Office of the Historian

195.2/8–1849

Memorandum by Mr. Livingston T. Merchant of the Office of Far Eastern Affairs to the Secretary of State

[Washington,] August 19, 1949.

The Department has received recently a number of reports that two American tankers, SS “Kettleman Hills” and SS “St. Christopher”, are engaged along with other foreign flag tankers, in the transport of petroleum products from Constantza, Rumania, on the Black Sea, to Dairen and possibly to Vladivostok.

Admiral Souers, Executive Secretary of the NSC,44 informed the Department on August 15 that the President had been told of this movement by CIA.45 The President’s immediate reaction is understood to have been that the Maritime Commission should stop it. At Admiral Souers’ suggestion, the matter was referred to the Department.

There are low level rumblings in NME46 which may develop into a letter to you from Secretary Johnson.47 Senator Knowland48 is known to be aware of this traffic and there may be open discussion of it on the Hill.

Outstanding policy as contained in NSC 41,49 approved by the President on March 3, 1949, contemplates permitting reasonable quantities of civilian type petroleum products to enter Communist China. The premises and conclusions of NSC 41 are under review in collaboration with the Consultants.50 It is unfortunate that an operational decision on this matter, with all its explosive potentialities, must be reached prior to the conclusion of the present reexamination of policy with respect to economic relations with Communist China.

Two alternative courses of action appear possible. First, you can recommend to the President that for the present no interference with the traffic be attempted on the grounds that the quantities and products involved are not serious; that it falls within the framework of outstanding policy as approved by him; and that to take isolated action in this case might seriously prejudge decision on the broader aspects of this problem which will be made with the benefit of the completed report from the Consultants. In adopting this course, the President should be prepared for possible adverse domestic repercussions.

The second course would be to attempt to remove American tankers from this run. There appear to be practical difficulties in any such [Page 1023] effort. The Maritime Commission has informed us that in their view these vessels are operating in accordance with law and it doubts the existence of any legal powers by which the Commission could force a cancellation of the charter in question or otherwise prevent on legal grounds their continuation in the trade. L51 believes that Section 808, Title 46, U.S. Code,* might be applicable and provide a basis for legal action by the Maritime Commission. In the absence of legal basis for Maritime Commission action, the alternative would be to exert moral suasion on the American owners of the American tankers involved, with due regard for the operators’ contractual obligations. Even if successful this would probably not seriously affect the trade. We know of two other tankers, one Norwegian flag and the other Danish flag, engaged in the run. There is apparently a world surplus of tanker tonnage which presumably will enable the chartering of other vessels.

If we want to cut American-owned tankers out of the trade and leave it to others, this no doubt could be done by high-level moral pressure realizing the necessity to take into account the contractual obligations involved. If we want to embargo Communist China in respect to oil products, it will be necessary, to secure agreement in this policy by all governments whose Nationals own or operate surplus tankers. This will be difficult, witness our inability to persuade the British to move far in the direction of trade controls over exports to Communist China. If the attempt is to be made to stop this traffic, it is recommended that the President ask the Maritime Commission urgently to examine its legal powers and, if these exist, to exercise them to remove American flag tankers from the run. If the necessary legal powers are not available to the Maritime Commission, then it should be requested by the President to call in the owners and request they desist as a master of Government policy. On balance, it is believed that this course of action is the least desirable.

Accordingly, it is recommended that you discuss this question with the President and recommend that no steps be taken to interfere with the traffic, so long as it is confined to what appears to be reasonable quantities and civilian type products, pending conclusion of the Consultants’ review of our China policy.

[Annex]

Extract From Section 808, Title 46, United States Code

“Every vessel purchased, chartered, or leased from the Commission shall, unless otherwise authorized by the Commission, be operated [Page 1024] only under such registry or enrollment and license. Such vessels while employed solely as merchant vessels shall be subject to all laws, regulations, and liabilities governing merchant vessels, whether the United States be interested therein as owner, in whole or in part, or hold any mortgage, lien, or other interest therein.

Except as provided in section 1181 of this title, it shall be unlawful, without the approval of the United States Maritime Commission, to sell, mortgage, lease, charter, deliver, or in any manner transfer, or agree to sell, to any person not a citizen of the United States, or transfer or place under foreign registry or flag, any vessel or any interest therein owned in whole or in part by a citizen of the United States and documented under the laws of the United States, or the last documentation of which was under the laws of the United States.”

  1. National Security Council.↩
  2. Central Intelligence Agency.↩
  3. National Military Establishment.↩
  4. Louis Johnson, Secretary of Defense.↩
  5. William F. Knowland, of California.↩
  6. February 28, p. 826.↩
  7. For announcement on July 30 of appointment of consultants, see Department of State Bulletin, August 22, 1949, p. 279.↩
  8. Office of the Legal Adviser.↩
  9. Extract attached. [Footnote in the source text.]↩