893.24/8–246
The Director of the Office of War Mobilization and
Reconversion (Steelman) to the Acting Secretary of State
Washington, August 2,
1946.
Dear Mr. Acheson: Attached is a copy of a
memorandum from me to the President, and a copy of the President’s
reply, regarding the proposed mission to China to negotiate a sale of
our uncommitted Pacific surpluses to the Chinese Government.
You will note the President’s direction that Mr. McCabe, in addition to
his authority to determine whether and on what terms a sale should be
made, should also be fully authorized to deal on behalf of the United
States with any matters relating to the various phases of our war
account with China, following relevant policy decisions wherever they
have already been made. You are respectfully requested to take the
necessary steps to carry out the President’s direction.
Sincerely,
[Page 1046]
[Annex 1]
Memorandum by the Director of the Office of War
Mobilization and Reconversion (Steelman) to
President Truman
Washington, August 2,
1946.
At the request and with the support of General Marshall, negotiations
were initiated last April with the Chinese Government looking toward
the sale to that Government of a large part of the Army and Navy
surplus property in the Pacific Theaters. In view of the compelling
political reasons for rendering economic assistance to China and the
cost and difficulty of removing unsold surplus and disposing of it
in the United States, it has been generally agreed by the agencies
of this Government having a concern with the matter that all surplus
property not otherwise committed should, if possible, be disposed of
to the Chinese Government. It was also generally agreed that the
price asked would probably have to be low if the Chinese Government
were to be induced to enter into the transaction. After preliminary
discussion of the estimated amount of surplus property available
(approximately one billion dollars in procurement cost) and the
price, the Chinese Government indicated a desire to proceed with the
purchase on certain terms. The return of surplus from the Pacific to
the United States for sale through domestic disposal agencies was
accordingly halted approximately July 1st.
At the present point in the negotiations a major issue has arisen as
to the form the purchase agreement should take. There are three
possible forms of such a purchase agreement, which I summarize
below:
- (1)
- The Chinese Government would accept surplus property as
made available to it for transfer, and would pay a purchase
price to be computed as a percentage of the original
procurement cost of the property actually transferred. This
is the plan so far discussed with the Chinese, and one which
it is assumed they would prefer, since under such an
agreement they would not be required to assume a major
financial obligation in advance of adequate information
concerning the assets they would acquire. Some of the
interested U. S. agencies, however, feel that this plan
would be exceedingly burdensome, and would involve elaborate
and protracted checking and accounting operations this
government is hardly in a position to perform.
- (2)
- Wherever possible, as an alternative to Plan 1 above,
representatives of the Chinese and the U. S. Governments
would negotiate an over-all price to be paid for each lot or
base designated for transfer. This method would involve a
number of separate negotiations, but it would eliminate a
large part of the laborious accounting which would be
required by (1), would permit the Chinese to gain a fairly
accurate conception of what they were getting before they
made a price commitment, and would give to the Chinese an
incentive to take prompt possession of property once it had
been designated to them.
- (3)
- An agreement incorporating an over-all price for all our
surpluses in the Pacific (less prior commitments), whatever
they may turn out to be, would be negotiated with the
Chinese. The amount would be offset against our cash
obligation to the Chinese on account of the Yuan advances
for U. S. Army expenditures in China, and some additional
payment would be sought in the form of grounds and
buildings, funds for cultural purposes, and other property
or services desired by the U. S. No separate settlement
would thus be required for Yuan advances as would apparently
be required under either (1) or (2). This plan is
unanimously favored by the interested U. S. agencies.
The State, Treasury, War and Navy Departments in consultation with
this Office are agreed that further negotiations looking toward a
settlement of the outstanding issue cannot effectively be directed
from Washington while they are being conducted in Nanking. My
recommendation, supported by the Departments concerned, is that a
mission consisting of Mr. McCabe, the Foreign Liquidation
Commissioner, representatives of the War Department, the Navy
Department and the Treasury Department, proceed to China to conclude
the negotiations. Each member of this mission should carry with him
authority to act for his Department and the Foreign Liquidation
Commissioner should carry with him the authority of this Office and
be authorized with Presidential approval to conclude an agreement,
after due consultation with General Marshall and our Ambassador31 and with his
associates on the Commission.
If you approve this recommendation, I will request these men to
depart as promptly as possible. In the meanwhile, the State
Department will notify General Marshall and our Ambassador of this
plan and our negotiators will be instructed to await the arrival of
the mission rather than any further cabled instructions.
[Annex 2]
President Truman
to the Director of the Office of War Mobilization and
Reconversion (Steelman)
[Washington,] August 2,
1946.
Dear Mr. Steelman: I agree with your
recommendation that a mission should proceed immediately to China to
conduct on the spot negotiations for a sale of our uncommitted
Pacific surpluses to the Chinese Government. Mr. McCabe, as the
Foreign Liquidation Commissioner, should take part in the mission;
and because the problems involved in such a sale affect the
interests of several government departments and agencies, he should
be accompanied by high officials
[Page 1048]
of the War and Navy Departments and of the
War Shipping Administration, each of whom should carry with him full
authority to act for his department or agency in any matter of
concern to such department or agency which may arise in the course
of the negotiations. In addition, a representative of the Treasury
should accompany the mission as an adviser. As the Foreign
Liquidation Commissioner, Mr. McCabe is of course responsible for
the ultimate decision as to whether a sale should be made, and as to
its terms and conditions; and his decision after due consultation
with his associates on the mission, as well as with General Marshall
and with Ambassadors Stuart and McNutt,32 will carry with it the authority of your
office and will be supported by my approval.
For Mr. McCabe’s guidance, I think it well to reiterate my conviction
that General Marshall’s mission in China is of tremendous importance
to our national welfare. Considerations affecting the success of
this mission should be paramount in any decision whether and how to
sell our Pacific surpluses. Second only to the considerations
affecting the Marshall mission, weight should be given to effecting
a speedy roll-up of our military and naval operations in the
Pacific, and to bringing home promptly the largest possible number
of our soldiers, sailors and marines and reducing the number of
civilian employees of our armed services overseas. These
considerations cannot of course supersede the statutory injunction
to secure as nearly as possible fair value in the sale of surplus
property, but they should be taken heavily into account in deciding
just what is fair value in all the circumstances.
Although the primary purpose of Mr. McCabe’s mission will not relate
to the various phases of our war account with China, such as
lend-lease, the 1942 credit,33 or the obligations of our Government on
account of yuan expenditures and advances by the Chinese Government,
yet it is apparent that successful negotiation of a surplus sale may
well call for negotiation and settlement of some one or all of these
additional outstanding items. Mr. McCabe should be fully authorized
to deal with these matters on behalf of the United States, following
relevant policy decisions wherever they have already been made.
Sincerely,
