China has agreed to pay the U.S. governemt $80.5 million in cash to liquidate $197 million in claims against China going back to 1949, Secretary of State W. Michael Blumenthal said today.
The agreement, initialed in a hastily arranged ceremony this morning at the Peking airport before Blumenthal left for Shanghai, should open the way to the full trade agreement that the secretary sought as part of normalization of relations with China.
President Carter authorized Blumenthal late last night to accept the Chinese offer in a congratulatory telegram forwarded by National Security affairs adviser Zbigniew Brzezinski. The settlement compares favorably with others made in the past with Communist countries that have seized assets owned by Americans.
Under the agreement, which Blumenthal labeled "very good and fair," China will make a down payment of $30 million Oct. 1, and pay the rest in five equal installments to be completed on Oct. 1, 1984.
As soon as the first payment is made, the United States will unblock the $80.5 million worth of Chinese assets that have been frozen in the United States. The Chinese are expected to collect what they can from these assets to offset the cash put into the package settlement. Officials on Blumenthal's plane en route here said about $13 million to which China has clear title should be available immediately.
Chinese Finance Minister Chang Ching-Fu told Blumenthal at 7:30 a.m., just as the secretary was preparing to leave for the airport, that he preferred to initial the agreement today. The plan, assuming Carter's approval, had been to sign the agreement in Shanghai this afternoon, officials said.
These officials were elated at the Chinese willingness to put up enough money to provide as much as 40 percent settlement for all claims. "To have tried to settle this on an individual basis would have taken 10 years in litigation," Blumenthal said.
In 1973, former secretary of state Henry Kissinger had agreed in principle to swap the $80.5 million in frozen Chinese assets against the American claims of $196.8 million. But the value of the frozen assets was and is in question.
The Chinese representatives conceded during this week's long and tedious sessions tht not enough could be liquidated to make a settlement that would seem politically acceptable in the United States
"And the Chinese," an official said, "although they do not concede they acted improperly in seizing American assets in China when they came to power in 1949, were anxious as a goodwill gesture to get the claims assets settlement out of the way."
Obviously, the Chinese see the settlement as the transition toward more important bilateral arrangements with the United States.
"The next step down the road is a trade agreement," said a happy senior official on Blumenthal's plane.
As long as the claims issue remained unsettled, Chinese trade, commercial, and banking operations in the United States would have been inhibited. Any claimant in that circumstance could have attached Chinese assets or deposits.
But when the pro rata share of the $80.5 million is paid, the original claims are "wiped out," said Julius Katz, assistant secretary of state for economic affairs. He said the agreement compared most favorably to settlements made earlier on claims relating to Poland, Hungary and Romania. In those cases, claimants also got about 40 percent, but the payments stretched over 20 years.
Sizable claims remain outstanding against the Soviet Union, going back to 1933. At one point, after 20 years of litigation, claimants received $9 million, or only 13 percent of the total outstanding.
Congress does not have to approve the settlement, authorized under the terms of the International Claims Settlement Act.
Blumenthal staff had made an extensive examination of various categories of the $80.5 million frozen assets in the United States. They came to the conclusion that "a clean field," in which China would assume responsibility for paying in the $80.5 million in new cash, while the United States unblocks the assets, was the only reasonable way to settle the issue.
This week in the discussions in Peking, the complexities became even more apparent because the Chinese records on the amounts to which they had clear title were incomplete or unclear.
All of the frozen assets are to be unblocked on Oct. 1, 1979 when the first $30 million payment is made to the U.S. Treasury. American claimants are to get installemtns each year as the Chinese pay their amounts due.
Officials said there would be no point in any American claimant trying to upset the deal, and they dobt that many will try. Under the Claims Settlement Act the government has the right to assign the monies on a pro rata basis, they said. There is an open question whether or not there can be law suits for back interest. The officials said they did not know of any such parallels in the past.
Secretary Blumenthal in a Thursday night banquet at the Great Hall of the People to bid farewell to Peking, underlined in a toast the progress on the claims question but also noted "an auspicious beginning" on the broader trade relationship. Vice Premier Yu Chiu-li responded in kind.
To emphasize that "normalization" will be a long and deliberate process, Blumenthal said that there would be many continuing "visits" back and forth. Vice Premier Yu will shortly visit the U.S. to continue economic talks, while there will be additional missions from the United States, including one representing the Federal Reserve Board.
Just before participating in the changeover of the American liaison office in Peking to a full-fledged embassy, Blumenthal told a group of about 50 American businessmen that China looks to the U.S. not only as a potential market for its goods, "but as the country with the greatest reservoir of know-how and technology."
He gave them an up-beat report on his talks here, saying that a trade agreement, including most favored nation (MFN) status for China, could probably be recommended to Congress this year.
Blumenthal also said that "it is not unreasonable" to think that the U.S. would extend official credits to China" in the context "of an agreedupon trade agreement."
At the businessmen's session, in answer to a question by Pat O'Connor, a Washington lawyer, Blumenthal said there had been "a particularly good discussion" of joint ventures with the Chinese -- that is, shared equity arangements. But, he said, the Chinese are still feeling their way on the subject.