Foreign Relations of the United States, 1948, The Far East: China, Volume VIII

893.50 Recovery/5–2948: Telegram

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

Washington , May 29, 1948—6 p.m.

815. Following comments are made re those aspects draft China agreement (Deptel 774 May 24) which represent significant departure from Master Agreement (ECA 1⁷⁴). ECA concurs present China draft and these comments. Articles indicated as “identical” follow master language with exception deletion references ERP, OEEC⁷⁵ or Economic Cooperation Act and substitution, where appropriate reference China situation or China Aid Act. For comment such articles Emb should refer analysis master (ECA/3 and 4) en route pouch as indicated Deptel 814.

• Art I—(Assistance) Identical Master Art II.
• Art II (a), (b) and (d) (General Undertakings)—Identical Master Art III.
• Art II (c)—Differs significantly from Master Art III (c) in view inapplicability absolute standards of latter to Chinese fiscal situation. However believed language China draft sufficiently comprehensive and firm to cover points this field to be dealt with more specifically in corollary discussions.
• Art III (Commercial Relations)—Not included Master draft but required for China by Sec 405 of Act. Dept still considering language Deptel 774 May 24 and would appreciate any Emb comment. Did misunderstanding re instruction Art III Deptel 773 May 24 result in presentation text this art to Chinese?
• Art IV (Efficient Use Resources and Principles Distribution)—Para 1—identical Master Art IV. Para 2 and 3—Not included Master draft but necessary as leverage in obtaining and strengthening Chinese distribution controls for effective use aid goods. Dept believes language recommended Embtel 850 May 11⁷⁶ for this article, while appropriate limited relief program distributed by ChiGovt and voluntary agencies, unnecessary and undesirable this agreement, “direct supervision and control” places undue formal responsibility on US for program as large and complex as present aid and would probably be resented by ChiGovt because of extreme departure European agreements. Para 2 makes it possible go as far as practicable, as judged by mission during actual operations, in determination use goods by US. “Supervision” is implicit in proposed language, and US “control”, in sense right suspend or curtail internal distribution commodities, can be made one of “terms and conditions” where desirable. Para 3 establishes high standard distribution for reference in application para 2. It can be used obtain ration and price control systems where practicable, but has advantage not specifying such systems all aid commodities in advance exploration their concrete possibilities.
• Art V (Trade Policy)—Identical Master Art V.
• Art VI (Assets in the US)—Identical Master Art VI. Dept and NAC recognize probable ineffectiveness this article (Embtel 850 May 11⁷⁷) but believe there is no adequate justification that can be made publicly for excepting China particularly in view para 3.
• Art VII (Local Currency)—Emb will note significant variations from Master Art IX. However Dept and ECA awaiting final NAC comment and suggest Emb defer discussion this article with Chinese pending instructions anticipated shortly.
• Art VIII (Exchange Rates)—Awaiting advice from NAC.
• Art IX (Access to Materials)—Identical Master Art XI. Embtel 875, May 13⁷⁸ appreciated. Dept unable justify exception China this article. However suggest Emb defer its discussion with Chinese pending further study here re approach to be taken para 2.
• Art X (Relief Supplies)—Identical Master Art XII para 2.
• Art XI (Consultation, transmittal of Info and Publicity)—Para 1, 2, 3 and 4 identical Master Art XIII para 1, 3, 4 and 5. China para 5 unique but comparable Master Art XIV.
• Art XII (Missions)—Identical Master Art XV.
• Art XIII (Arbitration)—Identical Master Art XVI. There appear to be no special reasons make exception China this article (Embtel 850 May 11⁷⁹).
• Art XIV (Entry into Force, Amendment, Duration)—Identical Master Art XVIII except for duration date. Note that second sentence para 1 makes possible extension duration agreement to allow sufficient time disburse funds obligated as of Apr 2, 1949 for capital goods reconstruction projects.
• Master draft contains following articles not included China draft for reasons indicated below:
  • Art I (Objectives)—Unnecessary. Covered by China preamble to extent appropriate China situation.
  • Art VII (Guaranties)—Tentative Dept view is that guaranties for private investment (Sec 111(b) (3) of Act) inapplicable China in view requirement that guaranties be directly related sale of notes authorization (Sec 111(c) (2)) which is clearly intended ERP countries only. No ECA legal ruling yet made this point.
  • Art VIII (Projects)—Inapplicable China agreement in view character and length China aid program. Need for info re reconstruction projects covered by China draft Art XI.
  • Art XII, para 1 (Travel Arrangements)—Inapplicable in view present political and transportation situation China.
  • Art XIV (Publicity)—Relates primarily to publicity among participating ctrys re ERP. Subject handled appropriately in China Art XI para 5.
  • Art XVII (Definitions)—Undesirable attempt define area China. Definition China Aid Act unnecessary since full title Act has been used thruout agreement.

Lovett

74. This and other ECA documents cited in this telegram not printed.
75. Organization for European Economic Cooperation.
76. Not printed; see footnote 52, p. 516.
77. Not printed; this telegram suggested the Department consider deleting article VI (893.50 Recovery/5–1148).
78. Not printed; this telegram reported the Embassy’s opinion that the Chinese would vigorously resist any proposal to negotiate on “access to, and national treatment for, US persons in development [of] strategic materials.” (893.50–Recovery/5–1148)
79. Not printed; this telegram recommended deletion of this article to simplify negotiations unless there were special reasons applying to China which made inclusion desirable (893.50 Recovery/5–1148).