693.9431/5–749: Telegram

The Department of the Army to the Supreme Commander for the Allied Powers in Japan (MacArthur)

88278. 1. State Dept has recd several msgs fr ConGen Peiping reptg inquiries by agts on behalf Chi Commie ofls re possibilities Sino-Jap trade. Appears Commies very interested exchange coal, salt, soy beans and soy prods for Japanese manufactured industrial, telecommunications and RR equip and materials and newsprint, largely on barter basis.

2. Some of such exports will be items subj to screening and possibly quantitative restrictions or prohibition cases under US export control [Page 978] pro for China (incg Manchuria and Taiwan), Hong Kong, Macao and Korea now being developed Wash,63 with which SCAP oprs should be coordinated (reWartel 85804 Mar 18 1949.64) Hoped that gen criteria can be formulated here which will permit maximization opnl decisions Tokyo re minimum scty restrictions Sino-Jap trade and minimize necessity reference particular cases Wash. Pending such formulation criteria, however, SCAP should refer details Wash any proposed transactions involving Japanese exports to above areas, excluding south Korea, of items appearing 1A and 1B lists of R pro65 before arranging firm contract.

3. State Dept believes that, while resumption active trade China and Japan desirable, US Govt and SCAP should employ tacs obtain maximum benefits fgn interests China, particularly normalization US Consular functions which Commies now refuse respect in important instances. For your info, Commies have refused deal any US Consuls except in latters capacity as pvt citizens, have restricted ConGen Mukden66 to Consular compound since latter part Nov and permitted him no rad[io] or mail communication] s, refused allow ConGen Peiping and Tientsin pouch sv or code rad for latter. Tientsin able communicate Dept in code by msgr via Peiping which still has own rad. Peiping rad now able communicate SCAP only via Wash as may be case Shanghai when Commies take over.

4. Fol are State Dept proposals: (A) in order avoid impression Commies that Japan dependent on North China and Manchurian exports, SCAP and Jap Govt should avoid taking initiative development Commie China trade. Particularly, no attempt should be made send SCAP trade mission Commie China or invitation extended Chi Commies establish trade representative Japan. When approached, however, by agts fr this area actg for pvt firm or Commies, SCAP should indicate willingness consider trade proposals, but that cannot make adv commitments re aval particular commodities. (B) As inducement Chi Commies, SCAP should proceed carry out profitable transactions involving Jap exports not on 1A and 1B lists of non-credit cash or exchange basis. No prior reference Wash nec, although should be kept informed. (C) If any items desired are on 1A or 1B lists, SCAP should handle negotiations in such manner, as indicated para 5 below, as would induce Commies deal with US Consular representatives China regarding Sino-Japanese trade proposals, accord them access coded rad comms and pouch facilities and reasonable freedom [Page 979] of movement. Inasmuch as Commies probably highly sensitive political significance ConGens status, important that these considerations not be indicated as sep quid-pro-quo for permitting export Jap capital goods, but that they be represented to Commie agts as important aspects pros inherent SCAP supv all Jap exports in short supply to any area. This would be the case if, as proposed, SCAP and Wash should attempt to obtain fr US ConGens China info re gen economic rqmts and significance proposed Jap 1A and 1B exports to Chinese economy, bona fide character trade proposals, reliability firm or agency, and, in sp cases, evidence re end-use intended and actually made particular items. SCAP should not, of course, reveal to Commie agts nature information desired fr ConGens as stated above, or make reference existence sp categories Jap exports (1A and 1B lists) to which above procs would apply. (D) State Dept believes that above pos re Consular prov info Sino-Jap trade proposals would be more effective if stated by SCAP rather than US ConGens China. If you agree tacs outlined herein, ConGens China will be instructed respond initial trade inquiries by indicating SCAP willing consider specific trade proposals but that gen arrangements and details of particular transactions should be worked out directly by SCAP with firms concerned.

5. Fol lang[uage] proposed for response by SCAP to inquiries re trade proposals fr Commie China should they involve 1A and 1B items:

“SCAP will[ing to] consider proposals, but certain items may be difficult prov due short-sup character and competing demands. If Communist officials wish assist SCAP in determining aval desired Jap exports in light above considerations, they should present proposals and full info to those US Govt Consular representatives which are located in the area of intended importation and utilization. Although ConGens would not, of course, be expected handle actual trade oprs, their expeditious prov info desired by SCAP would be expected greatly facilitate compl transactions and my trade.”

6. In line foregoing, SCAP should drag its feet on any transactions with Commie China and Manchuria involving 1A and 1B lists, until results above pos can be rptd by ConGens China and evaluated here. Suggest careful obsn Jap trade with Hong Kong, rqg assurances re end-use, with view adoption similar pos re proposed 1A or 1B exports to Hong Kong that appear destined Commie China.

7. Pls inform USPolAd.

8. Above procs under consideration. Request your comments as matter of urgency.

Robert R. West
  1. For correspondence on this subject, see pp. 817 ff.
  2. Copy not found in Department of State files.
  3. For explanation of R procedure and 1A and 1B lists, see telegram No. 285, May 13, 9 p. m., to the Consul General at Peiping, p. 985.
  4. Angus Ward.
  5. Deputy for Far Eastern Affairs, Office of the Assistant Secretary of the Army.