893.24 FLC/9–1648: Telegram

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

1335. (Reur 1709.)

Part 1. Department emphatically reaffirms that United States cannot accede to Chinese proposal take surplus property on selective basis. Among other things, this Bulk Sale Agreement predicated on basis Chinese would take bad with good. In the light of the consideration received from the Chinese for the surpluses covered by the Bulk Sale Agreement, it is obvious that variations in the condition of property turned over to the Chinese were taken into account at the time of negotiations in 1946. When the Chinese signed the Agreement, they acknowledged and accepted the terms and conditions. Any attempts on part Chinese to distort basic contract into selective purchasing cannot be reconciled with the facts and with the terms of the contract. It must be recognized that the contract signed at Shanghai on August 30, 1946, is one of sale as distinguished from a contract to sell. When the representatives of the two governments signed the contract, the effect was to pass to China all of the surplus property involved and to discharge, as of the time of signing, the indebtedness of the United States for Yuan advances and expenditures by China for United States account. These were the main effects of the agreement, although there were several executory obligations created by its execution. Among other things, the Chinese have failed in the performance of one of the most important of these executory obligations in that they have not caused the prompt and efficient removal of the surpluses from those territories under non-Chinese jurisdiction. We are at a loss to see why General Kiang’s obstinate determination to distort the basic contract is permitted by the Chinese officials to impede the current negotiations at Nanking.

The generally accepted definition of scrap as used in relation to surplus property is “property that has no reasonable prospect of sale except for its basic material content”. Based on this definition, in actual practice the determination as to the condition of property turned over to OFLC as surplus is made by the owning agency and OFLC proceeds only on the basis of the declarations made to it. Only when property is declared by the owning agency as scrap should it be turned over to the Chinese as scrap. As far back as June 1946 it was made perfectly clear to the Chinese that scrap was being turned over to them under the Bulk Sale Agreement in consideration for assumption by China of the obligation to dispose of all residual scrap piles in such manner as would hold the U. S. Government harmless [Page 721] for claims of damage of every description arising out of the storage, movement and disposition of such scrap or other surplus property. Evidently the Chinese now wish to avoid this obligation but are willing to continue to accept quantities of surplus property as scrap without carrying out their part of the bargain.

Department believes U. S. position should be firmly maintained.

Part 2. Department notes discussions apparently taking place Nanking without Luboshez’s participation. Pursuant Deptel 1226, August 24, Embtel 1583 August 26, Deptel 1238, August 27,35 and Embtel 1628, Department understood discussions with Chinese would be on basis Luboshez’s participation with Embassy vis-à-vis Chinese.

  1. Telegrams Nos. 1583 and 1238 not printed.