Mr. Donald B. Davis to General P. Kiang of the Chinese Executive Yuanf 39

My Dear General Kiang: 1. On 16 September 1946, the Board of Supply imposed a ban, effective 13 September 1946, on the import into China of surplus property privately purchased from the Foreign Liquidation Commission subsequent to the latter part of June. The implications of this regulation were not discussed with the Field Commissioner in advance and the only notice received by this Office was through newspaper announcement. Bona fide customers of the Foreign Liquidation Commission have since protested this action to us and the United States Consul General as being discriminatory and not in accordance with Article One of the Agreement of 30 August 1946 between our two Governments.

2. This action by the Board of Supply was apparently taken as a result of your interpretation of Article One of the “Agreement Between The United States and China for the Sale of Certain Surplus War Property” executed 30 August 1946, and your contention that the tentative understandings, reached as far back as June, prior to the execution by our Governments of the 30 August Agreement, referred to above, should be taken into consideration and would affect sales made by offices of the Foreign Liquidation Commission. Without seeking any support for this interpretation from our office, the import ban was placed upon several shipments of surplus property sold by the Foreign Liquidation Commission, from Pacific Bases, during the period covered by the discussion phase pending the signing of the Agreement of 30 August.

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3. On 14 October, General B. A. Johnson, Field Commissioner, Foreign Liquidation Commission, communicated with you by letter and expressed his views on this matter and other subjects. Meanwhile, this office, in conjunction with the local Consulate General, sought the view of those who negotiated said agreement, reviewed all relevant reference material, and obtained a decision from our Government.

4. The unanimous position of all the above enumerated sources and the decision of the Government in Washington is that the 30 August 1946 Agreement is the controlling document, and supersedes all previous tentative proposals or tentative agreements including those reached at Nanking, and that no other view is tenable.

5. This office will of necessity have to be guided and bound by the above decision. It appears therefore that the action taken on the part of the Board of Supply by invoking the import ban on the property sold during the period in question, does not conform with Article One—Sub-Paragraph Two of the 30 August 1946 Agreement, and should therefore be immediately revoked.

6. Your attention is invited to the fact that there is property included in the 30 August Agreement which might be imported into the United States of America with a very substantial return to China of United States Dollars. Such sales were presumably contemplated at the time the Agreement in question was reached in order to assist China in better utilizing the surplus property in her rehabilitation program. Without attempting to adjudicate any one case it is pointed out that the amount involved by firms seeking to import goods into China purchased for their own direct use from the Foreign Liquidation Commission and not to be sold in competition with Board of Supply, Executive Yuan, is negligible compared with the return China could receive from goods sold under the overall agreement which are available for import into the United States of America. It would be unfortunate if this potential source of dollar income were in any way jeopardized by discriminatory action of the Chinese Government on imports of Foreign Liquidation Commission sales into China.

7. It is therefore suggested in the future to prevent recurrence of misunderstandings, that any contemplated actions such as the recent import ban be held in abeyance until a decision on issues raised be adjudicated by competent authority. It is requested that immediate consideration be given the views herein expressed and a decision on the part of the Board of Supply be communicated to this office.

Very truly yours,

Donald B. Davis

Field Commissioner for China and Eastern Asia
  1. Copy transmitted by Mr. Davis to Major General Connolly and Mr. Vogelback with memorandum of October 29.