File No. 5315/859.
The Secretary of State to Ambassador Reid.
Washington, March 22, 1910.
Sir: I have to acknowledge the receipt of your Nos. 1203 and 1204,1 of March 8, 1910, together with your telegrams of March 12 and 15, on the subject of the Hukuang loan.
In your discussion of this subject with the British Foreign Office you will not overlook the fact that the fundamental difference in the position assumed by Great Britain and that of the other three Powers concerned is that while the latter regard engineering rights on the Hankow-Canton line as an integral part of the Hukuang loan arrangement, Great Britain insists upon treating that section as separate and reserved to herself alone.
In order rightly to appreciate the situation, it is necessary to go back to the agreement of March 7 last between Germany and Great Britain. Germany at that time held the right, by virtue of an agreement with the Chinese Government, to build the section in question. This right was transferred to Great Britain in exchange for the first section of the Szechuen line west from Hankow, of approximately the same length. The conclusions reached by the German Foreign Office, in its memorandum to the British Government of date November 5, 19091 namely, that by the agreement of March 7 the Hankow-Canton line was made part and parcel of the Hukuang loan arrangement, appear to this Government to be incontestable.
A careful view of the correspondence, such as you doubtless have made, will make it clear that the original rights of the United States were to a one-half interest in the whole Hankow-Szechuen line, including extensions. In lieu of a strict insistence upon those rights we accepted, as a virtual equivalent, a quarter interest in the combined lines covered by the Hukuang agreement, namely, the Canton-Hankow [Page 275] line and the Hupeh section of the Hankow-Szechuen line. Owing to the lateness of our arrival on the field we waived our rights as to chief engineers on the lines covered by that agreement, but in so doing distinctly reserved our rights as to engineers on further extensions. The 800 kilometers ultimately demanded by the United States, in virtue of this reserved right, represented its just share, whether regarded from the standpoint of its original rights to one-half of the Szechuen extension or from that of its one-fourth interest in the combined lines. This is the basis upon which the United States has proceeded up to the present time. By a friendly arrangement with Germany we agreed to accept 200 kilometers subengineering rights on the section held by its nationals and to reduce our demands as to the extension by a corresponding amount. By our last proposition we have offered still further to reduce our claims as to the extension by yielding to France an additional 100 kilometers, leaving us chief engineering rights on a total of but 500 kilometers, with subengineering rights on 200.
By the arrangement proposed by the United States, Great Britain, so far from having less than the others, as stated by Sir Edward Grey, would retain chief engineering rights on a total mileage of 1,400 kilometers to Germany’s 800, France’s 600, and America’s 500. The acceptance of the British proposal would give the British group 1,500 kilometers and the United States 400. Moreover, the department fails to follow the reasoning by which the British group contends that the Canton-Hankow line, while included as an integral part of the Hukuang agreement in respect to financing, supply of materials, and in all other important regards, is excluded from the scope of that agreement in the matter of engineering rights alone.
The position taken by the French Government appears to be identical with that of the United States and Germany. Each of these Governments has regarded the matter of engineering rights on the combined lines, amounting to 3,300 kilometers, as one proposition, and each has based its demands on a virtual one-fourth of that total. To restrict this principle of division into four equal parts to the Szechuen line alone, as proposed by Great Britain, seems to the Department to be essentially unjust.
I am, etc.,