The Consul General at Shanghai (Davis) to the Secretary of State
[Received 3:20 p.m.]
1990. 1. Consul General advised by both Kiang and Standard–Vacuum that BOSEY permitting import clearance of first shipment of latter’s surplus property from Guam on following terms. (Re mytels 1929 [bis], October 7, repeated Nanking 1099, to Manila as 89; and 1947, October 9; repeated Nanking as 1110 and to Manila as 93 .) Standard–Vacuum will be required to establish bank credit equal to purchase value of incoming supplies for benefit of BOSEY. This credit, amounting in first instance to approximately U. S. $150,000, [Page 1089]will extend for 3 months, at the end of which time it will be payable to BOSEY unless satisfactory settlement with Foreign Liquidation Commission is accomplished meanwhile. Standard–Vacuum recommending home office approval of this procedure because of its need for the supplies purchased. If payment ultimately made to BOSEY, reimbursement will naturally be sought from United States Government.
2. Kiang advises that he will follow this procedure on all surplus property imports of purchases made from FLC between June 15 and August 30 including those in China, which he claims were property of Chinese after Nanking discussions and should therefore not have been sold. No record has yet been established either of the total amount involved or the number of purchases. The contingent liability for FLC settlement of future claims from original purchasers who have been penalized under the above procedure will be substantial, however.
3. Kiang further states that surplus property which was sold by FLC in other areas, such as Leyte, subsequent to June 15 will not be given import clearance at all unless waiver by the Chinese Govt was made in advance. He admitted confidentially that he hoped by this procedure to take over himself these contracts on the same terms as originally negotiated and to bring in the supplies for the account of BOSEY.
4. Regarding paragraph 2 Mytel 1947, October 9, following is text of letter located in FLC files and sent by Kiang to Johnson, June 19:
“This is to confirm our conversation yesterday with regard to the following:
- In accordance with General Marshall’s order, all US Army surpluses in China proper are to be frozen hereafter from the 17th day of June 1946.27
- In case of any commitments on your part, the prices of which should be agreed upon by this office before actual sale takes place.
Your kind cooperation will be much appreciated”.
While not yet brought up in any discussions with Kiang, it is felt that this letter may be cited later as supporting Kiang’s agreement with Johnson and Howard, and confirmed to the former, that surplus property covered by Nanking agreements was frozen not only against return to the States but from sales to other than Board of Supplies.
5. Believe this and reference cables give as full exposition of Chinese position in this matter as is possible to obtain. In view of Vogelback’s imminent return to Washington, it is suggested that final decision on US position in this matter might well be deferred until he returns, when Department can discuss all aspects of Nanking negotiations with Vogelback and Howard. Any final position taken [Page 1090]by Department will presumably have to be communicated to Chinese without benefit of support from the three FLC Nanking negotiators. Most desirable in Consul General’s view that Chinese arguments be carefully considered, therefore, in determining final ITS position. Relative data not already submitted being forwarded in separate despatch.
Sent Department 1990, October 14, 8 a.m., repeated Nanking 1133 and Manila for Vogelback as 98.