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

893.50 Recovery/6–2348

Memorandum of Conversation, by the Assistant Secretary of State for Political Affairs (Armour)⁸

[Washington,] June 23, 1948.

Participants:	Dr. V. K. Wellington Koo, Chinese Ambassador
	Mr. Armour, Assistant Secretary of State
	Mr. Sprouse, Division of Chinese Affairs

The Chinese Ambassador called upon me today by appointment to discuss various phases of the China aid program and other aspects of Sino-American relations.

Dr. Koo opened the conversation by explaining that the Chinese Government faced two serious difficulties in the negotiation of the bilateral agreements covering United States aid to China: First, it was necessary to take into consideration the attitude of the Legislative Yuan, which was exceedingly zealous regarding any provisions which might appear to discriminate against China in comparison with the European nations being extended aid by the United States; secondly, there was the factor of public opinion in China, which was swayed by student activities directed against American policy in Japan and any American action in China which might serve to offer a basis for criticism. He pointed out that student criticism of the United States had arisen from Communist agitation. It was for these reasons, he explained, that the Chinese Government was particularly concerned that China be given treatment in the bilateral agreement similar to that accorded European countries.

When I explained to Dr. Koo that in the final analysis that the advantages and disadvantages in the two types of agreements would in general balance themselves and that certain undertakings were, in accordance with the legislation, being required of the European countries, such as currency stabilization and establishment of valid rates of exchange, which could not be included in the agreement with China, Dr. Koo changed his tune somewhat and said that the chief matter of concern was that the Chinese Government not be asked to include in the bilateral agreement those general provisions which were not being required of the European countries. He went on to explain that he referred to such matters as most-favored-nation treatment in occupied areas and utilization of private Chinese assets in the United States. For example, he said, if the European countries found such provisions unacceptable, the Chinese wished to urge very strongly that reconsideration be given to the question of inclusion of such provisions in the bilateral agreement with China.

I replied that this was a matter for decision by Mr. Thorp⁹ and that I would be glad to refer this to him for consideration.

Following general discussion of the bilateral agreement covering economic aid to China and the negotiation in Nanking, Dr. Koo then referred to the bilateral agreement on rural reconstruction. He emphasized that the Chinese Government was apprehensive of the reaction in China to that part of Article II of this agreement which made the Joint Commission subject to the direction and control of the Administrator for Economic Cooperation. He said that this would be taken by the Chinese as an indication that a super-agency was being created which would be above the Chinese Government itself and under the control of the United States Administrator. He continued that the Chinese Government wished to insert in this Article language which would indicate that the Commission’s program would be subject to the approval of the Chinese Government. This, he felt, would serve to allay Chinese public suspicion and criticism that the Chinese Government was, in effect, concluding an agreement derogatory to its sovereignty.

I pointed out to Dr. Koo that we were very properly subject to the legislation on this point, that the wording of this part of the Agreement followed the language of the Act and that the Congress had expressed itself very clearly on this point. I added that the fact that the Commission itself was to be composed of two Americans and three Chinese made it clear that the Congress had expected that the program of the Commission would have Chinese approval. I went on to point out that there must naturally be a spirit of cooperation and joint agreement on the program since without such procedure it would be impossible to carry out an effective program of this nature in China. I said that we were willing to substitute language which would merely state that the Commission would be subject to the provisions of the Act and particularly Section 407 thereof provided it were clearly understood that this change meant no difference in meaning. This should, I felt, remove from the agreement language that might be found objectionable in China without actually changing the meaning.

Dr. Koo returned to his contention that it was not so much the language as the indication that the program would be subject to the Administrator and not to the approval of the Chinese Government, but finally seemed to understand my explanation that we could not depart from the legislation and that, no less than the Chinese Government vis-à-vis its Legislative Yuan, we would in the United States be subject to criticism from the Congress if we were to change the wording of this part of the China Aid Act to make it differ from that approved by the Congress. I said that I felt certain that the Congress had not expected that the program would be formulated without reference to the Chinese Government and that it had probably for that very reason provided for a Chinese majority on the Joint Commission. Dr. Koo said that he would communicate these views to his Government at Nanking.

Dr. Koo then turned to the matter of the aid to China under the $125 million grants authorized in Section 404(b) of the China Aid Act. I informed him that a note had been prepared for forwarding to him at the earliest possible moment after the President had signed the Foreign Aid Appropriation Act, 1949,¹⁰ and that it was expected that this would occur either late today or tomorrow. Further on this general subject, I informed Dr. Koo that we had requested the Secretary of Defense¹¹ to designate certain officers of the Departments of the Army, Navy and Air Force whom the recently arrived Chinese military representatives could approach in connection with Chinese planned purchases of military equipment in this country. I added that the Foreign Liquidation Commissioner¹² had also designated one of his officers to function in a similar manner. The names of the officers so designated would be forwarded to the Chinese Embassy, I said, immediately upon their receipt by the Department from the other Departments. Dr. Koo seemed pleased to have this information and said that he would inform his Government accordingly. When he asked what form or type of agreement would be necessary to implement this portion of the China Aid Act, Mr. Sprouse replied that it would be a matter of communicating the terms decided upon by the President to govern the disbursement of these funds and a reply from the Chinese Government indicating its agreement to the terms—this to be effected in an exchange of notes.

The conversation then turned to the question of the form that the bilateral agreement on rural reconstruction would take. Dr. Koo referred to information received from his Government that it would be preferable to have this agreement take the form of an exchange of notes. He added that this would be no less binding than a formal bilateral agreement and that its effect would be the same. I said that there would probably be no objection provided that the binding character of an exchange of notes did not differ from that of a bilateral agreement and asked Mr. Sprouse if he had any comments on this subject. Mr. Sprouse said that the Department had recently been informed by our Embassy at Nanking of the Chinese Government’s wishes in this regard¹³ and had told the Embassy that there would be no objection to such a procedure provided that it was clearly understood from a legal standpoint that the two types were equally binding.¹⁴ When Dr. Koo made some reference to the Chinese Government’s view that in the event of using an exchange of notes to effect this agreement it would not be necessary to register it with the United Nations, I asked him why his Government did not desire registration. Dr. Koo replied that it would be desirable to have as little publicity as possible regarding this agreement. Mr. Sprouse pointed out that one article in the draft agreement provided that the Chinese Government give maximum publicity to the program for rural reconstruction and that this seemed to be inconsistent with the Ambassador’s suggestion concerning registration. Dr. Koo then explained that it would avoid unfavorable comment on the agreement in the United Nations by member nations who would be quick to offer criticism. I pointed out that, in my opinion, such an exchange of notes should be registered with the United Nations since it would represent an agreement which would have force equal to that of a formal bilateral agreement but that I would obtain an opinion in this regard from the Department’s legal division.¹⁵

Dr. Koo then brought up the subject of the short-fall under the Surplus Property Agreement of August 1946, saying that Chinese representatives in the Pacific area had reported that only about $320,000,000 of surplus property had to date been removed from the Pacific Islands and that it was now evident that the balance of the surplus to be removed would be very small. He said that his Government now wished to inquire whether it would be possible to complete the deliveries under this Agreement from the Zone of the Interior. Dr. Koo added that he would shortly forward me an aide-mémoire on this subject,¹⁶ but that he wished to bring the matter to my attention at this time.

[Here follows summary of discussions on United Nations matters and American policy in Eastern Europe.]

N[orman] A[rmour]

8. Drafted by Philip D. Sprouse, Chief of the Division of Chinese Affairs.
9. Willard L. Thorp, Assistant Secretary of State for Economic Affairs.
10. Approved June 28, 1948; 62 Stat. 1054.
11. James Forrestal.
12. Fred W. Ramsey.
13. See telegram No. 1052, June 10, noon, from the Ambassador in China, p. 608.
14. See telegram No. 875, June 13, 1 p.m., to the Ambassador in China, p. 608.
15. In a memorandum of June 25 the Director of the Office of Far Eastern Affairs (Butterworth) informed Mr. Armour that the Office of the Legal Adviser had taken the position that “regardless of the form that this agreement takes it must be registered with the UN Secretariat.” (893.50 Recovery/6–2848)
16. Apparently not received in the Department.