Minutes of Meeting Held June 3, 2:30 P.M.

Present: Chester T. Lane, Deputy Commissioner, OFLC
Hubert Havlik23
Dr. S. C. Wang, Chairman, Chinese Supply Commission
K. K. Tsien, Chinese Supply Commission
Mr. Shaughnessy, Chinese Supply Commission
C. H. Kendall, Legal [Division, OFLC]
Thomas J. McCormick, Acting Chief, China Branch [OFLC]
Miss Frances Haidt [OFLC]
Charles R. Bennett (Until recently, Chief, China Branch [OFLC])

The meeting was instigated by Mr. Lane to give the Commission a chance to express its views on the proposed pipeline agreement, a draft of which had been in their hands for some days.

Mr. Lane opened the meeting by expressing regret that various unforeseen contingencies arose to prevent formalizing quickly the Crowley–Soong commitment as to civilian lend-lease goods under contract, in storage or at port on V–J Day (September 2, 1945) marked for China. The draft now under consideration was drawn up to formalize the terms and the spirit of the commitment agreed upon by Mr. Crowley and Dr. T. V. Soong in the exchange of letters of last year beginning with Crowley’s August 22 memo to Dr. Soong,24 to which the latter replied August 24.25 The formal offer of Mr. Crowley’s is in his letter of September 18, 1945 to Dr. Soong.26 The acceptance of that offer, as far as the pipeline is concerned is in Dr. S. C. Wang’s letter to Mr. Crowley of September 29, 1945.27 Mr. Lane expressed the hope that the draft agreement was satisfactory to the Chinese but the meeting was specifically for the purpose of offering them an opportunity to comment.

Dr. Wang stated that he would present some comments and suggest some modifications based not on any claim that the agreement laid down terms not in accord with Crowley’s offer and the Chinese acceptance but rather from what he termed “a broader concept”, of China’s need of the goods and America’s desire to assist China to the needed supplies on terms at least as favorable as those accorded [Page 741] other nations for similar goods. While China must consider the needs for and use of the goods from an economic point of view, he felt the terms of payment should embody a spirit of friendly help rather than strict business agreement. He outlined several suggestions for terms more favorable to China.

1. His greatest emphasis was on a request for reducing the sale price below the cost price, citing the Russian Agreement of 90% of cost. He stated that whereas at the time of Crowley’s offer the probability of being unable to get motor trucks in any foreseeable period if they did not accept the offer induced them to accept the offer; with the war conditions past and the trucks to be used in a commercial way, they now feel that these trucks forming two-thirds the pipeline may well prove uneconomical at the full cost, being heavy specially built 3½ ton trucks (landed cost about $4100). Lighter trucks (less expensive to run) would now suit better. He felt, therefore, that giving consideration to these points would justify reducing the price to be paid by China. Mr. Lane asked Mr. Bennett how he felt about the price of the trucks in view of Dr. Wang’s remarks. Mr. Bennett called attention to the fact that when Mr. Crowley made his offer August 22 (confirmed formally Sept. 18) to Dr. Soong, it was not required that China accept all or none and when Dr. Wang finally wrote to Mr. Crowley September 29, 1945 stating, “that the Chinese Government desires to accept, without further selection all FEA lend-lease supplies for China in process of procurement, manufacture and delivery in this country”, he could have eliminated any items not desired on the terms stated. (As a matter of fact Dr. Soong in his letter of August 24 to Crowley fully accepted the terms only reserving action on the selection).

Mr. Bennett also stated that several informal offers had been made by people returning from India to the effect that if FEA would dispose of the trucks privately, 50% more than landed cost could be got. FEA, however, was not interested except as an indication of the fair disposal price if the Chinese should desire to obtain the trucks in India (forming part of the 15,000 Dodge trucks lend-lease contract). Mr. Bennett further pointed out that up to the time Dr. Wang accepted the offer which was the go-ahead sign for continuing production, very few of the 6, 100 trucks were completed and cancellation might well have been welcomed considering the critical supply situation relative to trucks, tires, tubes, spare parts, etc. Mr. Bennett unequivocally stated that all indications were that in spite of the special nature of this truck, it could be sold in the Far East for much more than landed cost. Dr. Wang continued to express doubt as to the economic value of the trucks at 100% of cost, as well as very great surprise at Mr. Bennett’s estimate of sale value.

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Mr. Havlik enquired of Dr. Wang what had changed his opinion between Sept. 29, 1945 when he elected to take all the trucks at cost and now when he seemed to feel they were less desirable. Dr. Wang stated that at the time he felt it very desirable to retain a going contract with its priorities lest other trucks should not be available for a long time. He now felt that the trucks were too expensive for the service to be rendered in China where standards of performance in such lines were rather primitive. Dr. Wang said he was not disputing the terms of offer and acceptance but rather whether, “broader principles” might not warrant the U. S. Government reducing the cost to China.

Mr. Lane and Mr. Havlik both indicated that they could not see how they could justify to the Congress and the American people less than cost for goods finished after VJ-Day at the specific request of the Chinese Government.

Dr. Wang then raised the question of the amount of the accessorial charge—whether 15% or 10% or actual cost as in the case of the Russian. He felt that 15% was much too high. Mr. Lane expressed willingness to review this charge with government parties concerned and if it appeared that 10% would cover the costs of such charges, reduce it to that figure in the agreement.

Dr. Wang then raised a point relative to incomplete units in the pipeline. He stated that there are some items that are incomplete as a portion had been finished before VJ-day and shipped to India. Whether the portion so shipped is in the Calcutta inventory sold to the Chinese Government is not known and it might be a very long time before the facts could be ascertained. He felt that an allowance in price should be made on this account as the incomplete unit might well be of no use unless and until the missing portion is located or replaced. Mr. Lane suggested that without specific information as to such missing parts it is not possible to consider any relief. Mr. Bennett suggested that, as we know there are no such items in the transportation, Russian cutback, textiles, medical and most of the industrial equipment, the chances of any considerable amount being involved in this category is very small. Mr. Havlik suggested to Dr. Wang that if it does not involve a very substantial amount he better ignore it. (After all if the units are useless because of missing parts, how can a cheaper price make them useful?) It was left that Dr. Wang would supply a list of incomplete units if he felt that they were of sufficient importance.

Dr. Wang requested a more flexible time limit for the Chinese Government to take over goods after notice of availability. This was agreeable to Mr. Lane and Mr. Havlik.

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Finally Dr. Wang cited certain lend-lease settlement agreements—especially the French—and requested that China be not required to make a pipeline capital payment for five years and that there be either a reduction in the cost price as first suggested or a deferment of the first interest payment for five years.

Mr. Lane pointed out that the French pipeline agreement did not provide for deferred payment of capital or interest but that this became part of the over-all French war-settlement. He would be willing to put into this agreement a clause providing that by mutual consent of both parties the pipeline agreement might be reviewed and included in the over-all war settlement. He felt bound to say, however, that he did not consider that putting in such a clause bound the U. S. Government or China to agree to such review at some future date.

It was agreed that another meeting would be held June 5 when Mr. Lane expects to have further information as to accessorial costs, a new phrasing of the “availability” clause (Page 2B of the schedule) and consider further Dr. Wang’s request for deferred capital and interest payments.28

  1. Chief, Division of Lend-Lease and Surplus War Property Affairs, Department of State.
  2. Foreign Relations, 1945, vol. vii, p. 1133.
  3. Ibid.
  4. Ibid., p. 1155.
  5. Ibid., p. 1160.
  6. An agreement between the Governments of the United States and the Republic of China on the disposition of lend-lease supplies in inventory or procurement in the United States, so-called Pipeline Agreement, was signed at Washington on June 14; Department of State Treaties and Other International Acts Series (T.I.A.S.) No. 1533, or 60 Stat. (pt. 2) 1760.