693.119/5–1949: Telegram

The Consul General at Shanghai (Cabot) to the Secretary of State

1736. [For] Clark, Canton. Deptel 841, May 3, 7 p. m. eyes only Cabot, Clark, Merchant. I concur in Department’s comments re risk applying R procedure without cordial British cooperation which they evidently reluctant accord. Attitude British colleagues here shared by important British trade interests quite strongly disinclined toward any measures likely to be interpreted by Communists genuinely or for propaganda purposes as economic warfare although British apparently would welcome “concerted action policy” toward questions recognition and appointment foreign banks within circumscribed limits to their advantage.

I am fully cognizant, appreciative difficult position colleagues Tientsin, Peiping which we expect shortly to share but believe immediate interest in Shanghai would be best served by postponement application R procedure until Communist performance demonstrates overtly hostile attitude toward basic American interests or through [Page 942] sheer indifference places ConGen’s or communities in intolerable situation warranting note of warning which institution R procedure would sound.

Unless Department prepared enforce R procedure immediately with full British cooperation, suggest Department consider with Commerce soonest feasibility temporary suspension positive list licenses for Yangtze valley ports recommended mytel late April71 (no files here) even though only marginal effects obtainable, for ostensible publicly announced purpose facilitating orderly handling force majeure clauses in sales contracts and letters credit due suspension of shipping to Shanghai. If possible issuance public notice that effect prior to or simultaneously with Shanghai take-over would be most desirable.

I believe such action if taken immediately might convey useful impression to Communists re ability our Government control distribution positive list items to Communist areas without implication our entry on economic warfare program and without need immediate British cooperation which I regard essential to effective use R controls.

Communists already familiar with positive list procedures (Tientsin 307, May 14 [11]72, repeated Shanghai 212) and have been given informal assurances this procedure based on short supply considerations with no implications economic warfare. This connection would blanketing items on list 1A, and 1B on positive list for screening exports from USA and SCAP to China, Hong Kong, Macao and north Korea be feasible as convenient device obtain benefits R procedure without publicity their adopting to restrict trade Chinese Communist areas? Same consultation with ConGen’s in Communist areas is obtainable under either procedure but I believe continuance positive list less provocative.

For [sic] foreign utility ownership Shanghai should afford topics for discussion with Communists by managements, possibly leading to informal participation by foreign consular officers and in any case providing indirect vehicle for conveying our views to Communists, an advantage which consular authority North China found it difficult to develop.

In absence overtly hostile Communist attitude toward this office after take-over, suggest inadvisability implementation R procedure here prematurely. This viewpoint supported as to Sino-SCAP trade by comments second paragraph Tientsin 306 May 14 [11], 9 a. m.,73 repeated Shanghai as 211, indicating Communists sending information upon which base trade policy rather than indication of formulated plan.

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Also suggest above proposals for policy implementation afford greater flexibility essential to meeting rapidly changing situation than R procedure which very probably would be interpreted at least for propaganda purposes as deliberate adoption economic warfare measures, notwithstanding any public disclaimers our part.

Sent Department 1736, repeated Canton 497.

  1. Telegram No. 1338, April 25, 5 p. m., p. 933.
  2. Not printed.
  3. Post, p. 982.