Memorandum by Messrs. Thomas B. McCabe and William E. Vogelback to the President of the Chinese Executive Yuan ( Soong )

1. During the period June 15th to June 21st certain tentative understandings were reached between representatives of the U. S. Foreign Liquidation Commissioner and the China Board of Supplies relating to the sale by U. S. to China of nearly all U. S. surplus property located in the Pacific.

2. The proposed terms of the agreement involved approval by, and action of, the several Departments of the U. S. Government. For example, the matter of “Credit” (Treasury Department), “Employment of Nationals in other than Chinese territory” (State Department), “Inspection and checking out of property to be transferred” (War and Navy Departments) and the “Freezing of property in the Pacific pending sale to China” (several departments and OWMR).

3. The proposed agreement and its implications were examined exhaustively and critically in Washington by the high officials of the Departments concerned. Objections to the plan were raised by the War and Navy Departments, particularly on the ground that the personnel required to check out the property in detail was not available, and that in any event the time element would seriously disturb the peace-time program of the Services.

[Page 1050]

4. It was determined in Washington that a mission should proceed to China to conduct on the spot negotiations for a sale of the surpluses to China under terms and conditions, as far as possible, consonant with the plans and policies of the several Governmental Departments and Agencies. The President of the United States directed that Mr. Thomas B. McCabe be accompanied by high officials 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 respective concern which might arise in the course of the negotiations. In addition a representative of the Treasury Department would accompany the mission as an advisor.

5. The President stated that Mr. McCabe as Foreign Liquidation Commissioner would be, of course, responsible for the ultimate decision as to whether a sale should be made and as to its terms and conditions.

6. On the arrival of the mission at Manila, Pacific Headquarters of the Foreign Liquidation Commissioner, all pertinent data relating to the available surpluses in the Pacific were reviewed and analyses of conditions and methods were made to put the details of the new proposal on a concrete, realistic and workable basis.

7. The considerations which outlined the type of proposal to be made were (a) China’s capacity to transport and absorb the tremendous volume of surplus in the light of the congestion of the port of Shanghai and the difficulties in the way of internal distribution; and (b) the capacity of the U. S. Armed Services with their continuing reduction of already limited personnel to engage in checking out the items of property, as well as the expense to be incurred by both China and the U. S. in engaging in such detailed operations.

8. After arrival in Shanghai, meetings were held of representatives of the several departments and agencies, and it was the considered and unanimous conclusion that a proposal be made to China involving all the uncommitted surplus property except aircraft, ships, fixed installations and non-demilitarized combat matériel located in China. Okinawa, Guam, Saipan, Tinian, Eniwetok, Marcus, Kwajalein, Los Negros, Ulithi, Majiro, Makin, Manus, Peleliu, Finschhaven, Iwo Jima (except army ground forces), Wake and Roi, representing an aggregate procurement cost of approximately $500,000,000, and that this sale be made on a straight bulk basis. This differed from the previously discussed sale in that the surpluses in the Philippines were now to be excluded from the proposed sale. The foregoing does not include any property set aside to fulfill requirements for the 8⅓ group Chinese Air Force program.

9. This proposal was discussed fully with General Marshall and Ambassador Stuart and met with their complete approval.

[Page 1051]

10. The surplus and excess property available for sale to China under this proposal is estimated to be approximately as follows:

China $13,000,000
Okinawa 170,000,000
Guam 146,000,000
Others 171,000,000
Approximate Total: $500,000,000

There has been prepared and there is available a breakdown of these estimated figures into classes of property and by locations as well as a descriptive list of major types of property included in this proposal.

11. Of this estimated $500,000,000 of property, approximately $337,000,000 has already been declared surplus and is listed on surplus declaration forms. The balance is estimated on a tonnage basis by classifications in accordance with previous experience.

12. It is proposed that this surplus property, estimated at $500,000,000, together with $150,000,000 ($53,000,000 in sales price) of property already purchased, the $90,000,000 ($16,000,000 in sales price) in the balance of the small ship program, the $5,000,000 representing the 20% cash payment on the purchase of the West China surpluses, and the $85,000,000 ($6,000,000 in sales price) for certain fixed installations referred to below, be sold to China in consideration of the cancellation of the Yuan debt, plus an aggregate amount of $25,000,000 to cover certain real estate and a fund to be established for promoting research, cultural and technical educational relationships. The fixed installations relate to (a) weather stations and aircraft communication systems which China would maintain under the usual form of agreement covering such facilities, and (b) air fields. In addition to the foregoing property, there is included in the sale such substantial amounts of scrap at the several bases as are available or may be made available by the Services.

13. In order that China derive the maximum advantage from its purchases of surplus property, China would engage an established American firm or firms of engineers and contractors to plan, direct and manage the guarding, reconditioning, loading, transportation to China, unloading and moving to storage the property purchased.

14. China would agree to utilize the normal channels of distribution without discrimination against U. S. citizens operating in China.

Thomas B. McCabe
Special Assistant to the Secretary of State and the Foreign Liquidation Commissioner
William E. Vogelback
Central Field Commissioner for the Pacific and China