noted by this government, which will uphold the contract as a binding engagement upon the Imperial Chinese Government." In his reply of August 24, 1898, Secretary of State Day informed the company "that the Department is unable to give you such a letter as you request. While the Government of the United States is always ready to enforce the just rights of its citizens abroad, it has always declined to become the guarantors of their contracts with foreign governments. As a rule, it has declined, where such a contract was alleged to have been violated by the foreign government, to interfere beyond the exercise of good offices. This being so, still less can it assume beforehand to guarantee the execution of the contract." In its application the company had stated that the English investors will have "the usual recognition" from the British Foreign Office substantially in the form requested by the company from the Department of State. In answer to this statement, Mr. Day said: "The British Crown, which exercises the executive power in that country, possesses both the warmaking power and the treaty-making power, and is therefore authorized, in matters involving relations with foreign countries, to give guarantees and to enter into engagements which the executive of the United States would not alone be competent to assume. On October 21, 1905, the Department instructed the Legation at Peking that it might forward without comment to the Chinese Foreign Office the applications of reputable American citizens for privileges and concessions.1 10 The actions of the Department in the period from 1909 to 1912 went far beyond, and indeed contravened the foregoing expressions of previous policy. The official representations made by Secretary of State Knox and the personal appeal of President Taft made the Government of the United States virtually a party to the application for the Hukuang Railway Loan. The initiative of the State Department in the formation of the American group to participate in the loan made the Government practically a sponsor for the actions of that group in China. Although nothing is directly contained in the published correspondence regarding the amount and kind of protection which the Department was to give to the American investors in case of a default on the part of China, the implication is unavoidable that the maximum amount of protection of which the executive was capable would be extended in the case of both the Hukuang Railway Loan and the Currency Reform Loan. Any other inference would not be fair to President Taft and Secretary Knox who were officially responsible for American participation in both transactions. Such a guarantee of the execution of a contract was expressly refused, as above pointed 9 Moore, International Law Digest, Vol. VI, p. 288. 10 See despatch of July 11, 1913, from Mr. Williams, Chargé at Peking, printed in Foreign Relations, 1913, p. 186. out, by Secretary of State Day in his reply to the American-China Development Company in 1898. He was unwilling to assure protection beyond the exercise of good offices. Citing a long list of Secretaries of State from Secretary Forsyth in 1834 to Secretary Hay in 1899, Dr. John Bassett Moore states: "It is not usual for the Government of the United States to interfere, except by its good offices, for the prosecution of claims founded on contracts with foreign governments."" Lack of authority on the part of the Executive was given by Secretary of State Marcy as the reason for the rule in an instruction to the American Minister to Peru on May 24, 1855. He said: "It does not comport with the dignity of any Government to make a demand upon another which might not ultimately, on its face, warrant a resort to force for the purpose of compelling a compliance with it. Such a course can not, under this Government, be adopted without authority from Congress, and it is almost impossible to imagine any contract or any circumstances attending the infraction of one by a foreign government which would induce Congress to confer such an authority upon the President. ''12 Other reasons in justification of the rule were given by Mr. Taft's predecessor in office. President Roosevelt, in a message to the Senate, February 15, 1905, made the following statement: Except for arbitrary wrong, done or sanctioned by superior authority, to persons or to vested property rights, the United States Government, following its traditional usage in such cases, aims to go no further than the mere use of its good offices, a measure which frequently proves ineffective. On the other hand, there are governments which do sometimes take energetic action for the protection of their subjects in the enforcement of merely contractual claims, and thereupon American concessionaires, supported by powerful influences, make loud appeal to the United States Government in similar cases for similar action. They complain that in the actual posture of affairs their valuable properties are practically confiscated, that American enterprise is paralyzed, and that unless they are fully protected, even by enforcement of their merely contractual rights, it means the abandonment to the subjects of other governments of the interests of American trade and commerce through the sacrifice of their investments. . . Thus the attempted solution of the complex problem by the ordinary methods of diplomacy reacts injuriously upon the United States Government itself, and in a measure paralyzes the action of the Executive in the direction of a sound and consistent policy.13 It is evident, however, that the Hukuang Railway Loan and the Currency Reform Loan to China were not regarded as ordinary contracts between private American citizens and a foreign government. President Taft regarded the group of American bankers as "the indispensable instrumentality" for carrying out a broad policy of great national interest, 11 Moore, International Law Digest, Vol. VI, p. 705. 13 Moore, International Law Digest, Vol. VI, p. 289. 14 Annual message, Dec. 7, 1909, Congressional Record, Vol. 45, Part I, p. 28. 14 and throughout his official utterances on the subject he stressed the political importance of these loans in China. This phase of the transactions was also duly appreciated by America's European partners and unfortunately the political aspects became the chief object of the negotiations between the interested governments. After an unedifying exchange of diplomatic correspondence, the Hukuang railway was divided into sections between officials and markets of the nationalities of the respective lenders for construction purposes and the furnishing of materials. The Currency Reform Loan negotiations developed into a sharp diplomatic struggle over the appointment by the lending powers on the basis of nationality of inspectors in the salt gabelle, advisers in the Bureau of Audits and a Director of Foreign Loans, after they had vetoed the Chinese appointment of "neutral" officials to these positions on the basis of ability irrespective of nationality. Telegraphing on this subject to the Department of State on February 21, 1913, Minister Calhoun said: "To my mind it is no longer a question of friendly international cooperation to help China but a combination of big powers with common interests to accomplish their own selfish political aims." Secretary of State Knox replied on February 27, 1913, deprecating the introduction of political issues into the loan negotiations. "Experience has shown," he said, "the wisdom of surrounding such loans to China with adequate safeguards of supervision, not only as a reasonable measure of protection for the interests of the lenders and of the ultimate bondholders but also as a necessary means of upholding China's credit and avoiding the possible consequences of default in her financial obligations, which are already pressing. The Department has, however, consistently held that the Chinese Government must be left free to accept or decline a loan on the conditions proposed, and the American group of bankers interested in the loan negotiations have likewise held the same views. ''15 Such was the status of the negotiations when President Wilson assumed office on March 4, 1913. Under the working of the American political system, all national policies, including foreign policy, are dependent upon the views of the administration for the time being in power, and the American group very naturally desired to know whether the new administration would continue to regard them as an indispensable instrumentality of governmental policy in the Far East or whether they would be relegated to the non-preferred position of ordinary private citizens holding a contract with a foreign government. The fact that their contract had been negotiated at the suggestion of the government and through its diplomatic support could not raise it to the solemnity and legal effect of a treaty binding upon the government regardless of the administration in power, as in the case of the loan to Santo Domingo under the Receivership Convention with the United States Government. 15 Foreign Relations, 1913, pp. 164, 166. Therefore, on the day following the inauguration of President Wilson, the American group addressed a letter to the Secretary of State, referring to the Chinese loan negotiations "upon which this group entered originally at the request of the Department of State, and in which we have continued with its approval and under its direction," and respectfully requested that the Department let the group know its wishes as to the future conduct of the negotiations. On March 18, 1913, President Wilson issued to the press "a declaration of the policy of the United States with regard to China," in which, after reciting that the American bankers "declared that they would continue to seek their share of the loan under the proposed agreements only if expressly requested to do so by the government, he stated that "the administration has declined to make such request, because it did not approve the conditions of the loan or the implications of responsibility on its own part which it was plainly told would be involved in the request." President Wilson's statement continued: The conditions of the loan seem to us to touch very nearly the administrative independence of China itself; and this administration does not feel that it ought, even by implication, to be a party to those conditions. The responsibility on its part which would be implied in requesting the bankers to undertake the loan might conceivably go to the length in some unhappy contingency of forcible interference in the financial, and even the political, affairs of that great oriental state, just now awakening to a consciousness of its power and of its obligations to its people. The conditions include not only the pledging of particular taxes, some of them antiquated and burdensome, to secure the loan, but also the administration of those taxes by foreign agents. The responsibility on the part of our government implied in the encouragement of a loan thus secured and administered is plain enough and is obnoxious to the principles upon which the government of our people rests. President Wilson's statement was immediately communicated to the interested governments and the American group promptly announced its withdrawal from the loan.16 Thus through the action of President Taft's administration in urging China to admit the European bankers to the Currency Reform Loan which China had sought to place solely in the United States, and of President Wilson, in withdrawing American support after the loan had been negotiated with the Sextuple Consortium, China was thrown upon the very lenders whom she had sought to avoid and was being pressed with conditions of a foreign loan which the Peking Daily News of March 25, 1913 stated China would never accept unless under compulsion." A few days after the publication of President Wilson's statement, namely, March 25, 1913, the Chinese Minister called at the State Department and 16 The complete statement of President Wilson, together with the statement of the bankers announcing their withdrawal from the loan, is printed in an editorial in this JOURNAL, Vol. 7, 1913, pp. 335-341. 17 Foreign Relations, 1913, p. 175n. informed the Acting Secretary of State that he "had received special instructions from President Yuan Shih Kai to make formal expression of the thanks of the people of China and of their appreciation of the just and magnanimous attitude of President Wilson indicated in the public statement recently issued by him which was accepted by the Chinese Government as an expression of sincere friendship toward the Republic and people of China."'18 A few months later Mr. E. T. Williams, the American Chargé d'Affaires at Peking, in a despatch dated July 11, 1913, requested instructions as to the attitude to be taken by the Legation towards financial transactions between American capitalists and the Chinese Government. He stated that he had several times recently been approached by prominent Chinese officials and others with inquiries for American financiers who might be willing to make loans to the Chinese Government for industrial or administrative purposes, and that in discussing these problems with American business men he had been asked whether the American Government would give its support to these enterprises. Mr. Williams explained that many industrial enterprises in China are either wholly or partially owned by the government and that nearly all railway construction is carried or under contracts with the government. Participation in such enterprises, Mr. Williams said, concerns also the future of American trade "because concessions obtained now will secure for the nations obtaining them the Chinese market for the machinery and other supplies needed in the development of the concessions. Once supplies of a certain type are introduced they tend to become standard and the sale of other sorts becomes very difficult." The central and provincial governments are often in need of money for administrative purposes which can only be obtained by loans secured upon the national or local taxes. "It is evident," Mr. Williams stated, "that financial transactions between American citizens and the Chinese Government are altogether different from such transactions between individuals or business firms. When difficulties occur in connection with the latter, suits may be brought by American plaintiffs in Chinese courts in which our consular representatives have a right to sit as associates to see that justice is done and the treaty rights of their nationals protected; and in cases where Americans are defendants the American consular courts or the United States Court for China have jurisdiction. Should the Chinese Government, however, default in its engagements with 18 For this and other documents relating to the withdrawal of the American group from the loan, see Foreign Relations, 1913, pp. 167 et seq. For an official Chinese criticism of the terms of this loan, see translation of the letter of the Chinese Minister of Finance to the Sextuple Group, dated March 11, 1913, p. 169; see especially also the despatch of Mr. Williams, American Chargé at Peking, Oct. 21, 1913, regarding the reluctance of China to place a further loan with the quintuple group and her desire to place such a loan with American capitalists, p. 189. |