Foreign Relations of the United States, 1949, The Far East: China, Volume IX

611.9331/8–2249

Memorandum of Conversation, by Mr. Emory C. Swank²⁶

[Washington,] August 22, 1949.

Participants:	Mr. Cabot, Consul General, Shanghai27
	CP–Mr. Corse28
	Mr. Swank
	CA–Mr. Magill29
	FN–Mr. Doherty30
	DS–Mr. Werner31

(The meeting was arranged by Mr. Magill for the purpose of permitting interested officers to discuss with Mr. Cabot problems of economic importance in US relations with Communist China. The discussion was approximately subdivided into the following topics of conversation.)

1. Possible US Action re Termination or Suspension of GATT Concessions Negotiated with China:

Mr. Cabot strongly emphasized his view that the US should be prepared to suspend or terminate, whichever was preferable, concessions to China negotiated initially with that country under GATT. He stated that the formal withdrawal of concessions should be appropriately timed in order that the public announcement would operate to the maximum disadvantage of the Communist regime and pointed out that the formal withdrawal should in no event be allowed to coincide with US recognition of the Communist regime,³² when and if such recognition materialized. He particularly stressed his view that this Government could not, as a matter of principle, fail to suspend or terminate US concessions to Communist China since our failure to take such action would constitute a dangerous precedent. It was generally agreed that the US should take no formal action until the Communists had for all practical considerations consolidated their control of the Chinese mainland. It was also generally realized that our suspension or termination of the Agreement would have little economic effect on the Communists for the duration of the blockade.

Mr. Corse discussed at some length the background and nature of GATT, pointing out that it is a multilateral agreement and that concessions under it, as under the former bilateral agreements, are generalized to all countries, whether or not they are signatories to the Agreement. He therefore felt that as an initial step in our preparation to suspend or terminate concessions, an exploratory study should be made in CP to determine which other contracting parties to GATT have a secondary interest in products on which concessions were originally negotiated with China. It was agreed that to the extent possible the United States should endeavor to enlist the cooperation of other contracting parties to suspend or terminate concessions negotiated by them with China. It was also agreed that the Nationalist Government would probably not raise any objections to a general withdrawal of concessions on products originating in Formosa as well as on the Chinese mainland.

The relative merits of suspension versus termination of concessions were discussed by Mr. Magill and Mr. Corse, but no final selection of the type of action to be preferred was made.

2. Possible US Action re Freezing of Chinese Official and Private Assets in the united States³³ and Controlling the Flow of Remittances to China:

Mr. Doherty explained that the possible effectiveness of instituting controls of this nature through powers now vested in the Treasury would be seriously diminished by the difficulties inherent in efforts to obtain during time of peace the full cooperation of other governments in implementing the controls. In addition, the administrative machinery for the execution of such controls is both complex and cumbersome and had been operated only with difficulty during World War II. He intimated that it was therefore most unlikely that the Administration (NAC³⁴) would consider that the objective to be gained by instituting the controls would warrant the establishment of the necessary machinery to implement them. Mr. Magill pointed out that it was more feasible to control the use rather than the flow of dollars and that our policy of export licensing served this purpose to a considerable degree.

3. Imposition of Countervailing Duties on Communist Subsidized Exports:

Mr. Swank and Mr. Werner pointed out that a specific instance of the possible subsidization of a shipment of apricot kernels from Tientsin had recently been brought to the Department’s attention by the Consulate General. The telegram had been referred to Treasury and it was understood that the Customs would be apprised of the shipment through ordinary channels.

It was agreed that investigations by the Customs into reportedly subsidized shipments from Communist areas would be instigated regularly upon receipt of information from the field, but it was equally recognized that concrete evidence to substantiate the imposition of countervailing duties was difficult to obtain. Mr. Doherty recalled an investigation of the reported subsidization by the Nationalist Government of the export of hooked rugs, during the course of which it became apparent that the subsidy granted to the exporter by the Government was to a large degree offset by the maintenance of unrealistically low exchange rates. Mr. Cabot suggested that almost every government with an unfavorable trade balance was inclined to subsidize exports. The consensus was that countervailing duties would probably not be imposed on imports from Communist China in sufficient degree to act as a real deterrent to Communist practices of subsidization.

26. Vice Consul at Tsingtao, temporarily assigned to the Division of Commercial Policy.
27. In the Department for consultation.
28. Carl D. Corse, Acting Chief of the Division of Commercial Policy.
29. Robert N. Magill of the Division of Chinese Affairs.
30. Edward W. Doherty, Assistant Chief of the Division of Financial Affairs.
31. Norman C. Werner of the Division of Protective Services.
32. For correspondence on this subject, see pp. 1 ff.
33. For correspondence on this subject, see pp. 817 ff., passim.
34. National Advisory Council.