560.AL/8–1249: Telegram
The Secretary of State to the Consul at Shanghai (McConaughy)
1597. Following comments re recommendations urtels 2806, July 17, 2907, July 23,14 3142, August 9, and Tientsin’s 562, July 26:
Department plans, as you know, impose move effective and comprehensive export controls upon obtaining cooperation Brit and other Governments. Will keep you advised.
Re blocking Chinese funds in US, see Deptels 1369, July 8,15 1443, July 20,16 and 1452, July 21.17 Brit FonOff states does not contemplate freezing Chinese fon exchange assets at present time.
Difficult questions involved decision re GATT. Believe suspension concessions negotiated initially China in itself sufficient retaliation for Commie repudiation. Department presently studying three alternatives: (1) Suspension, in consultation agreement Chinese Government, all concessions negotiated initially China; (2) Suspension, in consultation agreement Chinese Government, all concessions negotiated initially China insofar as applied imports from Commie areas only; (3) Suspension, in consultation agreement Chinese Government, concessions negotiated initially China on products originating chiefly [Page 961] or exclusively Commie areas. In all cases suspension would mean restoration prior rates insofar as imports from Commie areas concerned. In no case envisaged would such concessions necessarily be withdrawn from all Contracting Parties until China situation clarified re political control Chinese exports and Commie refusal apply GATT rates clearly hardened uniform general policy. At such time US might seek consent other parties withdraw entirely concessions negotiated China, relieving US of obligations to maintain generally GATT rates on such items and making possible duties Chinese products higher than provided 1930 tariff due pressures domestic industry. Whichever alternative Department may choose it recognizes timing is most important consideration and inclines view Nanking’s 1429, July 3 and urtel 2644, July 718 that present not most opportune time for positive steps. Publicity will of course accompany any withdrawal concessions.
In Department’s view sponsorship increased tariff rates on Chinese products aside from normal escape action (that is, duties higher than provided by Tariff 1930) inconsistent general US commercial policy objectives.
Should Commie commercial policy show clear evidence discrimination against US trade (abolition GATT rates appears uniform and without discrimination) President has power under section 33819 Tariff Act to impose as penalty duties higher than provided 1930 Tariff or even to exclude Chinese goods altogether. This however would have to be based evidence discrimination, unfair treatment and not on mere fact failure comply obligations trade agreement.
Department not disposed make special effort publicize Commie state trading practices though factual economic reports are made available to trade. General US commercial policy condones state trading so long as conducted in non-discriminatory manner along lines normal commercial considerations (See Art XVII GATT). Any evidence dumping, discrimination or other unfair practices can and will be handled in accordance existing legislation.
Action such as you suggest therefore inadvisable.