893.50 Recovery/7–1648

Memorandum by the Chief of the Division of Chinese Affairs (Sprouse) to the Director of the Office of Far Eastern Affairs (Butterworth)

A meeting was held in the Division of Chinese Affairs on July 14 to discuss means by which this Government could expedite assistance to China under the $125,000,000 grants, with officers from the Army and Air Force in attendance. There appear to be two main problems which will have to be resolved before the military services can materially assist the Chinese in their purchasing program. These are: 1) The establishment of a legal means by which transfer of matériel from military stocks can be effected and 2) the establishment of a priority for China which will enable it to receive a share of the limited supplier available for foreign military aid. These difficulties will be considered in order in the following paragraphs:

The fact that stocks now surplus in the Pacific are being declared to the Chinese and the existence of recently enacted laws making it impossible for the armed services to declare material in the United States surplus, definitely limit the possibilities of additional transfers being made from surplus. The armed forces believe they have no legal justification for making transfers similar to those being made to Greece and Turkey where supplies are transferred from non-surplus stocks upon reimbursement at procurement costs. Mr. Eichholz of the Department’s Legal staff indicated that section 404(b) of the China Aid Act 1948 exempted the $125,000,000 grants from the restrictions of the Economic Cooperation Act of 1948 but that it might be interpreted that they could be entitled to the benefits of that act [Page 114] (Section 113a). He stated that this might provide the desired authorization. It was agreed that Mr. Eichholz would meet with legal representatives of the Budget Bureau and the Services and if all were in accord with respect to the existence under present legislation of this authorization the Budget Bureau would then be asked to obtain an adjustment of the Presidential terms to permit such transfers.
Army and Air Force officers indicated that should a legal vehicle be found for the transfer of military stocks, the availability of such for transfer to China would depend on the establishment of a priority for that country. It was noted that National Security Council document 14, approved by the Cabinet July 1, states that Western Europe shall receive first priority for the receipt of military aid. Army officers pointed out that it was probable that all available matériel would be needed to meet the requests of the Western European countries, and that in any case many months would elapse before the extent of their needs would be known. Similarly, the military services would not know the extent of their own requirements pending determination of troop basis figures now being prepared. It was agreed that it would be impracticable to delay action on Chinese requests until the above determinations had been made. It was likewise agreed that the SANAC study on priority now being prepared offered no solution, since it is not yet agreed upon and China will in all probability be placed after the countries of Western Europe and the Middle East. It was concluded that if China is to receive any material from military stocks, a special priority will have to be established to govern the expenditure of the $125,000,000 grants. Officers of Plans and Operations, Army indicated that a letter on the question of priorities had been drafted and if it is approved by Mr. Royall should reach the Department of State by Friday, July 16.

It was noted that when the Army’s views had been received they would be considered by the Policy Committee on Arms and Armaments which would make appropriate recommendations to the Secretary on the question of priority.