893.50 Recovery/7–948

Memorandum of Conversation, by the Under Secretary of State (Lovett)

Participants: The Honorable Walter H. Judd, Member of the House of Representatives
Mr. Lovett, Under Secretary of State
Mr. Butterworth, Director for Far Eastern Affairs
Mr. Sprouse, CA

Dr. Judd called on me this afternoon by appointment to discuss the problem of procurement by the Chinese under the $125 million grants authorized by Section 404 (b) of the China Aid Act of 1948.

Dr. Judd gave a lengthy explanation of his attempts to include a Greek-Turkey proviso in the China Aid Act in order to ensure that the Chinese would spend wisely the funds appropriated for military type aid. He referred several times to obstacles which he alleged had been placed by the State Department in the way of effective U. S. Army Advisory Group assistance to the Chinese Government in drawing up plans for expenditure of the $125 million grants. Both Mr. Butterworth and I assured him that such was not the case and that the Army Advisory Group had in fact assisted the Chinese in drawing up their plans for expenditure of these funds. Dr. Judd then [Page 110] described his discussion of the matter with Secretary Royall and explained that it was his (Dr. Judd’s) desire that the Department of the Army be permitted to assist the Chinese in procurement of military matériel along the lines authorized in the Greek-Turkey Assistance Act. He said that the Department of the Army had forwarded him a memorandum in which were set forth the terms decided upon by the President to govern the extension of aid to China through these grants, which had been communicated by the Department of State to the Chinese Embassy. He pointed out that under these terms it would not be possible to follow the procedure which he felt to be desirable.

I described the history of these terms and the legislative history of the China Aid Act. I explained that the Department of State had recommended that the Treasury Department administer these funds, pointing out that the legislative intent regarding the Chinese use of the $125 million grants had been made clear in the debate in the Senate on this subject and in the Senate Foreign Relations Committee Report on the China aid program. In reply to Dr. Judd’s query regarding the role of the State Department in screening Chinese requests for withdrawals from these grants, I emphasized that the Department, in accordance with the President’s terms, would merely check the supporting documents accompanying Chinese requests to see that they tallied with the total of the requests submitted.

I further stated that subsequent to receiving Dr. Judd’s call I had had the Legal Division of the Department look into the possibilities of a procedure which would permit the National Military Establishment to go into procurement for the Chinese and thus meet Dr. Judd’s wishes in this matter. I said that the Legal Division had come up with two possibilities, somewhat complicated in their nature, and that an officer of the Bureau of the Budget had indicated informally that it might be difficult for the President to decide upon terms which would incorporate arrangements along the lines of the Greek-Turkey Assistance Act, since in both the enabling legislation and the appropriation act the Congress had eliminated proposed Greek-Turkey provisos. I informed Dr. Judd that the Department desired to do what it could to be of assistance in this matter and that the Department would now take up the matter formally with the Bureau of the Budget and the National Military Establishment with a view to ascertaining what could be done in this regard.

Dr. Judd stated that this procedure would not be contrary to the legislative intent since Senator Vandenberg had informed him that the elimination of the Greek-Turkey proviso had been for the purpose of avoiding underwriting the Chinese military campaign and involvement [Page 111] in the Chinese civil war and that the elimination of this proviso would not prevent the procurement procedures from following those employed for Greece and Turkey. Dr. Judd then suggested that it might be advisable to have the Chinese submit a request that the Army assist them in procurement of desired military matériel, following the receipt of which the Department of State, the Bureau of the Budget and the Department of the Army could discuss the matter and arrive at some solution. He further stated that it might be necessary to approach the General Accounting Office in this connection and that he would be available during the next week if his assistance were necessary. It was agreed that it would be preferable for the matter to be worked out within the Government prior to giving any indication to the Chinese of this possibility.