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

893.50 Recovery/6–2548: Telegram

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

Washington, June 25, 1948—8 p.m.

929. ReDeptel 923 June 24. New draft art III based on assumption major complaints American businessmen in China adequately covered by GATT and Commercial Treaty with exception state trading and related questions (see memorandum transmitted air pouch with instruction June 23³³).

Par 1 new draft same as original draft, containing general commitment improve commercial relations. Par 2 contains general commitment essentially duplicating commitments already obtained in art X GATT and art XVII Treaty,³⁴ repeated here for emphasis. Par 3 is put on consultative basis, allowing consultation on initiative either Govt regarding any matter relating to provisions of art and in particular regarding three specified matters.

Sub-par 3(a) intended cover improvements in agencies such as Exim boards,³⁵ Central Bank exchange control agencies, Maritime Customs, but Dept offers no specific suggestions since it believes Emb and ConGen Shanghai in better position suggest possible improvements.

Sub-par 3(b) rests on Chang Chun’s statement of August 13, 1947. This rather than statement approved by State Council and handed Emb on August 1, 1947³⁶ chosen as basis because it was made public at time and is substantially identical. Dept also regards this sub-par as opportunity secure re-affirmation policies that statement by present Govt, with some implementing measures if possible.

Provisions Sub-par 3(c) intended cover not only question trading by strictly Govt owned corporations or agencies such as UTC³⁷ and Central Trust but also activities so-called “favored firms” where carried on under cloak [of] Govt trade. Emphasis here on effect on commercial relations with US carried on by private enerprise and not intended to ask elimination state trading.

Examples questions Dept believes might come under each heading follow.

Par 2: criteria for registration importers, grant of import licenses, exchange permits; discrimination between private US firms and private Chinese firms, between private US firms and so-called favored firms. This provision not to be used to ask relaxation import or exchange controls but merely to assure uniformity and non-discrimination.

Par 3 (a): self-explanatory. See comment above.

Par 3(b): 1. Return to US owners of properties occupied and still held by Chinese military and civil authorities without making arrangements adequate compensation. Validation land titles made indefeasible by 1943 Treaty³⁸ should also be raised. These affect conduct commercial relations two ways: occupation properties prevents resumption normal business, doubt of land titles discourages resumption business or investment to restore operations.

2. Simplification and speeding up land law procedures for acquisition land for commercial and industrial purposes. Dept understands special permission must now be obtained from Executive Yuan through hierarchy local officials, discouraging if not preventing investment these purposes.

3. Uniform and non-discriminatory tax policies especially in administration. This point fully covered Commercial Treaty but Dept wishes reiterate position.

4. Adequate method for appeal against illegal administrative orders and action, through channels permitting prompt decision and effective suppression illegal demands. Dept understands present procedure requires appeal through official hierarchy to Executive Yuan, thence to Administrative Court, involving interminable delays. Dept has in mind not only attempts apply penal sanctions such as Mysberg case³⁹ but also the apparently normal flood of Chinese administrative regulations in all matters, frequently having no authority of law.

6. [5?] Authorization of import licenses for repair and replacement equipment for existing essential plant where imported by end-user who provides own exchange. Dept has in mind not general license for such imports but general policy approval applications such importers on case by case examination on merits.

Par 3 (c): Dept especially desires this connection follow up Fon-Off’s note November 27, 1947⁴⁰ stating UTC would cease operations for private account after liquidation outstanding commitments. Dept does not wish request ChiGovt cease state trading but believes Nov 27 statement might reasonably be taken as moral commitment limit activities to trade for Govt account. Both Dept and Commerce believe it should be made plain to Chinese that activities “favored firm” will also be scrutinized. It should be impressed on them that US businessmen are convinced such firms receive privileged treatment either directly from Govt or through intermediary UTC or other Govt corporations, and burden proof is on them. This very general conviction on part American business affects profoundly its confidence in treatment offered by ChiGovt and hence on commercial relations.

With special reference items listed under Par 3 (b), Emb requested to offer additional suggestions for Dept’s consideration if important problems exist which are not covered and are pertinent inclusion under this Par.

Emb and ConGen Shanghai must bear chief responsibility subsidiary consultations this article and likewise follow up on any measures agreed to by Chinese.

Marshall

33. Instruction No. 121, not printed.
34. Treaty of friendship, commerce, and navigation, signed at Nanking, November 4, 1946; Treaties and Other International Acts Series No. 1871, or 63 Stat. (pt. 2) 1290.
35. Boards dealing with export and import matters.
36. Statement approved by the State Council, not printed; see footnote 28, p. 572.
37. Universal Trading Corporation.
38. Treaty relinquishing extraterritorial rights, signed at Washington, January 11, 1943; Department of State Treaty Series, No. 984, or 57 Stat. (pt. 2) 767.
39. This case involved police search of premises in Shanghai of the American-owned Abis Company Federal Inc., USA, on March 3, 1947. The firm’s manager, Frederick Mysberg, a Dutch national, was arrested and banknotes, gold bars, and records of the company were seized by police on grounds that its operations violated emergency economic measures promulgated on February 16, 1947. The Shanghai courts decreed one year’s imprisonment for Mysberg and ordered the firm’s funds confiscated. Text of the emergency measures was reported in telegram No. 299, February 17, 1947, Foreign Relations, 1947, vol. vii, p. 1071.
40. For summary, see telegram No. 2325, December 2, 1947, 3 p.m., from the Ambassador in China, Foreign Relations, 1947, vol. vii, p. 1382.