The proposals of Secretary Lansing for the formation of the consortium met with the approval of the British, French and Japanese Governments, and the negotiation by the international bankers of the terms of the consortium took place at Paris coincident with the meeting of the Peace Conference. A draft agreement was drawn up on May 12, 1919 and submitted for the approval of the respective governments. Two obstacles arose, however, which prevented the prompt approval of the draft bankers' agreement.

The first obstacle related to the measure of diplomatic support to be accorded to the banking groups by their respective governments. The draft agreement recited that the groups "are entitled to the exclusive diplomatic support of their respective governments." In Mr. Lansing's memorandum of October 8, 1918, outlining his plan to the other governments, he stated that it was intended to include in the membership of the national groups all financial firms of good standing interested in administrative and industrial loans to China and that the interested governments should withhold their support from independent financial operations without previous governmental agreement. Mr. Lansing stated that thirty-one banks representative of all sections of the country had joined the American group. The British Foreign Office, in its note of March 17, 1919, accepted this proposal and offered exclusive support to the British group on condition that it was enlarged in such a manner as to render it sufficiently representative of the financial houses of good standing interested in Chinese loans to prevent criticism on the ground of exclusiveness.

On June 7, 1919, however, the British Government informed the State Department that it could not extend its exclusive support to the British group "as the latter have hitherto failed to comply with the conditions on which alone His Majesty's Government are prepared to guarantee exclusive official support."25

The French Government also expressed its inability to extend exclusive support to the French Group. Its reasons may best be expressed by quoting from the note of the French Foreign Office to the American Ambassador at Paris, dated June 20, 1919, as follows:

You are no doubt aware that both in France and England the groups whilst admitting new members have for various reasons excluded firms with important interests in China. New enterprises may, moreover, at

25 In a letter of June 4, 1919, the Hongkong and Shanghai Banking Corporation, when informing the Foreign Office that they considered the British group as at present constituted fully representative of British finance, stated that "they are well content with the general measure of government support which they at present enjoy and have no desire to change it for any other. Their sole object in assenting to the conditions attached to exclusive support was to further the policy of His Majesty's Government with regard to the American consortium proposal, of which exclusive support was a postulate." For the full correspondence between the British group and the Foreign Office, see Miscellaneous, No. 9, pp. 12-36.

any time spring up desirous of carrying on business in China, but not disposed to enter the consortium just as the consortium may possibly not be disposed to admit them. Now, there is nothing in French law which permits the limitation of the individual activity of private persons nor that of financial and industrial companies, nothing which permits the restriction of their activities in China or in any other part of the world. It follows that the consortium, not having united and being indeed practically speaking unable to unite all the French interests which operate or which may some day desire to operate in the territory of the Chinese Republic, could not claim the exclusive support of the French Government. The principles of our public law as well as parliamentary opinion would not allow us to grant it a sort of monopoly. Besides, you are aware that at the time of the formation of the old consortium it was not accorded any privilege in law or in fact, and its founders simply relied on the financial strength of the organization, the resources of the participating concerns and the co-ordination of their efforts to obtain for themselves the preponderating position in the Chinese market, which they have not ceased to enjoy. It is on these intrinsic elements of success, rather than on legal privileges, that the new consortium should base its prospects.26

The American State Department seems to have held itself competent and to have been willing to guarantee exclusive support to the American group, but in order to obtain the approval of France and Great Britain it proposed and they accepted the following formula in lieu of the provision objected to:

The Governments of each of the four participating groups undertake to give their complete support to their respective national groups members of the Consortium in all operations undertaken pursuant to the resolutions and agreements of the 11th and 12th of May, 1919, respectively, entered into by the Bankers at Paris. In the event of competition in the obtaining of any specific loan contract the collective support of the diplomatic representatives in Peking of the four Governments will be assured to the Consortium for the purpose of obtaining such contract.

A more serious obstacle to the approval of the draft agreement arose from the attempt of Japan to exclude certain parts of Manchuria and Mongolia from the operation of the consortium. Such exclusion was proposed at Paris on June 18, 1919 by the representative of the Japanese group and was confirmed by the Japanese Embassy at Washington on August 27, 1919, which offered to accept the draft agreement of May 12, 1919 with the following proviso: "Provided, however, that the acceptance and confirmation of the said resolution shall not be held or construed to operate to the prejudice of the special rights and interests possessed by Japan in South Manchuria and Eastern Inner Mongolia."

The attempt to exclude these regions was immediately protested by the American State Department and the British Foreign Office. Secretary Lansing, in a memorandum of October 28, 1919, stated that the

American Government "can only regard the reservation in the form proposed as an intermixture of exclusive political pretensions in a project which all the other interested Governments and groups have treated in a liberal and self-denying spirit and with the purpose of eliminating so far as possible such disturbing and complicating political motives; and it considers that from the viewpoint either of the legitimate national feeling of China or of the interests of the Powers in China it would be a calamity if the adoption of the Consortium were to carry with it the recognition of a doctrine of spheres of interest more advanced and far-reaching than was ever applied to Chinese territory even when the break-up of the Empire appeared imminent." Mr. Lansing pointed out that the inter-group agreement of May 12 specified that only those industrial undertakings are to be pooled upon which substantial progress has not been made and that "if Japan's reservation is urged with a view solely to the protection of existing rights and interests, it would seem that all legitimate interests would be conserved if only it were made indisputably clear that there is no intention on the part of the Consortium to encroach on established industrial enterprises."

The Japanese Government replied on March 2, 1920 denying that its proposal was prompted by a "desire of making any territorial demarcation involving the idea of economic monopoly or of asserting any exclusive political pretentions or of affirming a doctrine of any far-reaching sphere of interest in disregard of the legitimate national aspirations of China, as well as of the interests possessed there by the Powers concerned," but asserting that "the regions of South Manchuria and Eastern Inner Mongolia which are contiguous to Korea stand in very close and special relation to Japan's national defense and her economic existence," that "enterprises launched forth in these regions often involve questions vital to the safety of the country," and that these circumstances "compelled the Japanese Government to make a special and legitimate reservation indispensable to the existence of the State and its people." The Japanese memorandum then proposed a new formula of acceptance of the consortium which stated that "in matters relating to loans affecting South Manchuria and Eastern Inner Mongolia which in their opinion are calculated to create a serious impediment to the security of the economic life and national defense of Japan, the Japanese Government reserve the right to take the necessary steps to guarantee such security," and appended a list of Japanese undertakings and options to be excluded from the activities of the Consortium. An identical memorandum was presented to the British Foreign Office on March 16, 1920. Since the replies to these memoranda have been accepted by Japan as an integral part of its acceptance of the consortium, the relevant portions of the American reply on March 16, 1920 is quoted textually. After stating that the right of national self-preserva

tion is one of universal acceptance which does not require specific formulation and "that the recognition of that principle is implicit in the terms of the notes exchanged between Secretary Lansing and Viscount Ishii on November 2, 1917," the American memorandum states:

This Government therefore considers that by reason of the particular relationships of understanding thus existing between the United States and Japan, and those which, it is understood, similarly exist between Japan and the other Powers proposed to be associated with it in the Consortium, there would appear to be no occasion to apprehend on the part of the Consortium any activities directed against the economic life or national defense of Japan. It is therefore felt that Japan could with entire assurance rely upon the good faith of the United States and of the other two Powers associated in the Consortium to refuse their countenance to any operation inimical to the vital interests of Japan.

Similar assurances were given by Great Britain on March 19, 1920, and by France on May 25, 1920.

With reference to the specific undertakings in Manchuria and Mongolia which Japan proposed to exclude from the operations of the consortium, both the United States and Great Britain filed objections and proposed that this question be settled in negotiations between representatives of the American and Japanese banking groups.

In memoranda dated April 3 and May 8, 1920, to the Department of State, and April 14 and May 10, 1920, to the British Foreign Office, Japan, after stating that she put forward her proposal "in order to make clear the particular position which Japan occupies through the facts of territorial propinquity and of her special vested rights," accepted the foregoing assurances in lieu of her formula, and authorized the Japanese banking group to enter the consortium on the same terms as the other groups and to settle with those groups the concrete questions as to which of the options Japan possesses in Manchuria and Mongolia were to be excluded from the consortium. The negotiations between the two groups were concluded at Tokio on May 11, 1920 and resulted in the following agreement:

1. That the South Manchurian Railway and its present branches, together with the mines which are subsidiary to the railway, do not come within the scope of the Consortium;

2. That the projected Taonanfu-Jehol Railway and the projected railway connecting a point on the Taonanfu-Jehol Railway with a seaport are to be included within the terms of the Consortium Agreement;

3. That the Kirin-Huining, the Chengchiatun-Taonanfu, the Changchun-Taonanfu, the Kaiyuan-Kirin (via Hailung), the Kirin-Changchun, the Sinminfu-Moukden and the Ssupingkai-Chengchiatun Railways are outside the scope of the joint activities of the Consortium.

So far as the published correspondence discloses, the first communication to the Chinese Government regarding the consortium was made on September 28, 1920, in a joint note of the American, British, French

and Japanese Legations at Peking, setting forth its scope and object. China was told that "in the course of 1918 the United States Government informed the other three governments in question of the formation in the United States of America of an American group of bankers for the purpose of rendering financial assistance to China;" that "the principles underlying the formation of the American group were that all preferences and options for loans to China held by any members of this group should be shared by the American group as a whole and that future loans to China having a governmental guarantee should be conducted in common as group business, whether these loans were for administrative or for industrial purposes;" and that the financial groups of the four Powers had agreed upon a draft arrangement embodying inter alia the principles of the American proposals, which arrangement "relates to existing and future loan agreements involving the issue for subscription by the public of loans having a Chinese Government guarantee subject to the proviso that existing agreements for industrial undertakings upon which substantial progress has been made may be omitted from the scope of the arrangement." The measure of support to be given by the respective Governments to their national groups or to the consortium as a whole was stated in substantially the same language as that hereinbefore given, and China was informed that while the new arrangement was not intended to interfere with any of the rights of the old consortium, the proposals envisaged a reconstruction and enlargement of it "so as to meet the larger needs and opportunities of China in a spirit of harmony and of helpfulness rather than of harmful competition and self-interest."

The final text of the consortium agreement was signed at New York on October 15, 1920 and transmitted to the Chinese Government on January 13, 1921. A Belgian banking group was admitted to membership after signature of the agreement. The text of the agreement is printed in the Supplement."

The new consortium differs from the old in one important particular, namely, in that it does not relate to a specific loan but applies with certain exceptions to public loans held or to be obtained by the members. In all operations undertaken pursuant to the consortium the respective governments pledge their "complete support." The meaning of the term quoted is not defined. It is evidently more than the "good offices" which every government is ordinarily prepared to extend to any of its citizens in contract claims.28 The expression doubtless must mean that the gov

27 P. 4.

28''Good offices" consist merely in a direction to the diplomatic agent "to investigate the subject, and if you shall find the facts to be as represented, you will secure an interview with the Minister for Foreign Affairs and request such explanations as it may be in his power to afford."’ (Moore, International Law Digest, Vol. VI, p. 710.)