinese to the extent of some $800 million in the period V–J Day to June 30, 1946. This compares with military assistance of some $700 million in the war period to V–J Day.
The $800 million of aid will have been transferred to assist the Chinese in the reoccupation of occupied areas of China and the repatriation of Japanese soldiers. A substantial portion of this assistance represents transportation services, but arms, vehicles, other equipment, clothing and the like comprise the greater part.
The President has stated publicly that this country will assist China in the reoccupation and repatriation program, and Congress has been informed that military lend-lease aid to China is continuing. Consequently, although the volume of assistance is most substantial, I recommend that it be regarded as straight lend-lease aid for which no tangible payment should be required.
2. Maintenance Items.
Related to the question of aid in the period V–J Day to June 30, 1946 is the problem of maintenance items.
[Page 738]The President’s directive of September 5, 1945 stated that the transfer of maintenance items for lend-lease equipment in the possession of our allies should be made “against payment on such terms and conditions as determined by the State Department and the Foreign Economic Administration.” These agencies required the War Department to transfer maintenance items against receipts to pay cash upon presentation of a bill by the U. S.
Consequently, the War Department has required and received from the Chinese receipts to pay cash on demand for all maintenance items transferred. Of the $800 million of transfers in this period, some $67 million of ammunition (which the War Department considers a maintenance item) and some $63 million of spare parts will have been transferred against payment receipts.
There is no reason either in logic or in the light of our general objectives in providing assistance to China to regard maintenance items differently from new equipment or services. Moreover, the history of the President’s instruction with regard to payment for maintenance items indicates that its application to China is entirely inappropriate. It was at the request of the British who were unable to buy spares on the open market for grounded lend-lease equipment that the President permitted the transfer of such items under the Lend-Lease Act. Since the transfer of maintenance items was an accommodation not directly related to the war, the President required payment. Consequently, I recommend that, despite the existence of receipts from the Chinese to pay $130 million on demand, the bills not be presented and the transfers be regarded as straight lend-lease aid.
3. Chinese Air Program.
Pursuant to the President’s oral commitment to Dr. Soong with respect to the completion of the 39-division program and the equipping of an airforce of commensurate size, the War Department will have transferred to China in the period V–J Day to June 30, 1946 some $44 million of airplanes and some $10–20 million of related equipment to complete an eight and one-third air group (which the Joint Chiefs of Staff has determined to be of a size commensurate with China’s military establishment). These transfers are being made under the authority of Lend-Lease Act against receipts to pay cash on demand unless other terms are mutually agreed between our two Governments.
Although the eight and one-third air group program may have overtones of a postwar program, the transfers have been in fact related to the reoccupation mission and are part of the $800 million [Page 739] of aid in the period from V–J Day to June 30, 1946. Both air and ground equipment are regarded by the War Department as necessary to enable Chinese forces to establish and maintain order in the reoccupied areas of China. Because the transfers against the airforce program have been made in the interest of the reoccupation mission, I recommend that the bills not be presented and the transfers be regarded as straight lend-lease aid.
4. Aid after June 30, 1946.
We are informed by the War Department that the reoccupation program cannot be completed by June 30, 1946, the date of expiration of the Lend-Lease Act. There is at present no legal medium for the transfer of supplies and services by the War Department to China other than the Lend-Lease Act. It is, therefore, proposed that transfers after June 30 be made under the authority of section 3 (c) of the Lend-Lease Act, and that an agreement be signed with the Chinese Government in advance of June 30 for this purpose.
The value of the transfers, all of which will come out of existing Army stocks, will not exceed $25 million, and the date of completion of the program will be September 2, 1946.
The matter to be decided is whether the transfers after the expiration of the Lend-Lease Act should be made on straight lend-lease terms or against cash payment. There is no reason in the nature of the program to differentiate between aid provided up to June 30 and aid provided from that date to September 2. However, it may not be politically advisable to provide straight lend-lease aid after the Act expires. No other country has received straight lend-lease aid since March 2, 1946.
While it is possible to justify straight lend-lease aid to China after June 30, such aid would be subject to considerable political criticism and might be regarded as contravening the intent of Congress. Accordingly, I am of the opinion that payment should be required, particularly since the burden of payment will certainly not be too great for China. Such payment should be made in cash or as an offset against our obligations rather than over time, so as not to incur a long-term postwar debt for purely military deliveries.
If it were possible to put through Congress before June 30 an enabling act for the War Department comparable to that for the Navy Department (which has passed the House and is now before the Senate) it would, of course, be preferable to provide aid to China under such legislation.
- Approved by Mr. Acheson on May 2.↩