893.6363/11–1049
Memorandum of Conversation, by Mr. Richard E. Johnson of the Office of Chinese Affairs
Subject: Proposed Sale by the Navy of Lub Oil for Vessels Sold China under PL–512.49
I discussed this proposed sale with Captain Floyd of the Navy who pointed out that under the terms of PL–512 and the implementing Executive Order 9843,50 the Secretary of the Navy is authorized to transfer materials to the Chinese Navy which he deems necessary for the operation of vessels transferred under PL–512, on a cash reimbursable basis. This authority is however subject to the approval of the Secretary of State, if he determines the transfers to be in the public [Page 590] interest. These transfers may be made for a period of five years from the date of enactment of PL–512 or until July 15, 1951. Captain Floyd concluded that the proposed sale would thus appear to be fully covered by legislative authority, and stated that the Navy was perfectly agreeable to concluding a contract, provided Secretary of State determined the sale to be in the public interest. He pointed out that no transfers of maintenance materials had been made under PL–512 for some time and presumed that approval of this sale would lead to further requests of the same sort, perhaps for diesel oil or gasoline, in the future—providing the Chinese can scrape up the necessary dollars.
He added that the fuel would probably come from commercial refineries at Richmond, California or Houston, Texas, and that under the standard Navy contract the Navy would assume the responsibility for delivery of the fuel to Formosa. He was unable to suggest exactly why the Chinese are anxious to get this lub oil through the Navy, since procurement from commercial sources in the United States and cash reimbursement in dollars are involved in any case, but remarked that possibly the Chinese believed they could obtain delivery more quickly and at a lower cost through United States Government sources.
Captain Floyd indicated that he was most anxious to obtain a prompt response from the Department and I told him we would try to have an answer this afternoon.