793.94/6647
The Chief of the Division of Far Eastern Affairs (Hornbeck) to the Counselor of Embassy in Great Britain (Atherton)
My Dear Ray: Referring to the memorandum of your conversation on April 24 with Sir Victor Wellesley, copies of which were forwarded under cover of your letter of that date to me,29 I note the statement in the last paragraph that “private interested opinion has never fully understood the exchange of notes effected between the United States Secretary of State and Mr. Hirota at the time Ambassador Saito took office. Also why, if since an exchange of notes was to be made, England was not privately advised beforehand. Also certain opinion here professes to find the wheat and cotton loan of the United States to China violates the Consortium Agreement of 1920.”
1. With regard to the exchange of messages between the Secretary of State and Mr. Hirota, the facts—so far as we know them—are as follows:
On February 21, Mr. Saito, who had a few days previously presented his letter of credence, called on the Secretary and left with him [Page 197] a statement bearing the legend, “Informal and personal Message from Mr. Hirota, Minister for Foreign Affairs, as Telegraphed to Mr. Saito, the Japanese Ambassador.” The Secretary, having received this statement, felt, in accordance with usual practice and procedure, called upon to make a reply. This reply was, on March 3, 1934, handed by the Secretary to Mr. Saito. The question of publication of the notes was not raised until some time later, when Mr. Saito, referring to a conversation at Tokyo between Mr. Grew and Mr. Hirota, endeavored to make an (imaginary) American proposal for publication the basis for an agreement to proceed with publication. It is clear from the record, however, that the first move toward publication of the notes, as well as toward initiation of the correspondence, came from the Japanese.
So far as the Secretary of State, the Department and the American Government were concerned, they took no initiative in the matter. There was presented to them a communication from the Minister for Foreign Affairs of a foreign government, and the natural course of action was that reply should be made. The exchange of notes represented no new démarche on the part of the American Government. If anyone should have informed the British Government beforehand, it would seem logical that Japan, as the initiator, should have given that information.
If an opportune occasion should arise, we would have no objection to your informing the British Foreign Office, in strict confidence, in regard to the facts of the matter as set forth above.
2. With regard to the American wheat and cotton credit to China, I think that you are aware of the fact that the principal purpose of the American Government in granting this credit was to aid the domestic price situation and to remove from the American market surplus stocks of cotton, wheat and flour. With regard to the question whether the extension of that credit is in conflict with the provisions of the Consortium Agreement of 1920, attention is invited to the text of the Agreement, Section 2 thereof, which reads in part as follows:
“This Agreement relates to existing and future loan agreements which involve the issue for subscription by the public of loans to the Chinese Government.”
The cotton and wheat credit was not in fact a “loan” to China nor did it involve “subscription by the public”. It is our understanding that representatives of the various national banking groups that are members of the China Consortium have expressed views indicating that they do not regard this transaction as being in conflict with the provisions of the Agreement.
It is of course true that in concluding the Consortium Agreement of 1920 the interested banking groups (American, British, French and [Page 198] Japanese) were assured of the full support of their respective governments and that they did not contemplate encountering competition from the concerned governments in the granting of loans to China. We are aware of the fact that it has been contended by Japan, and by others, especially British officials, that the cotton and wheat credit violates the spirit, if not the letter, of the Consortium Agreement.
We do not desire that the Embassy take an initiative in the matter of discussing with British officials the question of the cotton and wheat credit. If, however, this question should be presented to the Embassy, the Department would have no objection to the Embassy pointing out tactfully and orally the points mentioned in the first paragraph of section 2 of this letter.
Sincerely yours,