811.42700 SE/9–2447: Telegram

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

1986. ReDeptel 1150, September 12, 6 p.m. Discussions with FonOff on changes and suggestions contained in telegram under reference have produced following tentative agreements, some of which are still subject to confirmation by FonOff with other interested Chinese authorities.

FonOff agrees to reconsider inclusion of sentence beginning “except as provided in article 3” though it may make a counterproposal to [Page 1288] retain the reference to American law and eliminate the reference to Chinese law. Article 2, section 4, FonOff will reconsider Department’s views and probably accept. Addition to section 9 acceptable.

Article 4. In order to avoid the necessity of having the funds for any given year on hand at the beginning of that year and in connection with changes in article 11 discussed below, Embassy rewrote and FonOff accepted the second sentence to read as follows: “The foundation shall not enter into any commitments or create any obligation which shall bind the foundation in excess of the funds to be received during any given calendar year.” Department’s concurrence requested.

Article 5. Proposed changes tentatively approved, though FonOff may not have fully realized that one change limits the number of Chinese advisors to five. Department’s authorization is requested to increase number of advisers if FonOff so requests. Embassy does not believe that increasing the number of advisers would constitute any material change and might assist in securing other concessions.

Article 11. Second sentence altered and mutually agreed upon to read as follows: “Thereafter commencing with January 1, 1948, the Government of the Republic of China shall, during each calendar year within the period January 1, 1948 to December 31, 1967 inclusive, deposit upon demand of the foundation, amounts of Chinese national currency not to exceed the equivalent of one million dollars (U. S. currency) in any given year. The first deposit of Chinese national currency equivalent to $250,000 (U. S. currency) shall be considered as part of the deposits for the calendar year 1948.”

The third sentence in article 11 concerning the rate of exchange is still causing difficulty. The Ministry of Finance states that it can never get the Legislative Yuan, which will have to ratify the agreement, to accept the provision that “the rate shall be determined on equitable basis” since the Yuan feels this to be an unwarranted infringement on its right to pass laws. The Ministry therefore proposed that the rate be either the par value as established by the International Monetary Fund or in the absence of the par value, the open market rate as determined by the Central Bank. The Embassy refused to accept this proposal on the grounds that although the open market rate would be eminently satisfactory today, it might not be so later and in any event, under present conditions in China might be abolished leaving U. S. without any rate. The Embassy, therefore, proposed and Ministry tentatively accepted the following wording after the phrase “in conformity with procedures of the International Monetary Fund” to include the following: “Or in the absence of such a par value, the rate shall be the open market rate as established by the Central Bank. [Page 1289] Should this latter rate for any reason appear to be inequitable or should it be abolished by the Govt of the Republic of China, a new rate can be the subject of discussion between the two Govts”. Embassy believes that the new provisions in articles 4 and 11 constitute adequate guarantees against exchange losses and fluctuations and in view of these new provisions, Embassy recommends that Dept accept continued FonOff insistence that the second paragraph of article 11 concerning losses from exchange be eliminated. FonOff still maintains that legislative Yuan will not accept this kind of general provision but will accept the type of guarantee outlined above. The third sentence beginning “The Govt of the U. S. A. shall deposit” deleted.

Articles 12 and 13 eliminated. FonOff states it will probably accept suggestion for inclusion of the sense of article 13 in an informal exchange of notes.