811.42700 SE/8–2647: Telegram

The Secretary of State to the Ambassador in China (Stuart)

1150. Dept gratified learn (Embtel 1743 Aug 19) Foreign Minister’s general agreement Fulbright June 16 draft. Results Embs negotiations with Foreign Office outlined (Embtel 1806 Aug 26) also gratifying. Dept’s reactions follow:

Article 1. Dept agrees retain phrase “in the capital city of China.” Re sentence beginning “except as provided in Article 3,” Dept feels essential keep reference to domestic laws USA inasmuch as laws drafted to control domestic expenditures would prove cumbersome when applied to operations of Foundation. In view operational difficulties which might be encountered if this sentence were deleted Dept hopes Emb can make clear intention this provision to satisfaction Chinese. Exemption from Chinese laws included because of reciprocal nature of agreement and to safeguard Foundation Funds from any local laws dealing with currencies and credits which might impose restrictions on Foundation’s activities. Similar exemption clauses form part of educational foundation agreements signed with South American countries and operating successfully many years.

Article 2, Section 4, Dept only seeking right of Foundation to acquire permanent office space and equipment necessary for successful operation. Dept willing concede elimination of right to acquire real property if Emb believes rental satisfactory. Points out however that Foundation may be precluded from buying real property unless specifically authorized in agreement. Section 9, Dept suggests addition of two words “and pay” following word “fix.”

Article 4. Dept agrees proposed Foreign Office wording with addition of words “to the Foundation” following “available” in first sentence, and if in Emb’s view second sentence would not preclude entering long term lease if such proved desirable. In this connection, for Embs info Dept believes quite unlikely Foundation able expand full million first year operation because of normal difficulties attendant inauguration program.

Article 5. Dept agrees Foreign Office wording with two small changes: Sentence beginning “The Chinese Govt shall appoint” should read “The Chinese Govt shall appoint a number of advisors not to exceed five, who may attend all meetings of the Board and participate in its discussions.” This adds phrase “not to exceed five” and substitutes word “may” for “shall.”

Article 11. Dept accepts Foreign Office language in first sentence. Dept now believes that fixed dates of payment specified in second sentence are undesirable because of possible currency fluctuations. [Page 1287] Dept prepared accept Emb’s recommendation (Embtel 1350 June 20) that commencing January 1, 1948 Board may determine amounts and dates of payment aggregating not more than one million dollars each calendar year. Dept points out that third sentence beginning “The Govt of USA shall deposit” was deleted in June 16 draft and should not be included as part of agreement. Dept recommends final sentence commencing “The rate of exchange” beginning with word “or” should be changed to “or in the absence of such a par value the rate shall be determined on an equitable basis upon which the Govt of China and the US may mutually agree.”

Re guarantee against exchange loss Dept believes this language important since Article 4 now requires Foundation have on hand necessary funds for full year’s grant before making such commitment, and authority to invest funds is eliminated. Thus Foundation or grantee would be at complete mercy of exchange market during each 12 months period.

For Embs information exchange guarantee clause is being negotiated in all Fulbright agreements. Standard clause has now been modified from language supplied Emb in June 16 draft as follows: Word “exchange” should be deleted before word “loss” in first sentence second paragraph and phrase “or from any currency conversion” should be inserted after words “rate of exchange” in same sentence. Phrase “or from currency conversion” should be added at end of last sentence in paragraph.

Articles 12 and 13. Dept willing accede Emb’s recommendation eliminate these. However in view reciprocal aspects Article 13 and possibility of heavy taxation curbing scope of program, suggest Emb explore securing informal exchange of notes between Ambassador and Foreign Office covering these points.