Memorandum of Conversation, by Mr. Stephen C. Brown of the Division of Commercial Policy

Participants: Mr. Graves, Counselor of British Embassy
FE: Mr. Butterworth
Mr. Merchant32
CA: Mr. Sprouse
Mr. Magill
E: Mr. Dort
CP: Mr. Brown

On May 31, 1949, Mr. Graves called at the Department and handed Mr. Butterworth a Memorandum from the Embassy dated May 31, [Page 850] 1949 outlining the views of the British Foreign Office on our proposal to adopt a joint policy of controlling exports of strategic items to China. Briefly, the memorandum stated that the problems were of considerable complexity and were under continuing study; that in the Foreign Office view the difficulty was the problem of obtaining cooperation from the O.E.E.C. countries on the one hand and of devising an effective means of controlling the numerous potential transshipment points in the Far East itself on the other; that the Foreign Office would nevertheless be ready to undertake discussion in London of any concrete proposals we might have to make.

Mr. Butterworth inquired whether it was a fair inference from the memorandum that the British Government agreed in principle that some control of exports to China was necessary, asking whether the British Government would be prepared to say, in answer to a question put in the House of Commons, that it would permit unrestricted trade with the Communist Areas of China. Mr. Graves said that he thought the British Government would have to reply to such a question that it did not intend to permit unrestricted trade, and that the inference that some degree of control was necessary was correct.

Mr. Butterworth remarked that the present memorandum did not seem to be much of an advance over our previous discussions; that we had been discussing the China problem with the Embassy since February in anticipation of the fall of Shanghai; that now Shanghai had fallen, while we had made very little progress in reaching agreement on a policy for handling trade with Communist China. He felt we had not much time left to formulate such a policy, and said it was quite likely that we would be forced to make some kind of statement on our policy towards China trade in the near future, even before there was any opportunity to reach agreement with the British. He believed it quite possible that the President might ask for some such statement; it had not so far been requested, but if Mr. Graves should see anything of the kind without prior notice he must not be surprised. We would if possible try to inform the Embassy before such a statement was issued, but it might be necessary to come up with such a statement before we had an opportunity to notify him.

There was much discussion of the difficulties enumerated by the British memorandum. Mr. Graves was asked how far the area of possible transshipment in the Far East to which such controls should apply extended, in his opinion; he replied that they probably extended from Singapore and Malaya on the west to Japan on the east; he mentioned Manila, the Dutch East Indies and Macao in particular. He said it was the view of the British Government that the institution of effective controls by the United States and Britain would probably have to be preceded by political agreement with the O.E.E.C. countries to exercise similar controls; he also raised again the question [Page 851] of the Philippines and asked whether we had had any conversations with them. Mr. Butterworth replied that we had not, pointing out that we had regarded British cooperation as the most important prerequisite to seeking cooperation from other countries. We were confident that SCAP’s policies in Japan would be cooperative, so there was nothing to fear there.

Mr. Magill said perhaps we had not sufficiently emphasized the fact that we did not envisage eliminating the legitimate entrepôt trade of places like Hong Kong and Singapore; our proposal envisaged that the legitimate needs of these centers both for themselves and for transshipment to acceptable destinations would be satisfied; the criteria for control would be real end-use and ultimate destination of the goods involved. Mr. Graves said this would involve a wide range of export controls in Hong Kong and Singapore. Mr. Brown said that we understood that Hong Kong, for example, already had export control regulations affecting goods essential for the colony’s welfare and rehabilitation, such as foodstuffs and a number of iron and steel products; and that in view of the nature of the probable trade pattern it seemed unlikely that the range of products to be covered by new controls would be greatly in excess of present Hong Kong controls. It might even be the case that Hong Kong’s existing controls might be more liberally administered than at present, in view of our willingness to take into consideration Hong Kong’s legitimate entrepôt trade.

Mr. Dort suggested that we might find that the range and strictness of the controls necessary were not as impractical as the Foreign Office appeared to think if we could discuss the problem in practical terms on a case-by-case commodity basis. He suggested that in the technical discussions which the British referred to they might find it not as difficult to exercise effective controls as they believed it would be.

After some discussion along these lines, Mr. Butterworth said that we would have a careful look at the British reply and get in touch with Mr. Graves as soon as possible. Mr. Butterworth indicated that we would have to consult with Commerce on the question of technical discussions before we could say whether we could undertake them in London.

  1. Livingston T. Merchant, Counselor of Embassy in China recalled for consultation.