Comment. The views of the National Military Establishment were presented to the National Security Council in its deliberations preceding the issuance of the President's statement. These views presumably included those of the component parts of the National Military Establishment.

Question 1 (c)

Is Hainan included in the policy enunciated in said statement?

Comment. Certain portions of the President's statement refer specifically to Formosa. Other portions apply clearly to all areas of China including Hainan. For example, the statements "The United States has no predatory designs on Formosa or on any other Chinese territory . . . the United States will not pursue a course which will lead to involvement in the civil conflict in China" are of general application. The statement "Similarly, the United States Government will not provide military aid or advice to Chinese forces on Formosa" applies to all forces under the Chinese Government high command which is located on Formosa regardless of the present deployment of those forces.

Question 1 (d)

Have the following been considered by the Executive as alternatives to the policy enunciated in said statement?

(1) Insistence on the execution of the terms of the Cairo Declaration, which provided for the return of Formosa to the Republic of China.

Comment. This cannot properly be considered an alternative to the policy enunciated by the President. The President's statement of January 5, 1950 contained a reaffirmation of the Cairo Declaration on the part of the United States in respect to the disposition of Formosa. Formosa has been administered since 1945 by China, the surrender of Japanese forces on Formosa having been made to Generalissimo Chiang Kai-shek.

(2) Consideration of Formosa as a possession of Japan to be administered by the victor powers until eventual disposition under a peace settlement with Japan.

(3) A plebiscite in Formosa, under the auspices of the Far Eastern Commission or a special commission of the UN, to determine whether the inhabitants desire(a) to continue as a province of and the seat of government of the Republic of China; (b) to be placed under a United Nations trusteeship; or (c) to become an independent nation.

Comment. These alternatives were considered. As has been noted under (1) above, Formosa has been administered by China since 1945, when Japanese forces on the island surrendered to Generalissimo Chiang Kai-shek. It was incorporated into China as a province. It is now the seat of the Chinese Government. The Allied Powers associated in the war against Japan have not questioned these steps. The United States Government has not questioned these steps because they were clearly in line with its commitments made at Cairo and reaffirmed at Potsdam. In other words, the Allied Powers including the United States have for the past 4 years treated Formosa as a part of China.

For the United States Government, at this date, to seek to establish a nonChinese administration on Formosa, either through SCAP or a United Nations or FEC-sponsored plebiscite, would be almost universally interpreted in mainland China and widely interpreted throughout Asia as an attempt by this Government to separate Formosa from China in violation of its pledges and contrary to its long-standing policy of respecting the territorial integrity of China. The important point from the standpoint of our interests in Asia, including mainland China, is not the technical justifications which we might urge for taking such steps but rather the way such action on our part would be viewed by the people of Asia. In this connection we do not wish to create a Formosa irredentà issue about which the Chinese Communists could rally support within China and with which they could divert attention from Soviet actions in the North. We must not place ourselves in the unenviable position of the U.S.S.R. with regard to the integrity of China and must remain free to take the position that anyone who violates the integrity of China is the enemy of China and is acting contrary to our own interests.

These are compelling reasons for rejecting the alternatives stated above. There are, of course, additional practical difficulties. The seat of the Chinese Government is now on Formosa and that island, with Hainan, is the only remain

ing substantial territory now under its control. There is no evidence that the Chinese Government would willingly accomplish its own demise by acquiescing in either of the proposed alternatives. There is likewise the question of military force to carry out the course of action proposed if the Chinese Government refuses its consent, and to defend the island if either proposal were effected. The United Nations, of course, has no forces and it seems clear that any defense of the island would finally rest upon the United States.

In any case the conduct of a plebiscite for the purpose of determining the wishes of the inhabitants on the future disposition of Formosa is beyond the competence of the Far Eastern Commission. The Far Eastern Commission by its terms of reference is "to formulate the policies, principles, and standards in conformity with which the fulfillment by Japan of its obligations under the terms of surrender may be accomplished." The terms of reference also provide that "the Commission shall not make recommendations with regard to the conduct of military operations nor with regard to territorial adjustments."

Question 1 (e) (1)

Does the Executive have information as to alternate sources of essential commodities such as rice and iron ore to replace Formosa and Hainan as sources of these commodities for Japan in the event of the capture of these islands by the Chinese Communists?

Comment. In recent years Japan has procured only iron ore from Hainan, in the amount of between 200,000 and 300,000 tons in 1948 and 1949 together. This amount was obtained largely from wartime stocks mined by the Japanese and Hainan's potential rate of current production is not large enough to present a problem of alternative sources. Formosa has exported no rice and no iron ore to Japan in recent years. It was formerly a source of rice for Japan, but recent increases in population and declines in production have been obstacles to export of rice to Japan since the war. The major commodity exported since the war from Formosa to Japan is sugar, and this has represented from one-sixth to one-fifth of total Japanese sugar imports. The Philippines and Indonesia would be adequate alternative sources of supply. It is probable that Japan could procure from these sources under balanced-trade arrangements, as much or more as it has imported from Formosa. Such arrangements would raise the total level of Japan's trade with these countries. Formosa is also a source of small quantities of salt for Japan; alternative sources are available, particularly in the Red Sea area.

The capture of these islands by the Communists would not necessarily eliminate them as sources of supply of commodities for Japan. Whether the Communists would be willing to engage in such trade upon acceptable terms cannot be predicted.

Question 1 (e) (2)

Does the Executive have information as to the factor of additional cost of the occupation of Japan to the United States in the event of capture of Formosa and Hainan by the Chinese Communists?

Comment. The extent to which elimination of Hainan and Formosa as sources of commodities for import into Japan would adversely affect Japan's balance of international payments and thus create additional United States occupation costs cannot be predicted with accuracy. Formosan sugar has generally been priced above the world-market price. It is probable that sugar can be procured elsewhere under balanced trade arrangements which will not impair Japan's balance of payments. For example, Philippine sugar is available to Japan at the world-market price. Procurement of iron ore and salt from alternative sources would not present a problem of major importance. Accordingly, the capture of Formosa and Hainan by the Communists would not greatly increase the cost to the United States, if at all, of defraying the deficit in Japan's payments.

1 See Part II of the Moscow Communiqué of Dec. 27, 1945; A Decade of American Foreign Policy, pp. 60–62.

Question 1 (f)

Has any recent survey of the defense resources of Formosa been made by any agency of this Government?

Comment.-Information on Formosa's defense resources is received constantly from the United States reporting officers in the field and is subject to continual review and assessment by the intelligence agencies. In general, it is considered that the available material resources are adequate for the defense of Formosa, provided that they can be mobilized by the Chinese Government and put to effective use by its military forces.

Question 1 (g)

In

For what purposes and in what amounts has assistance been rendered to Formosa under the present Economic Cooperation Administration program, which, in the words of the statement, "the United States Government proposes to continue"? this connection, what steps have been taken and what sums have been spent in (1) the $17,000,000 capital improvement program which was contemplated for Formosa at the time of the consideration of legislation to extend the China Aid Act 2 in March 1949; and (2) the land-tenure reforms and similar welfare-improvement measures carried out by the Provincial government of Formosa with the advice and assistance of the Joint Čommission for Rural Reconstruction? 3

Comment.-United States aid from appropriated funds to Formosa under the ECA program had amounted to approximately 18.5 million dollars by December 31, 1949. This figure includes the value of all commodities delivered, en route and scheduled for shipment to Formosa as well as actual payments for services. It does not include appropriated funds used for ECA administrative expenses and for the JCRR program relating to Formosa. An accounting break-down of these expenses as between the Chinese mainland and Formosa is not available at this time. Nor does the total aid figure include expenditures from counterpart funds for local currency costs of ECA administration or the JCRR program. (The latter is discussed under (g) (2) below.)

There follows a list of the commodities and services for which the 18.5 million dollars has been obligated.

Wheat and flour

Cotton

(Millions of United States dollars)

Petroleum

Fertilizer

Miscellaneous freight

Technical services

Question 1 (g) (1)

The $17,000,000 capital improvement program.

0. 1

1.6

5.4

9.0

1.7

0.7

18. 5

The item for technical assistance indicated in the above table includes the cost of preliminary engineering surveys on a variety of industrial and transportation projects of the type for which the $17,000,000 capital improvement program was contemplated in March 1949. None of the funds thus tentatively allocated, however, have been used thus far to initiate actual procurement of equipment for such projects.

This suspension of the capital improvement aspect of the ECA program for Formosa was based on two developments which had their immediate origin in the rapid Chinese Communist advance to the Yangtze River in the spring of 1949 and the equally rapid flight of the Chinese National Government and its armies. Large numbers of civilian and military personnel took refuge on Formosa and this influx continued until the Chinese Government abandoned the mainland in

1 See agreements of July 3, 1948 (TIAS 1837; 62 Stat., pt. 3, p. 2945), Mar. 2631, 1949 (TIAS 1923; 63 Stat., pt. 3, p. 2425); and Jan. 21-31, 1950 (TIAS 3077; 5 UST 2154).

2 Act of Apr. 3, 1948; A Decade of American Foreign Policy, pp. 713-715. 3 See_agreements of Aug. 5, 1948 (TIAS 1848; 62 Stat., pt. 3, p. 3139) and June 27, 1949 (TIAS 1975; 63 Stat., pt. 3, p. 2702).

the late fall of 1949. The consequences of this unplanned mass migration were considerable confusion in the administration of the island and the creation of strong inflationary pressures through increased demands levied on Formosan resources by the new nonproductive population.

It would have been highly impractical, to say the least, to have launched large-scale capital-investment projects in the face of such unstable administrative and economic circumstances. Even if the administrative difficulties could have been overcome, the immediate inflationary impact of local currency expenditures necessary for installation of imported capital equipment might well have seriously impaired the Formosan economy. This continues to be an important consideration governing the rate and magnitude of United States assistance for capital improvement projects on Formosa.

Moreover, it was considered that, in the light of all circumstances, political and military as well as economic, the danger that Formosa might go the way of the mainland was such as not to warrant United States Government assistance for the creation of substantial new industrial and transportation facilities on the island. On the other hand, United States aid to help meet the current economic needs of the island was continued; technical advice was extended to assist in the more effective operation of the island's capital plant; ECA supported the program of the Joint Commission on Rural Reconstruction designed to improve agricultural productivity and bring about greater social stability among the rural population. The United States Government took the position, however, that United States grants for permanent additions to the island's wealth should be contingent on a clear showing that the Chinese Government was able to employ its resources in such a manner as to ensure (a) progress toward economic and political stability and (b) the effective defense of Formosa should it be attacked. This criterion applies with equal validity to present implementation of the ECA program. Question 1 (g) (2)

Status of JCRR program in Formosa, Dec. 31, 1949
[Thousands of United States dollar equivalents of local currency]

Agricultural improvement: Projects in cooperation with the Provincial bureau of Agriculture and forestry, for production of hog-cholera vaccine, multiplication and extension of improved rice seeds, repair of retting ponds for jute and hemp, construction of compost houses, and multiplication and extension of stock cattle. Farmers' organizations: Project for training staff members of farmers' association, in cooperation with the Provincial bureau of agriculture and forestry.

Irrigation: Projects for irrigation and reclamation of several areas of the island in cooperation with the local authorities.

Rural health: Projects for rehabilitation of rural water supply plants, malariacontrol research and training of antimalaria workers, and disease-control demonstration in cooperation with the public works and health bureau of the Provincial government and with local research institutes.

Land-tenure reform: Projects for farmers' rent reduction and land reclassification in cooperation with the land bureau of the Provincial government.

Audio-visual education: Projects for dissemination of posters and showing of film strips on subjects connected with the other program categories.

Question 2

With respect to the current situation in China and the Far East

(a) What are the numbers and types of vessels and craft transferred to China under the agreement of December 8, 1947? What balance remains to be transferred? Comment. The December 8, 1947 agreement between the United States and China contained a proposed list of 138 naval vessels to be transferred to the Chinese Government. A total of 131 such vessels have been transferred under this agreement. A list of these vessels, as given in the White Paper,2 page 942, follows:

A break-down by type of the above transfers is as follows:

1 TIAS 1691; 61 Stat., pt. 4, p. 3618.

i. e., United States Relations with China, with Special Reference to the Period 1944-1949 (Department of State publication 3573; 1949).